The high profile acquisition of Air Sahara by Jet Airways may be called off, if the government does not give security clearance by 22 June to Naresh Goyal, chairman, Jet, to head the board of Air Sahara. Jet Airways has not responded officially and reports quoting Jet sources indicate that the airline is still waiting for the clearance.

It is learnt that the government has given security clearance to other nominees of Jet Airways to join the Air Sahara board.

It is intriguing why the government has not given security clearance to the chairman of the country''s largest private sector airline to head another airline acquired by his company. Though there have been many allegations in the past about Naresh Goyal and his funding of Jet Airways, the government has always maintained that there is no proof to substantiate such allegations.

Airline industry analysts speculate that Jet is trying to get out of the deal, which has been widely criticised as being too costly for Jet. Air Sahara was valued at $500 million by Jet based on its own market valuation, though the airline does not own any aircraft and has been steadily losing market share.

The share price of Jet Airways has declined substantially from around Rs1,150 when the deal was announced to a low of below Rs600 this month. This drop has made the $500-million valuation of Air Sahara look almost bloated. Air Deccan, another airline stock, which listed this month, has lost around 40 per cent from its issue price.

Another reason why Jet may want to get out of the deal is its inability to raise the finances required. The airline was planning an $800 million overseas issue to fund the Sahara acquisition and purchase of new aircraft. As the share price has declined substantially, an overseas issue now would result in a substantially higher equity dilution.

If Jet Airways pulls out of the deal, it would lose Rs100 crore advanced initially to Air Sahara. The Sahara group is bound to return another advance of Rs500 crore from Jet, if the deal fails.

The Sahara group would be the worst hit if the deal does not go through. Air Sahara has huge accumulated losses and its brand value has declined substantially after the announcement of the deal. The airline has lost many pilots and other key personnel.

It would be extremely tough for the group to attempt a revival, as the group is reportedly facing a severe cash crunch. If the group tries to find another buyer, the valuation, it is speculated, may not even be half of $500 million agreed to by Jet.