Airline Mergers & Acquisitions policy to be ready soon

With consolidation in the airline segment looking imminent, the civil aviation ministry is finalising policy guidelines on airline mergers & acquisitions (M&As). As of now, there is no firm policy on the status of airport infrastructure and rights vested with an airline in case it is taken over. Broad guidelines were discussed by the ministry when Jet Airways was in the process of taking over Air Sahara in a $500-million deal which ultimately failed. Now that the mega merger of Air-India and Indian is moving forward at brisk pace, the ministry wants to be ready with detailed guidelines on airline M&A's. The guidelines discussed earlier would be evolved into a draft policy so that it could be incorporated into the comprehensive civil aviation policy which is likely to be submitted to the Cabinet early next year. The ministry’s policy on M&As seeks to adopt a non-discriminatory approach towards private airlines as consolidation looks imminent. Promoters of companies like SpiceJet and Air Deccan are diluting their stake and large corporates are showing interest in picking up stake.

The draft M&A policy will addresses various issues –– such as the use of airport infrastructure and user rights –– that may arise after an airline takes over or merges with another airline. This would include slots at airports for operating flights, especially during peak hours, right to fly to overseas destinations, hangars, parking bays other infrastructure like check-in counters and ticketing outlets at airports. “The Indian aviation sector is expected to witness consolidation in future. Apart from sorting out issues related to user rights, the policy will ensure that consolidation is not discouraged in the industry,” a civil aviation ministry official said. The draft policy on airline mergers is expected to ensure that no inconvenience is caused to passengers due to disruption of flight schedules that might take place after two or more airline companies are merged. It envisages that the new entity can use the user rights — such as flight schedules, landing slots, parking bays — allocated to the airline that is being merged. These user rights will be transferred to the merged entity on non-payment basis, subject to the condition that the new entity does not sell or transfer these rights.

In case the new entity does not use the rights of the airline that it has acquired, then those user rights will be taken over by the government or the airport operator. The government, however, would not interfere with other aspects such as the business model, pricing strategy and branding of the new entity. The proposed policy is likely to adopt a similar approach towards merger of private carriers. However, the national carriers may still be able to enjoy some extra benefits which may not fall directly under the M&A policy. For example, finance ministry is likely to give stamp duty waiver for transfer of assets for the merger between Air-India and Indian, to cut transaction cost by Rs 300 crore. A similar concessions may not materialise in case of merger between private airlines. The move is significant since the Committee of Secretaries (CoS), established to assist the Group of Ministers (GoM) in finalising the Indian and Air-India merger, has already endorsed the merger of the state-owned carriers. While the much-discussed Jet Airways and Air Sahara merger failed to take-off, the proposed merger of the national carriers would soon open a chapter of consolidation in the Indian aviation industry.

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