Mergers in Aviation Sector in India

Topics: Airline, Jet Airways, Indira Gandhi International Airport Pages: 7 (2366 words) Published: February 26, 2012
Mergers & Acquisition Assignment

Mergers in Aviation Sector

Table of Content

Indian Aviation Industry:3
Market size4
Aviation - Market Players5
Aerospace on a High6
Jet–Sahara deal:7
Viewpoint of Jet Airways:7
Viewpoint of Air Sahara:9
Beneficial to both10

Indian Aviation Industry:
The history of the aviation industry in India can be traced back to the year 1912 when the first air flight between Karachi and Delhi was started by the Indian State Air Services in collaboration with the UK based Imperial Airways. The Government of India nationalized nine airline companies wide the Air Corporations Act, 1953. Accordingly it established the Indian Airlines Corporation (IAC) to cater to domestic air travel passengers and Air India International (AI) for international air travel passengers. The assets of the existing airline companies were transferred to these two corporations. This Act ensured that IAC and AI had a monopoly over the Indian skies. In 1994, IAC was renamed Indian Airlines (IA). In the same year, the Indian Government, as part of its “open skies” policy, ended the monopoly of IA and AI in the air transport services by repealing the Air Corporations Act of 1953 and replacing it with the Air Corporations (Transfer of Undertaking and Repeal) Act, 1994. Private operators were allowed to provide air transport services. Foreign direct investment (FDI) of up to 49 percent equity stake and NRI (Non Resident Indian) investment of up to 100 percent equity stake were permitted through the automatic FDI route in the domestic air transport services sector. However, no foreign airline could directly or indirectly hold equity in a domestic airline company. By 1995, six private airlines accounted for more than 10 percent of the domestic air traffic.

But in the next couple of years, only Jet Airways and Sahara managed to survive the competition; NEPC Airlines, East West Airlines, ModiLuft Airlines, Jagsons Airlines, Continental Aviation, and Damania Airways lost out. IA, which had dominated the Indian air travel industry, began to lose market share to Jet Airways and Sahara, which provided better services India is one of the fastest growing aviation markets in the world. With the liberalization of the Indian aviation sector, the industry had witnessed a transformation with the entry of the privately owned full service airlines and low cost carriers. As of Dec. 2009, private carriers accounted for around 80% share of the domestic aviation market. The sector has also seen a significant increase in number of domestic air travel passengers. Some of the factors that have resulted in higher demand for air transport in India include the growing middle class and its purchasing power, low airfares offered by low cost carriers, the growth of the tourism industry in India, increasing outbound travel from India, and the overall economic growth of India.

Market size

India's domestic aviation market expansion has been the strongest in the world - tripling in the past five years, according to the International Air Transport Association’s (IATA) report. India is currently the ninth largest aviation market in the world, according to a RNCOS report “Indian Aerospace Industry Analysis”. The Government's open sky policy has attracted many foreign players to enter the market and the industry is growing in terms of both players and the number of aircrafts. Given the strong market fundamentals, it is expected that the aviation market will register a compound annual growth rate (CAGR) of more than 16 per cent during 2010-2013. India's domestic air traffic grew at a rate, which is the second highest after Brazil, according to global figures for June 2011, compiled by IATA. The country's domestic traffic grew by 14 per cent in the same period as against Brazil's 15.1 per cent. Indian airlines reported a continuous growth trend and a strong domestic passenger growth...

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