Indian aviation takes-off: consolidation follows

Bundeep Singh Rangar
16 May 2007

The emerging segment of low-cost airlines and falling prices of air-tickets in India has triggered the demand for air travel and led to the booming growth of the aviation sector, creating conditions for a consolidation through M&As. Bundeep Singh Rangar, chairman of the UK-based India-focused cross-border advisory firm, IndusView

The aviation sector in India has seen great traction in the last couple of years. Indian companies had placed orders worth more than $31 billion till last year and additional orders worth more than $3 billion were placed at the 45th Farnborough International Air-show in Farnborough, UK.

The recently concluded sixth Aero India 2007 (See: Aeroshows / Exhibitions : Aero India 2007 attracts record foreign participation) air-show, Asia's premier biennial air show held in Bangalore at the Yelahanka Air Force Base highlighted the growing significance of the Indian Aviation market to global aviation companies and suppliers.

While the Aviation sector order book indicates the growing demand for air-travel in the country, the $322 million purchase of Air Sahara by Jet Airways, India's largest private sector airline, signifies the start of consolidation in the sector that's expected to grow 20 per cent over the next five years. India will need as many as 852 additional aircrafts over the next two decades worth more than $72 billion to meet the growing demand for air travel.

The merger will increase Jet's market share by 8 per cent for a total of 33 per cent. Jet will have a combined fleet of more than 80 aircraft and garner more landing rights and secure many sought-after international routes.

The Jet-Sahara deal, the largest so far in the Indian aviation sector, reminds of Air France-KLM that was created by the merger between French airline Air France and Netherlands-based KLM in May 2004. The merger created the largest airline company in the world in terms of total operating revenues, and the third largest in the world (the largest in Europe) in terms of passenger-kilometres.

Creating a large entity is one thing but making the venture profitable is another proposition altogether. Air France-KLM is one of the most profitable companies in Europe, in sharp contrast with American Airlines, the largest airline in the United States, which had difficulty in managing the merger of Trans World Airlines (TWA) with itself in April 2001.