Air Sahara And Jet Airways Merger In India Management Essay

The issue of business growth, in the course of mergers and acquisitions (M&As) is of great interest amongst researchers and practitioners. There are a range of motives for business growth and development. For businesses around the industries, growth is imperative considering the survival strategy (Houston et al, 2001). As well, growth gives confidence to the consumers and stakeholders in the capability of the businesses or companies. There are other likely motives for growth in the forms of profit, cost, revenue and prestige. The means of attaining business growth can crop up in the course of internal or external growth, where in the current environment M&As is found as a fruitful strategy. Houston et al (2001) advocate business growth for companies in the course of M&As for following specific reasons: internally, where the firm invests its own capital to set-up and operates a new venture; where this alternative is generally the principal mode of growth; externally all the way through acquisition or merger; where this alternative is generally used where speed is of the quintessence; and a blend strategy which merges elements of internal and external growth all the way through contractual agreements. On the other hand there are a range of reasons generally identified for involving in M&As. They comprise according to Krishnan and Park (2002) getting synergy, to enter new markets or acquiring market power. Supplementary reasons consist of exploiting scale economies as firm size might as well bring financial economies by advancing access to capital markets and trimming down the cost of capital.

So far as airlines industry is concerned, airlines look for merging with or acquiring other airlines with the intention of enhancing their profitability and financial sustainability, although ought to weigh these prospective benefits against operational and regulatory costs and challenges (Vasigh et al, 2008). The major benefits airlines consider are cost reductions, by joining matching assets, removing duplicate activities, and trimming down capacity and increased revenues from higher fares in current markets and augmented demand for more flawless travel to more destinations.

Notably, the recent years have been unpredictably eventful for Indian airlines industry so far as M&As is concerned. Out of the various such M&As, the merger of Air Sahara with Jet Airways has been the most talked amongst researchers, practitioners and columnists. Worth to mention here, the purpose of this merger was as well business growth as Air Sahara required the size to raise its market share and the merger enabled a joint domestic market share of about 33-34 percent. It is now almost two years of that merger, but little has been explored regarding the fact as whether the merger has been successful in achieving its target of business growth. Based on this argument, the proposed research plan to examine as whether merger has been a successful tool for Air Sahara and Jet Airways for their business growth.

AIMS AND OBJECTIVES

The aim of this research was to examine as whether M&As is a tool of business growth in airlines industry. The research will be conducted with the case study of Air Sahara and Jet Airways merger.

Jet Airways lastly struck a deal, April 12, to buy out rival air carrier Air Sahara for Rs. 1,450 crore (approx. $300 million) or about 40 percent less than its opening offer of $500 million (approx. Rs. 2200 crore), after clearance by a three-member arbitration panel. All shares of Air Sahara is to be transferred to Jet on payment of Rs. 1,450 crore inclusive of Rs. 500 crore by now paid by Jet. The actual deal is understood to value Air Sahara at Rs. 2,050 crore, of which Rs. 600 crore is expected to be adjusted as arrears, interest and other liabilities. With two mergers in the works, size would be key for survival in the domestic aviation market. The size has become an important criteria for success in the aviation sector and Air Sahara needed the size to grow its market share. Post-merger, Jet and Sahara have a combined domestic market share of about 33-34 percent.

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The research will attempt to accomplish following objectives:

To identify and evaluate the various motives of M&As in airlines industry

To examine business growth as motive of M&As in airlines industry

To identify and evaluate the factors of successfully achieving various motives of M&As in airlines industry

To identify and evaluate the factors of successfully achieving business growth motive of M&As in airlines industry

LITERATURE REVIEW

M&A: Conceptualisation

A merger is the incorporation of two or more firms into a single firm. This is classically formed by one firm acquiring the assets of the other firm(s). Therefore such transactions are referred to as M&As (Gaughan, 1999). There are three types of M&As namely horizontal mergers involving firms in the same industry, vertical mergers stuck between firms at different stages of the production chain, and conglomerate mergers between firms in not linked industries (Weston and Weaver, 2001).

Horizontal M&As has drawn the most attention both in the literature and from competition authorities (Weston and Weaver, 2001). The study of these M&As classically involves an analysis of the following two aspects. First, horizontal M&As tends to be anti-competitive (Neven and Lars-Hendrik, 2005). They move up industry concentration, and therefore potentially direct to higher prices for consumers or, in the instance of intermediate goods, for downstream industries. An additional outcome of augmented industry attentiveness is that competitors might benefit even more from the M&As than the firms involved themselves (Weston and Weaver, 2001). Particularly, if the M&As involved firms move up their prices following the M&A, competitors will put on market share at the expense of the involved firms.

On the other hand, an M&As might let firms to recognize synergies and therefore turn into more proficient. Firms will involve M&As specified that these synergies are adequately big to offset the competitive disadvantage (Gaughan, 1999). If the efficiency gains from the M&As are large, prices for consumers might even fall as a consequence of the M&As (Weston and Weaver, 2001). However even if they do not, a competition authority might endorse a horizontal merger specified that the efficiency gains in production are larger than the losses suffered by consumers because of higher prices (Neven and Lars-Hendrik, 2005). How competition authorities ought to weigh consumer well-being and economic efficiency in their decisions is a concern that has created some debate in the literature.

Vertical M&As are best viewed as an option to vertical contractual arrangements, as well recognized as vertical restraints, stuck between firms and their suppliers and/or distributors. An analysis of vertical M&As, such as in the case of horizontal M&As involve weighing efficiency-enhancing against competition-reducing effects (Weston and Weaver, 2001).

M&As might not involve a complete takeover of a further firm’s assets. Instead, an investor might acquire a majority or even just a minority stake. This moves up the query of what the appropriate ownership structure of the newly formed entity ought to be (Weston and Weaver, 2001). Partial ownership involves the sharing of control rights, and concerns diverse levels of commitment by the parties entailed. There is no apparent dividing line between M&As and other forms of organization that permits firms to share assets and bring together their interests, in the form of joint ventures (Armstrong and Shimizu, 2007).

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Economic integration influences M&As activity in at least two modes. Firstly, it puts pressure on firms to reorganize (Weston and Weaver, 2001). Particularly, less efficient firms in an industry are required by import competition to contract or close, while improved access to export markets offers more proficient firms an opportunity to spread out. An empirically significant way (Neven and Lars-Hendrik , 2005) in which this reformation is attained is in the course of M&As, whereby efficient firms acquire the assets they necessitate to enlarge from less efficient firms . Secondly, trade liberalization moves up the motivation to take on cross-border M&As.

Motives and Performance of M&AS

The foremost motivations for the contemporary record wave of consolidation in the financial sector are frequent to nearly all countries. On the one hand, in reply to fundamental changes in regulation and technology have challenged to perk up their efficiency and attract fresh customers by enlarging their geographical reach and the assortment of products they present. On the other hand, the wave of consolidation is as well the outcome of slowdown in global airlines industry. The wish to maintain falling margins by enhancing market share and to catch the attention of fresh customers is the motive.

There are quite a few modes in which M&As can perk up efficiency. Firstly, the larger firms that come out from consolidation might get access to cost-saving technologies or spread their fixed costs over a bigger base, therefore trimming down average costs (Capron, 1999). Efficiency gains might as well derive from the use of economies of scope, where the deal might permit the merging parties to come into fresh markets and cross-sell their products to a broad customer base. Lastly, consolidation could perk up managerial efficiency (Tetenbaum, 1999). M&As on the scale witnessed by the financial sector in the last decade has reflective effects on the firms entailed, their competitors and their customers (Andrade et al, 2001). Nevertheless, the effect of consolidation on the performance of the institutions entailed is not well understood. Specifically, the degree of exploitable scale and scope economies may be smaller than normally reflected, and efficiency gains consequential from improved management may be subtle in large, multifaceted institutions.

Scholars and researchers advance value-maximization, managerial ego, parody, the necessity to ease uncertainty and defensive considerations (such as acquire to pass up being acquired; guarantee that growth keeps up with that of competitors.) and high levels of corporate reserves and share valuations amongst the motives following consolidation (Goerzen, 2007). Advocates of M&As claim that they assist synergies among merged organizations create efficiency improvements and augment competitiveness. Certainly, they hold that mergers, by increasing economies of scale and spreading costs over a larger customer base (Cartwright. and Schoenberg , 2006 ). Illustrating that M&As perk up efficiency is therefore central to making the case for the consumer benefits of mergers and in evaluating their potential impact on consumers (Rovit and Lemire, 2003). If mergers perk up efficiency, therefore bigger, joint firms might be anticipated to pass some savings on to consumers in the course of lower prices or perked up service.

METHODOLOGY

Research Approach

Research issues can be handled either by the approach of deduction or the approach of induction, or by a blend of the two. Deduction is the approach by which a researcher turns up at a logical conclusions by rationally generalized from a well-known fact. For instance, a researcher goes to know that all high performers are highly proficient in their jobs. If jobs are high performer, the researcher then concludes that they are highly capable in doing their job. Induction, on the other hand, is an approach where a researcher scrutinizes definite occurrences and on this turns up at conclusions. More clearly, in induction a researcher rationally launch a wide-ranging proposition based on scrutinized facts (Remenyi et al, 2002).

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This research will be conducted adopting inductive research approach. This is because inductive approach will offer the researcher with new ideas and therefore possibly will spread out knowledge regarding the world in a mode that is impractical for deductive approach, and furthermore inductive approach will offer an easily used and methodical set of procedures for analyzing data that can create reliable and valid findings.

Research Method

Research method can be qualitative and quantitative. Qualitative method is intended to offer the researcher with the viewpoint of target audience members in the course of immersion in a culture or situation and direct contact with the people under study. Qualitative techniques used in social marketing comprise observations, in-depth interviews and focus groups. These techniques are intended to assist researchers comprehend the meanings people assign to social phenomena and to illuminate the mental processes fundamental behaviors. Quantitative method, on the other hand, uses methods taken on from the physical sciences that are intended to guarantee objectivity, generalizability and reliability. These techniques cover the modes research participants are chosen randomly from the study population in an impartial manner, the standardized questionnaire or intervention they take delivery of and the statistical methods used to test predetermined hypotheses concerning the relationships between specific variables (Creswell, 2002).

In this research both qualitative and quantitative research methods will be applied. Qualitative research will be conducted through interview, where 8-10 Senior Managers in the merged entity (Air Sahara-Jet Airways) will be interviewed. On the other hand quantitative research will be conducted through questionnaire survey, where Managers in the merged entity (Air Sahara-Jet Airways) will be approached with questionnaires.

Data Collection

Research data can be collected either in the form of secondary or primary or both. Generally in academic research both secondary and primary forms of data collection are used (Robson, 2000). Therefore, in this research also both primary and secondary data will be collected.

The secondary data in the present research will be collected from books, journals, periodicals, newspapers, and magazines and published reports.

For this research the questionnaire survey and interview methods will be applied to collect primary data. Interviews will be conducted of 8-10 Senior Managers in the merged entity (Air Sahara-Jet Airways). Furthermore, questionnaire survey will be conducted approaching Managers in the merged entity (Air Sahara-Jet Airways).

One of the most import parts of the survey process is to determine the sample. There are various methods of selecting the sample and they are categorized as probability and non-probability (Robson, 2000). In this research, in order to collect primary data sample will be selected with non-probability method, probability of selecting the sample will be uncertain. In the survey, the respondents will be Managers in the merged entity (Air Sahara-Jet Airways). The sample size is roughly decided 25.

Data Analysis

The fundamental purpose of data analysis in the research will be to compare and contrast the collected qualitative and quantitative data and therefore make generalizations or conclusions (Creswell, 2002). This is called triangulation method of data analysis.

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