Jet-Sahara deal mutually beneficial: Naresh Goyal

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The merger between Jet Airways  and Air Sahara seems finally heading for a takeoff. The head honcho of Jet Airways, Naresh Goyal says that the Jet-Sahara deal is in the mutual interest of both, Jet and Sahara. He adds that the Air Sahara deal is positive for Jet's shareholders.

The deal was struck at Rs 1,450 crore, of which, Sahara already had Rs 500 crore, he confirms. He says that Jet would not be taking any liabilities and debts of Sahara. The net present value of the deal stands at about Rs 1,200 crore. Goyal maintains that Jet will hold a majority stake, which it will not dilute further.

Excerpts from CNBC-TV18's exclusive interview with Naresh Goyal:

Q: What brought you back to the negotiating table with Sahara?

A: We had not really changed our mind even when we went into this deal on January 18, 2006 but unfortunately the conditions precedent were not met and so the agreement expired and got terminated. Then we thought it is in our mutual interest because consolidation and mergers are a reality.

It is going to take place and keeping the overall scenario in India in view, I always believe this will be good for Jet Airways and its shareholders.

Q: At that point in June, you had an option of renewing the agreement. Why did you not think of renewing, what changed between then and now?

A: First of all, it was not a matter of renewal but of an extension; so we did not extend the agreement because the condition precedent were not met.

Everything has changed between June and now. The matter was already in the courts and went to arbitration and both parties decided to go in for arbitration. And arbitration is never healthy abd litigation too is never good for both parties and it is always an uncertainty.

You waste a lot of management time and it is also not good from the investors point of view because of the uncertainty involved. So it was only sensible that both sides looked at it and understood that litigation is bad for both.

Q: Did it take you nine months to really figure out whether you really wanted to get back or not or was there any kind of legal pressure or external pressure to force you into this?

A: There are a number of litigations. I do not think nine months is a long period litigation as the arbitrators only decided because they can only meet on April 9.

Any sensible lawyer will always suggest that it is always better if two parties can settle the matter and the advise given to us was the same - that it is better that both sides find a way to settle the matter outside the courts and the arbitration.

Q: There was no legal pressure. Were you were not on a weaker foot in your case?

A: There is no question of weaker foot because if the agreement was on the basis of conditions precedent, then they were not met. So it is not a question of strong or weak. They were not met, so the agreement got terminated and both sides were in the court. When you go into an agreement, unfortunately, you cannot blame either side, so if there are certain things, which we were expecting to happen that did not happen, that is fine.

Q: It has not been a very rosy road for you in Sahara. Even now, there has been some disagreement on the price that has been paid. They claim that it is a Rs 2000 crore deal, while you claim it is Rs 1450 crore. They say that you have already paid Rs 280 crore over and above Rs 1450 crore. What is the actual value of the deal? What is the enterprise value that you had put to the deal?

A: All this speculation has been from all of you. I do not think I have ever said any number, which was not the one that we had agreed on.

The original price was Rs 2000 crore, now it is Rs 1450 crore and they already had our Rs 500 crore against their personal guarantee, which was with them and the rest had been given to them as a bank guarantee of Rs 1500 crore and against which, Rs 500 crore was with State Bank of India against a collateral and it was blocked.

Then we agreed to pay Rs 1450 crore; out of that Rs 500 crore plus Rs 400 crore because they needed this cash. So, in other words the balance we agreed to pay them Rs 550 crore between now and 2011 which is almost five years.

So if you take the discount and everything else, the net present term in net present value basically comes to about approximately Rs 1200, which is approximately 40% lower than the original price, not because of the litigation, but only because that is how the market is behaving today.

Q: You obviously did pump in about Rs 200 crore at the time when Sahara needed that money to operationally kick start it. Are you are going to pick some current liabilities.? Could you give us or the shareholders the sense of what is the value of those current liabilities?

A: We paid Rs 180 crore; if we did not take it,  that would have gone completely waste; why should we waste and not have anything. We are not taking any liabilities or debts.

It is Rs 1,450 crore; Rs 180 crore was paid in any case, whatever the situation was. So as far as I said net present value comes to Rs 1200 crore approximately if you really take it. I think that it is very good for both parties and is much better than the January 18 price.

Q: What has changed in between?

A: Certain things which we were expecting to come under the policy did not come and you have to respect that in any country. Government makes its own decision but it is good for the country or overall industry. So the government has come with a policy, which actually came on May 11 last year in 2006; so now we have taken what is available and what is not available. 

Also since the agreement had got terminated, today the market has changed, aviation has changed, the airlines are losing money, stock market is down and so in a way though both parties are the same, the conditions and everything else has changed today.

Q: A shareholder value is something that you have been talking about to deliver but ever since the share listed for the last two years, we have been seeing it trading at almost half. So shareholders have really been in the negative territory for a long time and this deal did not get a thumbs up ever since you announced it in January last year and then now, the shareholder has always got a disapproval in a sense. How do you think you can mange shareholders expectations?
 
A: It happens in every industry. Worldwide, all airlines are suffering, the fuel prices have been the big problem, there has been a shortage of man power, pilots, engineers, the salaries have gone up, more airlines have come in, people are stealing from each other. So I am very happy for the employees but I hope, we all stay in business, and people do not lose jobs.

So in any industry, there is always an uncertainty. So it is nothing abnormal.

Q: By when do you think will the shareholders have a reason to smile?

A: I think, we have sensible shareholders, they are people who understand airline business. They always look at a long-term. In any airline business, everything is not running all the time.

In 2007-2008, we are going to make money, so there is no question of not smiling. Shareholders believe and will continue to believe because I believe as I have said to everybody that I own 80%.

If I do not believe in a company, I could have diluted more and made money but we are here to stay in this business and this is the only business we are in and this is our core business. Nobody stopped me from diluting more but I do not want to dilute and we will always continue controlling the majority.