CERTIFICATE

This is to certify that the Project Report entitled “A study of the process of change management in the merger of Jet and Sahara airlines” Submitted by Saumya Agarwal Roll No. 08-III-847 PGDM in part fulfillment of the requirements for the award of the PGDM.

This Report is the result of his own work and to the best of my knowledge no part

of it has earlier comprised any other Report, monograph , dissertation or book.

This Project was carried out under my overall guidance.

Date : 30th January, 2012

(Prof. Manwar Singh)

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ACKNOWLEDGEMENT

I wish to express my sincere thanks to my project guides Prof. Manwar Singh, Institute of Marketing and Management, New Delhi for his immense help in planning and executing the project. The confidence and directions with which Prof. Singh guided the work requires no elaboration. Their valuable suggestions at crucial junctures during the entire course of work are greatly acknowledged.

I would also like to thank my family and friends for their support during my entire project work. Last but not the least I would like to thank god for consistently providing me energy of everything in life that I undertake.

Saumya Agarwal

Roll No. 08-III-847

PGDM

(Batch 2008-10)

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CONTENTS

SYNOPSIS……..........................................................................................4

CH 1. INTRODUCTION…………………………………………………5

1.1Change Management................................................................................6

1.2 Merger and Acquisition………………………………………………..8

1.3 Aviation Industry………………………………………………………28

CH 2. INTRODUCTION TO JET AND SAHARA AIRLINES……………36

CH3. METHODOLOGY & DATA COLLECTION.......................................47

2.1 Method of Data Collection..........................................................................48.2.2 Sample of Study...........................................................................................482.3 Source of Data.............................................................................................492.4 Limitations...................................................................................................49

CH4. DATA ANALYSIS & INTERPRETATION...........................................50

CH 5.CONCLUSION AND RECOMMENDATIONS…………………….....56

CH 6. LIMITATIONS OF STUDY…………….……………………………63

REFERENCES....................................................................................................65

BIBLIOGRAPHY…….......................................................................................67

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SYNOPSIS

Universally, change is an inevitable consequence of mergers. Achieving the optimum value of

any merger transaction usually requires some changes in the organizational structure, operations,

reward systems, and people. Change, has its problems, it is very upsetting and dislocating, and

hence a proactive management is needed for the change to produce the anticipated benefits.

Entrants to emerging markets should approach change with full knowledge of the forces

involved in the market dynamics and a clear understanding of the local rules and the local culture

in how the local workforce expects to be treated.  Some change management challenges can be

avoided by solving them as early as the stage before the deal is actually finalized. For example,

reduction of the workforce, changes in local leadership, etc.; the acquirer could insist that the

target company handles these issues as a pre-requisite to close the deal. The epicenter of change

is also important. In cultures where participative management is common, as in the United

States, success is more likely when top management and mid-level managers jointly identify

problems and create change solutions. In other cultures, including many in emerging markets, a

top-down approach to change is more appropriate. Nevertheless, an acquirer should involve local

management in the change process. Bringing in expatriates to manage or lead is likely to create

resentment and thereby resistance.

Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate

finance world. Every day, Wall Street investment bankers arrange M&A transactions, which

bring separate companies together to form larger ones.

When they're not creating big companies from smaller ones, corporate finance deals do the

reverse and break up companies through spinoffs, carve-outs or tracking stocks.

Not surprisingly, these actions often make the news. Deals can be worth hundreds of millions, or

even billions, of dollars. They can dictate the fortunes of the companies involved for years to

come. For a CEO, leading an M&A can represent the highlight of a whole career. And it is no

wonder we hear about so many of these transactions; they happen all the time. Next time you flip

open the newspaper’s business section, odds are good that at least one headline will

announce some kind of M&A transaction.

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CHAPTER 1

INTRODUCTION

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CHANGE MANAGEMENT

Change Management

There are many different types of change and different approaches to managing

change. Finding an approach that suits you and your situation goes to the heart of

being an effective and professional manager in the education sector (HEFCE,

2003).

However, whilst recognising each change situation will be unique, there are still a

number of common themes that will help ensure that the change process stands the

greatest chance of success.

Change process

Change usually involves three overlapping aspects: people, processes and culture

as shown in figure below.

Often, the emphasis is upon the processes. However, in order to properly embed a

change, a manager needs to balance all three of these aspects.

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culture

peopleprocess

Key considerations for managing change :

As a manager looking to bring about a change, the following are key areas to think

about:

What is the nature and the scope of the change?

This is the first thing to think about because it influences all your subsequent

actions. Who is the change going to impact? How are you going to keep people

informed, get their feedback and get a meaningful plan for the change?

What are the priorities for action in your environment?

Managing change involves a lot of different activities: once the options have been

considered some difficult choices need to be made about what to focus on in your

particular area/department. This applies whether this is a change imposed from

elsewhere or a change that you are introducing. What needs to be worked on first?

What must be put in place as soon as possible?

What is the nature of your team/department/other areas impacted by the change?

It is crucial to understand how ready your team/department is to engage with the

change. If you manage change in a way that is not congruent with your

environment it will at best produce more conflict than necessary and at worse not

produce the results that you want.

Do a systematic analysis of the factors that will support progress and those that

might hinder it. This enables you to draw up a sensible action plan based on the

real environment in which you work.

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MERGER AND ACQUISITION

Mergers and acquisitions (M&A) and corporate restructuring are a big part of the

corporate finance world. Every day, Wall Street investment bankers arrange M&A

transactions, which bring separate companies together to form larger ones.

When they're not creating big companies from smaller ones, corporate finance

deals do the reverse and break up companies through spinoffs, carve-outs or

tracking stocks.

Not surprisingly, these actions often make the news. Deals can be worthhundreds

of millions, or even billions, of dollars. They can dictate the fortunes of the

companies involved for years to come. For a CEO, leading an M&A can represent

the highlight of a whole career. And it is no wonder we hear about so many of

these transactions; they happen all the time. Next time you flip open the

newspaper’s business section, odds are good that at least one headline will

announce some kind of M&A transaction.

Defining M&A

The Main Idea One plus one makes three: this equation is the special alchemy of a

merger or an

acquisition. The key principle behind buying a company is to create shareholder

value over and above that of the sum of the two companies. Two companies

together are more valuable than two separate companies - at least, that's the

reasoning behind M&A.

This rationale is particularly alluring to companies when times are tough. Strong

companies will act to buy other companies to create a more competitive, cost

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efficient company. The companies will come together hoping to gain a greater

market share or to achieve greater efficiency. Because of these potential benefits,

target companies will often agree to be purchased when they know they cannot

survive alone.

Distinction between Mergers and Acquisitions

Although they are often uttered in the same breath and used as though they were

synonymous, the terms merger and acquisition mean slightly different things.

When one company takes over another and clearly established itself as the new

owner, the purchase is called an acquisition. From a legal point of view, the target

company ceases to exist, the buyer "swallows" the business and the buyer's stock

continues to be traded.

In the pure sense of the term, a merger happens when two firms, often of about the

same size, agree to go forward as a single new company rather than remain

separately owned and operated. This kind of action is more precisely referred to as

a "merger of equals." Both companies' stocks are surrendered and new company

stock is issued in its place.

In practice, however, actual mergers of equals don't happen very often. Usually,

one company will buy another and, as part of the deal's terms, simply allow the

acquired firm to proclaim that the action is a merger of equals, even if it's

technically an acquisition. Being bought out often carries negative connotations,

therefore, by describing the deal as a merger, deal makers and top managers try to

make the takeover more palatable. A purchase deal will also be called a merger

when both CEOs agree that joining together is in the best interest of both of their

companies. But when the deal is unfriendly - that is, when the target company does

not want to be purchased - it is always regarded as an acquisition.

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Whether a purchase is considered a merger or an acquisition really depends on

whether the purchase is friendly or hostile and how it is announced. In other words,

the real difference lies in how the purchase is communicated to and received by the

target company's board of directors, employees and shareholders.

Varieties of Mergers

From the perspective of business structures, there is a whole host of different mergers. Here are a few types, distinguished by the relationship between the two companies that are merging:

Horizontal merger - Two companies that are in direct competition and share the same product lines and markets.

Vertical merger - A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker.

Market-extension merger - Two companies that s0065ll the same products in different markets.

Product-extension merger - Two companies selling different but related products in the same market.

Conglomeration - Two companies that have no common business areas. There are two types of mergers that are distinguished by how the merger is financed. Each has certain implications for the companies involved and for investors:

oPurchase Mergers - As the name suggests, this kind of merger occurs when one company purchases another. The purchase is made with cash or through the issue of some kind of debt

instrument; the sale is taxable. Acquiring companies often prefer this type of merger because it can provide them with a tax benefit. Acquired assets can be written-up to the actual purchase price, and the difference between the book value and the purchase price of the assets can depreciate annually, reducing taxes payable by the acquiring company.

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oConsolidation Mergers - With this merger, a brand new company is formed and both companies are bought and combined under the new entity. The tax terms are the same as those of a purchase merger.

Process of Merger and Acquisitions

Process of merger or acquisition is clearly visible in below diagram.

Company valuations

Company valuations are not only an important basis for justifying and verifying purchase prices. These expert opinions are also crucial when it comes to making a cash payment offer to minority shareholders as part of a squeeze-out, for example. You can benefit from our sector expertise and our good contacts to the German

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'Mittelstand'. We furthermore support you in international transactions by assessing the value of a foreign company or the business relationships with non-German partners.

Preparing negotiations

Once negotiations have been taken up, it is vital to know where the other party stands and how much room you have for manoeuvre. We can provide comprehensive support by preparing the ground for the envisaged negotiations. These preparations range from contacting potential candidates, mostly through existing business relationships, to a detailed analysis of the company in question up to assessing the general parameters and framework conditions.

Support during negotiations

Our experts can also support you during the negotiations themselves. We draw up an individual negotiation strategy with you and coordinate the negotiations. This enables you to resolve even difficult questions under extreme time pressure. No matter how the negotiations progress, your entrepreneurial strategy and business interests will be paramount throughout. Furthermore, we can support you during the due diligence process.

MERGER & ACQUISITION: MOTIVES

Why do companies merge or acquirer other companies? There seems to be a

number of reasons given to merge/acquire a company, many of which involving

the market and an extension of the customer base. These are: -

Coordinated Strategies - To create a number of new business opportunities and to

gain competitive advantage

Scale- Purchasing companies in the same space to gain revenues, streamline cost

structures, and diversify sales channels;

Geographic reach- Tapping into previously inaccessible geographic markets;

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Customers- Acquiring companies with good customer lists that can be sold more

products;

Products- Access to new products which in turn can be sold to existing customers

or to reach a new customer base;

Segments- Entering new vertical markets;

Channels- Finding new ways of delivering the same products and services;

Employees- Adding needed engineering, sales, or other talent quickly;

Technology- Adding key technical capabilities or acquiring a disruptive

technology.

Shared Know-how - in the form of process knowledge, market knowledge and

talent

FAILURE OF MERGER & ACQUISITION

Mergers and Acquisitions (M&As) have become the dominant mode of growth for

organizations seeking a competitive advantage in an increasingly complex and

global business economy. Every merger, acquisition, or strategic alliance promises

to create value from some kind of synergy, yet statistics show that the benefits that

look so good on paper often do not materialize. Unfortunately, many mergers and

acquisitions fail to meet their objectives, which are typically to accelerate growth,

cut costs, increase market share or take advantage of other synergies.

A global A.T.Kearney study suggests that 58 percent of all mergers, acquisitions,

and other forms of corporate restructuring fail to produce results rather than create

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value. Similarly, a KPMG survey found that "83 percent of mergers were

unsuccessful in producing any business benefits regards shareholder value. A

major McKinsey & Company study found that "61 percent of acquisition programs

were failures because the acquisition strategies did not earn a sufficient return (cost

of capital) on the funds invested". Between 55 and 77 percent of all mergers fail to

deliver on the financial promise announced when the merger was initiated. Even

though most mergers and acquisitions are carefully designed, they still face major

challenges. Nearly two-thirds of companies lose market share in the first quarter

after a merger; by the third quarter, the figure is 90 percent. In the first four to eight

months that follow the deal, productivity may be reduced by up to 50 percent.

The failure rate of acquisitions is unacceptable and unnecessary. This motivates us

to look for other solutions and identify the real causes for the high failure rate.

Each acquisition is a complex process from pre-deal research and planning

(selecting the target), due diligence and integration planning, through to post-

acquisition integration and value extraction. Priorities have to be set and rational

decisions under time pressure have to be made for the proper performance.

Change Management in Mergers and Acquisitions

Introduction

M&A transactions are often pursued in order to acquire a larger share of an

existing market, enter new markets, eliminate competitors, acquire expertise or

assets, transfer skills, save costs, increase efficiencies or capitalise on synergies. It

has, however, been found that between 55 % and 70 % of M&As fail to meet their

anticipated purpose or they take longer to do so than expected. In fact, recent

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studies have found that significant percentages of M&As destroy profitability and

shareholder value.

M&As are complicated transactions involving many risks for all contracting

parties often bringing about fairly rapid large-scale change with far-reaching

impact. Merchant bankers, auditors, lawyers and tax consultants are retained at

great costs to manage certain risks through the negotiation, due diligence, contract

drafting and implementation phases of the transaction. During the due diligence

phase detailed information is obtained about the parties, and the risks involved in

concluding the transaction are evaluated. Traditionally lawyers and auditors are

appointed to conduct the legal and financial due diligence investigation. Both these

types of due diligences might touch on the people aspects relevant to the

transaction but rarely do they include a culture or climate assessment that evaluates

the cultural fit between the organisations involved in the

transaction before conclusion of the transaction.

There is, however, a growing realisation that the successful outcome of M&A

transactions is dependent on wide-scale integration of people and cultures

including their processes, systems and practices and that cultural compatibility

issues can no longer be ignored. If the people side of M&As and the integration of

different cultures are ignored, the merging companies could face many difficulties,

including, ultimately not meeting the anticipated purpose of the transaction. A

survey of managers and companies involved in more than1000 M&As conducted

by Best Practices, a US–based consultancy, found that staff productivity dropped

by 50% and 47% of people in leadership positions moved on.

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Motivation of mergers and acquisitions

There are many motives of mergers and acquisitions and vary from deal to deal.

However, one of the fundamental motives for M&A is growth. Growth can be

managed through internal extension but firms are conscious that M&As are a faster

process to attain their expansion. Also, in order to expand within its own industry,

companies will not see the internal growth as the best alternative because

competitors may react rapidly and will then take higher market share. Also, in

order to emerge into new markets of other nations, M&A are a useful mean to

growth worldwide by merging together with an existing partner in these particular

geographical markets. There are other several motives or reasons that engage firms

into M&A. The most common reasons for companies to launch M&A strategies

are the following:

1. To achieve economies of scale: The merged companies will allow producing

more cheaply than if the companies were separated. The average cost will decrease

due to the growing number of output units produced.

2. To achieve economies of horizontal integration in order to increase profitability

and market share. Thus, it may result to powerful market position and to reduction

of the competition. Diversification: means growing outside of the actual

company’s industry through conglomerates.

3. While two companies were at different level from the value chain by merging

they can achieve economies of vertical integration: the new organization can

therefore take control over raw materials and channels of distribution. It may result

in achieving competitive advantages over the competitors regarding the inputs and

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sales. Moreover, the new organization will reach a stronger bargaining position

will be reached by reducing the communication and bargaining costs.

4. Generally, the bargain buying can be considered as a merger motive through

these different integration processes. Indeed, the largest are the merged companies,

the better is the position to increase the purchasing opportunities.

5. To take advantage on the synergy respecting the financial math equation that

shows that “2 + 2 = 5” . Indeed, the synergies occur when the sum of the partners

is more productive and profitable than the individual components taken apart. This

is generally due to the growth of revenues and the costs reductions. However, the

synergy of value creation is achieved when the profit is higher than the transaction

costs.

6. Tax motives are also important determinant in the M&A transaction or “tax free

exchange” or unused tax shields. The companies use the loss from one year of the

acquired company in order to decrease the profit which is taxable the next year.

“Sellers sometimes require “tax-free status” as a prerequisite of approving a deal”.

7. Research and development are important factors for the future growth of a large

number of firms, especially in the pharmaceutical companies. Their competitive

advantage remain in the R&D investment so by merging the budget of both R&D

department, the merged companies may improve its competitiveness.

8. Gains may occur also through the “financial benefit”. If two or more small

companies are combined, they can improve their access to the capital markets and

to lower cost of capital.

9. Some companies have merged by a belief that the acquiring company can

improve the inefficient management of the acquired resources .

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10. An interesting non-monetary motive is the motive of managers or “Hubris

Hypothesis”. The Hubris Hypothesis assumes that managers are motivated in

seeking for acquiring other companies in order to fulfil their personal motive.

Managers have superimposed their own valuation … and the pride of management

allows them to believe that their valuation is superior to that of the market. Also,

by increasing their status through the media, they strengthen their fame and power

which lead to higher salaries and high degree of responsibility.

Some of the other difficulties include:

· Loss of skilled employees other than employees in leadership positions. This type

of loss inevitably involves loss of business know-how that may be difficult to

replace or can only be replaced at great cost.

· Retrenchment of employees causing panic and a loss in motivation, which could

in turn also lead to a loss of productivity and a reduction in revenues.

· Improper or incomplete alignment of employment terms, conditions and benefits

leading to anger, resentment and a drop in motivation.

· Rushed or improper population of new organisational structures.

· Increase in costs could result if the proper management of change and the

implementation of the M&A transaction are delayed.

· Unhappy customers and the eventual loss of customers.

· Build up of resistance to any future change initiatives.

Managing change in the highly complex world of M&As is not easy and research

has found that so much as 70% of change initiatives are unsuccessful. The fact that

the M&A process can sometimes takes as long as 3 to 5 years to be fully effected,

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adds to the levels of uncertainty, ambiguity or confusion that accompanies such

transactions.

Organisational culture

One of the components of complexity of M&As is organisational culture. Before

an M&A transaction is concluded it is important to assess the cultural

compatibility of the merging firms. In this regard it is recognised that such formal

cultural assessment is usually not possible because the negotiations leading up to

the merger have to be kept secret. This creates the risk, however, that the merging

parties do not discover important differences until after they have committed

themselves to the new organisation.

It should also be remembered that the usefulness of a formal cultural assessment is

limited as assessments done on the merging companies would not indicate whether

they are even “using the same meanings for seemingly shared concepts”.

To acquire true cultural insight, requires both parties to take part in each other’s

cultures. This can be done by sending employees into the other organisation for

some time or by creating “dialogues between members of the two cultures that

allow differing assumptions to surface. Dialogue is a form of conversation that

allows the participants to relax sufficiently to begin examining the assumptions

that lie behind their thought processes.” Participants should feel “secure enough to

suspend their need to win arguments, clarify everything they say, and challenge

each other every time they disagree.” Reflective rather than confrontational

conversation should be encouraged. The process of creating dialogue can help

focus on engaging people and making issues discussable and in this way reducing

uncertainty and anxiety and the likelihood for employee resistance to the change.

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Critical to the success of a cultural change process is a well-designed plan for the

management of such change. It has been found that companies with strong

integration plans created above-average value in their industries and effective post-

merger management policies were seen to improve the odds of success by as much

as 50 percent.

Just as critical as planning for the management of cultural change is the need for

effective communication, in every phase of the merger process. Employee

resistance to change can be a huge barrier to the successful implementation of a

merger or acquisition. Resistance is, however, a natural part of the change process

as change involves going from the known to unknown. Individuals typically go

through four phases during a major organisational change: initial denial, resistance,

gradual exploration and eventual commitment.

Keeping communication channels open will prevent anxiety from getting out of

hand and providing clarity about expectations will reduce distrust or conflict.

Frequent reviews should be conducted during the transition process, during which

people can talk about the reasons for the merger and open the dialogue around

future changes, and during which management can attend to the psychological

dimensions of the change process.

Related to the issue of communication is the identification of all stakeholders who

may be affected by the change. The business case for change, the process of

change and timeline must be communicated to all stakeholders so that they may

gain an adequate understanding thereof. Those stakeholders who will be impacted

significantly by the change must have a clear understanding of how and when they

will be impacted.

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Clear and regular communication, including the process of creating dialogues,

should address stakeholder resistance and lead to stakeholder buy-in.

Communication channels must allow for effective feedback from stakeholders to

ensure that barriers to and opportunities relating to the change objectives can be

identified on an ongoing basis and be addressed.

Without collaboration, the process of culture integration may be significantly

hampered. In the initial phase of a merger, teaming up to create cross-company

task forces and project teams and articulating the new rules of the game will help

problem solving and ensure future collaboration . The role of the integration team

leader is also considered vital to the success of the implementation phase of culture

integration and integration management should be recognised as a distinct business

function rather than an “add-on” job for integration team leaders.

In addition, commitment and patience are essential. Just as a marriage “demands a

lot of attention and commitment of resources” so does the merger of two often

divergent cultures. Mergers are intense relationships that often lead to high

turnover as people are “psychologically unprepared for the aftermath of a merger

or acquisition”.

M&As and the resultant changes to the organisational culture often require a

collective change of mind. But, minds cannot be managed, they can only be

inspired. For this to occur, the right style of leadership is essential. Leaders must

communicate the vision of the change and its impact as widely and effectively as

possible. Thereafter they have an important role to play in guiding the ongoing

change effort and in encouraging employees to stick to the change process until it

is an integral part of everybody’s lives.

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The integration team leader/s should be involved in any discussion around a

potential merger from the outset of the process so that they can provide valuable

input into any ‘Go-No-Go Decisions’ taken. The earlier such people are able to

participate in the process, the more effective they will be in working through any

issues that could negatively impact on future business outcomes, if ignored.

Mergers and acquisitions often necessitate the integration of two or more

companies with different values, cultures and workforces into one cohesive unit. In

order to maintain workforce stability, the HR department may craft strategies and

outreach communications to manage and explain sweeping organizational changes,

ensuring a smooth transition during the merger/acquisition process. The change

management process may also focus on minimizing employee attrition and

maintaining employee morale during transitional periods.

Managing Human Resource: A Key Success Factor in Mergers and

Acquisition"

An organization's people strategy is a necessary precursor to the successful

execution of its business strategy – "people must be in place, prepared and ready

before the business strategy unfolds,"

INTRODUCTION

Companies today need to be fast growing, efficient, profitable, flexible, adaptable,

future-ready and have a dominant market position. Without these qualities, firms

believe that it is virtually impossible to be competitive in today's global economy.

Executives have at their disposal a wide range of strategic alternatives for

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inorganic growth. They may decide to grow incrementally by introducing not only

new products but also gain entry into new markets by investing in research and

development. However this mode of growth will have a long gestation period i.e.

long time to realize the actual growth.

Welcome to the world of mergers & acquisitions (M&A), which has become the

most important strategic element driving business growth and excellence. They

have become the dominant mode of growth for organizations seeking a competitive

advantage in an increasingly complex and global business economy. Therefore, in

an era of increasing globalization and competitiveness, they are considered as a

strategic driver for market dominance, geographical expansion, leverage in

resource and capability acquisition, competence, adjusting to competition.

Mergers and acquisitions (M&As) often refer to the aspect of corporate strategy,

and management dealing with the buying, selling and combining of another

company. Mergers and acquisitions are often created to expand a current

organization or operation aiming for long term profitability and an increase in

market power.

Buoyant Indian Economy, extra cash with Indian corporates, Government policies

and newly found dynamism in Indian businessmen have all contributed to this new

merger & acquisition trend in India. Indian companies are now aggressively

looking at American, African and European markets to spread their wings and

become the global players. The Indian IT and ITES companies already have a

strong presence in foreign markets, however, other sectors are also now growing

rapidly. The increasing engagement of the Indian companies in the world markets,

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and particularly in the US, is not only an indication of the maturity reached by

Indian Industry but also the extent of their participation in the overall globalization

process..

HUMAN RESOURCE: KEY FACTOR

It is reported that one of the main reasons for failure of a merger or acquisition is

based on Human Resources neglect. People issues have been the most sensitive but

often ignored issues in a merger and acquisition. When a decision is taken to merge

or acquire, a company analyses the feasibility on the business, financial and legal

fronts, but fails to recognize the importance attached to the human resources of the

organizations involved. Companies which have failed to recognize the importance

of human resources in their organizations and their role in the success of

integration have failed to reach success. While it is true that some of these failures

can be largely attributed to financial and market factors, many studies are pointing

to the neglect of human resources issues as the main reason for M&A failures.

PricewaterhouseCoopers global study concluded that lack of attention to people

and related organizational aspects contribute significantly to disappointing post-

merger results. Organizations must realize that people have the capability to make

or break the successful union of the two organizations involved.

Cartwright and Cooper (2000) acknowledged that the leading roles of modern

human resources functions are to be actively engaged in the organization and

perform as a business partner and advisor on business-related issues. Employees do

not participate enough in the integration process of a merger. If a merger is to

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reach its full success potential, they need to be informed and involved more

actively throughout all the stages of the merger process.

Human resource professionals are key in pre-merger discussions and the strategic

planning phase of mergers and acquisitions early as to allow them assess to the

corporate cultures of the two organizations (Anderson, 1999). Being involved in

the pre-merger stage allows HR to identify areas of divergence which could hinder

the integration process. They can play a vital role in addressing any

communication issues, employees concerns, compensation policies, skill sets,

downsizing issues and company goals that need to be assessed.

STRATEGIES FOR MANAGING HUMAN RESOURCE IN M&A

I. Communication

During mergers and acquisitions, employees are often kept in the dark about the

sale of the corporation. They often hear about the acquisition through the press or

through the corporate grapevine. This can lead to a distorted or misrepresented

picture of the acquisition's ramifications and to counterproductive activities by

employees, who may be anxious about possible job losses. Therefore,

Communication is of utmost importance in every stage of a merger or acquisition

process, and is the key to its success.

It is very important for management to communicate clearly and regularly to all

employees the implications of the merger, including the planned changes to

working practices and organizational processes. Management should share as

much information as it can with employees before, during, and after the

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acquisition. To be effective, the communication process has to be carried out in

such a way as to avoid confusion and mixed messages. The communication

process should also encourage two-way feedback between management and

employees to make employees feel that they are contributing to the solution. By

involving people at all levels of the organization, the merging companies are

encouraging widespread acceptance of the merger process and reducing feelings of

insecurity.

II. Retaining Key People

The retention of a talented workforce, which is often a major reason behind the

decision to merge, should take priority during the merger process, and management

needs to adopt measures to improve the retention rate of the best people in the

merging companies. Truthful and thorough communication with employees can

play a significant part in management's retention strategy. If the communication

process is performed effectively, it can reduce employees' sense of insecurity and

give them a better picture of what the future holds for them.

Pay and reward strategies can also play an important role in management's

retention strategy but they need to be addressed early on in the merger process and

should not only focus on senior executive pay, but also on the remuneration of

employees at all levels of the organization.

III. Try to Establish a Common Culture

Successfully integrating the two cultures of the merging companies is an essential

step towards achieving a successful partnership. Both organizations, the acquiring

and the acquired, will have unique and beneficial cultural elements. Rather than

imposing one organization's cultural elements on the other, 'the best of both

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companies can be integrated into a common culture for the new organization'

(Hunsaker and Coombs 1988, 62). This can create a win-win situation for both

organizations, since it will result in a corporate culture with which both sides can

identify.

Defining and promoting the new corporate culture will enable employees to work

together toward achieving the business goals of the new organization. Conducting

a cultural audit is a useful way of obtaining useful information about the two

companies' differing cultures and helps to evaluate differences and similarities in

work standards and practices. That information can raise awareness of potential

difficulties and issues in the merging process, and allows the merging company to

take steps to minimise culture clashes by building an effective communication

structure.

IV. Training and Development

Training and development should be provided to senior and middle management

and should focus on all aspects of the merger process. Training should focus on the

implications of the merger for the company, its effects on employees at all levels of

the organization and its impact on working practices and organizational structures.

Training should also educate managers on what each stage of the merger process

entails for them and for the company as a whole. Such interventions will facilitate

more effective leadership on the part of managers, who will have a better

understanding of the key issues that arise during the course of a merger.

V. Try to Eliminate the Them-Us Syndrome

Acquiring organizations should try to eradicate any arrogance on the part of their

personnel to ensure that acquired employees do not feel inferior and 'conquered.' A

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post-acquisition atmosphere fostering mutual respect among management groups

will facilitate a better understanding of the others' perspective and make a

smoother transition.

VI. Provide Individual Counseling

Individual counselling on personal adjustment and stress coping strategies can

assist the employees to 'solve the problems associated with merger stress;

recommend, demonstrate and initiate coping with merger stress strategies; or

improve the employee's mastery'. In addition, a counsellor can unveil new career

paths and job opportunities within the newly acquired organization, which can

provide incentives for employees to remain with the organization.

1.3 AVIATION INDUSTRY

INTRODUCTION

Indian Aviation Industry is one of the fastest growing markets in the world. The

Airport Authority of India (AAI) manages a total of 127 airports in the country,

which include 13 international airports, 7 custom airports, 80 domestic airports and

28 civil enclaves. There are over 450 airports and 1091 registered aircrafts in the

country. The genesis of civil aviation in India goes back to December 1912 when

the first domestic air route between Karachi and Delhi became operational. In the

early fifties, all airlines operating in the country were merged into either Indian

Airlines or Air India. and, by virtue of the Air Corporations Act 1953, this

monopoly continued for the next forty years.

The Directorate General of Civil Aviation(DGCA) controlled every aspect of aviation, including granting flying licenses, pilots, certifying aircrafts for flight and issuing all rules and procedures governing Indian airports and airspace. Finally, the

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Airports Authority of India (AAI) was assigned the responsibility of managing all national and international airports and administering every aspect of air transport operation through the Air Traffic Control.

In 1990s, aviation industry in India saw some important changes. The Air Corporations Act was abolished to end the monopoly of the public sector and private airlines were reintroduced.With the liberalization of the Indian aviation sector, the industry has witnessed a transformation with the entry of the privately owned full service airlines and low cost carriers. In 2006, the private carriers accounted for around 75% share of the domestic aviation market. The sector has also seen a significant increase in the number of domestic air travel passengers. Some of the factors that have resulted in higher demand for air transport in India include the growing middle class and their purchasing power, low airfares offered by low cost carriers like Air Deccan, the growth of the tourism industry in India, increasing outbound travel from India, etc. 

Increasing liberalization and deregulation has led to an increase in the number of private players. The indian aviation industry comprises of three types of players: 

Full cost carriers Low cost carriers (LCC) Other start-up airlines

It is a phase of rapid growth in the industry with estimated growth of domestic

passenger segment at 50% per annum.. This has led to intense price competition

due to which full service carriers like Jet Airways, Indian Airlines and Air Sahara

are giving discounts of up to 60-70% for certain routes to match the new entrants'

ticket prices. The customer has thus gained enormously as a result of liberalization

of the sector.

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Indian Aviation Market :

Pre 2004 Post 2004

Domestic Market Domestic Market

Limited Carriers Sudden inflow of new carriers &

spurt in capacity

Stable 8-10% growth p.a. High market growth stimulated

by huge fare reductions.

Supply in line with demand

Yields stable at high levels

International Market International Market

Restricted Bilateral-Limited Access to

foreign carriers

Opening up international market

commenced in 2003-04 with private

carriers being allowed to fly

international

AI only designated as Indian Carriers

Impact of changes post 2004:

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Low yields and high aviation turbine fuel costs led to huge losses(estimated

at $500 mn for FY07)

Rising labour cost, shortage of skilled labor, rapid fleet expansion, & intense

price competition stretched out the problem for big airlines.

Airport & air traffic infrastructure under increasing pressurewith added

capacity.

Delays at major metros and lack of slot availability , high cost due to

holding times ( approx. $25 mn in additional fuel for jet airways alone).

INDIAN AVIATION SWOT ANALYSIS

Strengths

Liberal Environment: India's airlines operate in a liberal environment in both the domestic and international spheres. With three major airline groups and four smaller carriers all operating domestic routes, there is no shortage of competition, although this factor combined with excess capacity has tended to depress yields. Nevertheless, carriers are free to operate any domestic routes without seeking permission from the government, and without restriction on pricing. One condition that airlines find onerous however, is the requirement to operate a proportion of ASKs to remote and underdeveloped regions of the country.

On the international front, the Indian government has pursued an increasingly liberal approach to bilateral air services agreements with key overseas markets, resulting in greater access for foreign carriers. Emirates for example, the largest foreign carrier by capacity into India, will operate 185 weekly frequencies to ten cities across the country by the end of 2009. India's carriers have a combined international capacity share of just over 36% but face strong competition from foreign carriers, both full service and low cost.

Modern Fleet: In light of the fact that much of the growth in Indian aviation has occurred in the last five years, the country's airlines operate a relatively young and modern fleet, ensuring a high quality passenger experience, improved safety and good operational reliability.

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High Quality: India's airlines offer a good quality product in each of the operating models in existence. Jet Airways and Kingfisher Airlines are competitive in terms of their inflight service against the leading carriers in the world. Kingfisher for example is one just half a dozen global carriers such as Singapore Airlines and Cathay Pacific, with a Skytrax 5 star rating. In fact it could be argued that the full service product on domestic routes is excessive for the sector lengths involved and results in a higher cost structure, which the passenger does not necessarily see value in paying for. The LCCs too, by and large, offer a comfortable, efficient and reliable service. Until a couple of years ago, Air Deccan was one carrier that had developed a reputation for poor on-time performance, flight cancellations and overbooking, however since being acquired by Kingfisher, most of these operational issues appear to have been resolved.

Economic Growth: Economic growth has historically been the primary driver of air traffic, and the relationship has generally been even stronger in developing countries. Between 2004 and 2007, India enjoyed four years averaging 9% per annum GDP growth. This slowed to 6.5% in 2008, however against the background of a global economic recession, this was a creditable performance. The increased business confidence following the general election result in May 2009 has eased concerns that growth may slow further. The stock market has soared 25% in the last month and the outlook for growth and consumption has improved, which is a positive for the aviation industry.

Political Stability: The re-election of the Congress Party, with a stronger majority is expected to allow the new administration to push ahead with further economic reforms, which had to date been blocked by coalition partners. The prospect of a government which has the ability to last its full term and pursue its agenda is extremely encouraging. In addition, Minister Praful Patel, who was the architect of the dramatic transformation of the aviation sector, has retained the portfolio, which brings experience and stability to the aviation industry.

Weaknesses

Airport Infrastructure: The rapid growth in air traffic over the last few years exposed the deficiencies of airport infrastructure across the country. After decades of neglect, many of India's airports were forced to operate well above design capacity. The resulting congestion in the terminals and on the runways delivered a poor experience for the passenger and a costly, inefficient operating environment for the airlines. However, although a weakness today, it is also fair to say that it is becoming less so, as the airport modernisation program starts to deliver results,

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with new airports in Bangalore and Hyderabad, and improving facilities at Delhi and Mumbai. The upgrade of non-metro airports remains behind schedule so it may be another 3-4 years before we see good quality facilities across the country, but there are tangible signs of improvement.

Airways Infrastructure: Although congestion on the ground is relatively visible, another current area of weakness is the limited investment that has taken place in improving infrastructure for air traffic management. This too results in expensive aircraft holding patterns, indirect flight paths and sub-optimal use of runways.

National Carrier: The state-owned carrier, Air India, is in a dire situation. The carrier is estimated to have posted losses of close to USD1 billion in 2008/09, and morale within the bloated workforce is at a low. With no clear direction, management instability at the top and continuing issues with the integration of Air India and Indian Airlines, the carrier is in need of radical restructuring. It is imperative that the government develops a turnaround strategy for Air India as an urgent priority.

Deep Pockets: Over the last three years, India's carriers have accumulated billions of dollars in losses and debt. Ironically, a characteristic that would normally be considered a strength - namely deep pockets - has resulted in carriers remaining afloat that would perhaps in other circumstances have failed. With the backing of either the government or large corporations, several carriers have been able to access funding that they might have been denied on a strictly commercial basis as standalone airlines. As a result of the intense competition which has been perpetuated, airlines have struggled to raise fares to break even levels.

High Cost Structure: India's airlines operate in a relatively high cost environment, primarily due to the punitive taxation structure. The greatest impact is felt in the area of sales taxation on fuel, which can increase the cost to 60% above the international benchmark. The limitations of airport infrastructure also increase costs due to the fact that carriers are unable to schedule fast turnarounds, resulting in reduced aircraft utilisation. In addition, the fact that high quality ancillary services such as MRO and training are not currently available in India, means that aircraft and personnel have to be sent overseas.

Skilled Resources: Domestic air traffic in India tripled in the five years to 2008, while international passengers doubled. This rate of growth far outstripped the capacity to develop skilled technical and management personnel. The gap was partly addressed by employing expatriates, particularly as pilots, and by learning

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on the fly. This means there is a lack of in-depth experience and knowledge at all levels. Furthermore, there is an absence of high quality training infrastructure in-country to deliver the resources to support future growth. This lack of personnel affects the government as well and the FAA has expressed its concern at the shortage of qualified safety inspectors within the Directorate General of Civil Aviation (DGCA). India has been put on notice that unless this issue is addressed, it may be relegated to a Category II nation, which would mean that Indian carriers would not be permitted to increase services to the US.

Opportunities

Market Growth: Despite the rapid expansion of recent years, India has only just scratched the surface of the potential for the aviation sector. Trips per capita remain low even by the standards of other developing countries. China's domestic market is more than four times the size of India's 40 million passengers. Even, Australia, a country with a population of just 21 million, compared with India's 1.1 billion, has a market 25% larger. Similarly on the international front, less than 1% of Indians travel overseas each year. Inbound visitor nunbers at 5.4 million in 2008 for the entire country, were less than for Dubai or Singapore. It is not difficult to see the expansion potential from such a low base as economic growth continues apace.

Geographic Location: India is ideally positioned as a major aviation hub at the crossroads between Europe, the Middle East and Asia Pacific. The fact that aviation was a neglected sector for so long has allowed airports such as Dubai and Singapore to effectively establish themselves as offshore hubs for Indian passengers, and they now have a significant head start. However, as India's airports improve, and its airlines receive international awards for their service, there may be an opportunity to leverage its huge home market to compete with these longer established hubs.

Lower Costs, Higher Quality: India has already managed to develop a dynamic aviation sector despite, and not because of, its environment. The improvements in airport and airspace infrastructure, the development of indigenous training and maintenance facilities and the potential for fiscal reform, all point to the potential for Indian aviation to increasingly operate in a lower cost, higher quality and more efficient manner. This could in due course lead to an opportunity for India to develop as a global outsourcing hub in areas such as aerospace manufacturing, MRO and training.

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Threats

Middle East Aviation: The carriers of the Gulf are aggressively expanding in India, with high frequencies from multiple destinations to their hubs, from where passengers can access extensive global networks. The ability for a passenger for example to travel one-stop from Ahmedabad toHamburg, or multiple daily frequencies from Mumbai to London, connecting at an attractive hub, is a strength which Indian carriers simply cannot match at present. It will take time and the question is how far ahead will the Middle East carriers be by that stage.

Terrorism: India has seen frequent terrorist activity in recent years. The country has shown great resilience in bouncing back after each attack, however inbound international traffic in particular is sensitive to such events. Similarly the potential for India to develop as a global traffic and services hub is contingent upon it being seen as a safe and attractive destination.

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CHAPTER 2

INTRODUCTION TO JET AND SAHARA AIRLINES

AND THEIR MERGER

JET AIRWAYS:

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Jet Airways is one of India’s premium domestic airlines and arguably the most

successful. The airline, which was set up in 1993 after the central government opened civil aviation to private investment, overtook India’s national airline, Indian Airlines, in the early 2000s in terms of passengers carried. By 2005, Jet Airways had been listed on Symbiosis Institute of Business Management, Pune

India’s main stock exchanges and had obtained permission to operate international

flights.

''We don't fly aircraft, we fly people' is the motto of this private owned airline. They have chosen the yellow rose as their motif as it symbolizes friendship, warmth and caring. Jet Airways was set up with the objective of providing high quality and reliable air travel in India. Since a very high percentage of the Indian domestic air traffic comprised of business travelers, their focus from the very beginning was to emerge as the "Businessman's Preferred Airline". This led to a product and service design that aimed at world class norms in professional service and efficiency, beginning with the choice of aircraft itself.

Their operations commenced with a fleet of four Modern Generation Boeing 737-300aircraft. These aircraft were the first to fly the Indian skies. For training and conversion of their pilots and engineers, they utilized the training facilities of

37

Ansett (Australia). For world class norms in service, they were aided by Speedwing (a British Airways subsidiary) to conduct a program on Customer Service Excellence for staff across functions at all levels. To ensure accurate and efficient reservation systems, they tied up with and are co-hosted with SABRE - one of the world's best reservations systems.

Jet Airways' current fleet consists of 33 B737 new and next generation aircraft and 8 modern turbo-prop ATR72-500 aircraft. CFM 56 engines power all the Boeing aircraft while the ATR aircraft are powered by Pratt and Whitney 127 engines. The average age of the fleet is 3 years making Jet Airways the operator of the youngest aircraft fleet in Asia.

Jet Airways operates over 250 flights daily to 42 destinations across the country. Jet Airways is one of the few airlines in the world to receive the ISO 9001 certification for its in-flight services. They pride themselves, on having an unbeatable record of on-time flights and providing world-class frequent flyer benefits to our customers, through their alliances with British Airways, KLM Royal Dutch Airlines and Northwest Airlines. Symbiosis Institute of Business Management, Pune In the recent past, however, Jet’s dominance in the Indian market has been severely challenged. The large number of low cost carriers that have entered the industry has led to an explosive 20 to 25 per cent growth for the industry. Amid the rush of new players, Jet’s market share has declined to 37 per cent from 42 per cent at the beginning of the fiscal. Jet has also struggled to keep pace with the industry’s capacity expansion. In the Delhi-Mumbai sector — which accounts for 50 per cent of the country’s air traffic — the industry’s capacity has increased by 70 per cent in the past year. But Jet’s grew by a mere 7 per cent. Moreover, rivals also poached Jet’s pilots and other airline staff. Last October

and November, Jet had to cancel or combine almost 1,000 flights due to acute pilot

shortage. This led to a loss of Rs 21.9 crore. The market leader was obviously taking a beating.

Strategy

The Jet Airways mission is to make it the best airline in the world in customer service and efficiency. From being an agent for a Lebanese carrier in the early

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1970s to running India's largest airline, it has been an eventful journey for Naresh Goyal who unveiled the biggest acquisition in the country's civil aviation history, on January 19, 2006. The airline bought out rival Air Sahara for $500 million to make the carrier India's largest - even larger than state-owned Indian Airlines - with a fleet of 90 aircraft.

With a combined fleet strength of nearly 80 aircraft and a market share of almost 50 per cent in passenger traffic, Jet Airways clearly wants to emerge as the lead player in the domestic sector and get a fair share of the regional/international routes that are now in private operation. These include destinations in South East Asia, South Asia and Europe.

While Jet has rights for London and an understanding with British Airways, it has not been able to get clearance for the U.S. At a time when international airlines have gone in for global alliances to leverage the regional strengths of partner airlines, the move by Jet to acquire Sahara may trigger a process of consolidation in the domestic sector. It remains to be seen how the Centre and the public sector Indian (formerly Indian Airlines) Symbiosis Institute of Business Management, Pune respond to it. Now that the Government has cleared the fleet acquisition scheme, Indian has to pull up its socks and prepare itself for the competition from private airlines.

Jet Airways also plans to start operations to the US this year subject to the government nod. The airline will also acquire a large fleet of Boeing aircraft for some $2.53 billion, with deliveries set to commence from mid-2007.

Jet Airways’ successful IPO

In March 2005, Jet Airways Limited became the first Indian airline to issue shares to the public, when it made a successful debut on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) simultaneously. The much awaited Initial Public Offering (IPO) raised Rs. 1899 crore, through the sale of 1.72 crore shares (20 percent of the company's equity) of Rs.10 each. The issue price was set at Rs. 1100, but the lowest price the shares were traded for on either of the bourses

39

was Rs. 1155. At the end of the first day of trading, the closing price of the shares exceeded Rs. 1300, which was a gain of around 18 percent over the issue price.

A part of the amount raised through the IPO was expected to be used to retire some of Jet Airways' high cost debts (primarily to the International Finance Corporation and the Infrastructure Development Finance Company), and the rest to fund the airline's ambitious expansion plans.

Analysts said that retiring its high cost debts would bring down Jet Airways' debt-equity ratio from around 5.4:1 before the IPO to 1:1, which would prove to be advantageous to the airline in securing further loans on favorable terms and in negotiating lease agreements for new aircraft. Naresh Goyal said there was a possibility of the airline looking at an international shares listing in future if such a move was found to be feasible. Symbiosis Institute of Business Management, Pune

Jet Airways' tremendously successful IPO further consolidated the airline's position in the Indian aviation industry. It also proved that the large number of low cost airlines (LCA) being set up in the country found it difficult to affect Jet Airways' popularity with passengers.

Air Sahara:

Air Sahara is one of India’s leading private airlines. It is part of the multi-Crore 'Sahara India Pariwar' business conglomerate. Air Sahara was established on September 20, 1991. It began its operations on December 3, 1993, with a fleet of two Boeing 737-200 aircrafts. It was then known as Sahara Airlines. Initially, the

40

operations were concentrated on the northern parts of India, but soon spread to other parts of the country as well. Sahara Airlines was re-branded as 'Air Sahara' on October 2, 2000. On March 22, 2004, Air Sahara became an international carrier with the start of flights from Chennai to Colombo.

Jet Airways, a private player in India, announced its attempt to takeover Air Sahara, on January 19, 2006. However, due to certain disagreements about the pricing - JetLite was paying too much for Air Sahara - the deal was called off. Nonetheless, the second attempt, made on April 12, 2007, wasn't unnoticed. Jet Airways agreed to pay a whopping Rs 1450 Crore to Air Sahara, for the takeover deal. Eventually, Air Sahara was taken over by Jet Airways and thus, JetLite (previously known as Air Sahara) was born on April 16, 2007. The takeover deal was officially completed after four days, on April 20.

In the present time, JetLite has been positioned as a value carrier, offering attractive air fares to its passengers. Over the years, JetLite has managed to form a clientele from not only the elite section of the society, but also from the middle class people. In order to compete with full service carriers operating in the sector, Jet Airways withdrew from many of its routes, to pave way for JetLite operations. Currently, JetLite has five aircrafts, covering as many as 27 destinations across India. The JetLite aircrafts are Boeing 737-300, Boeing 737-400, Boeing 737-700, Boeing 737-800 and Bombardier CRJ-200ER. 

Jet Airways and Air Sahara

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In the biggest aviation takeover in India, Jet Airways has struck a deal to buy Air Sahara for Rs 2,300 crore (Rs 23 billion), a move that would help the Naresh Goyal promoted carrier to become the biggest domestic carrier. As part of the deal, Sahara 's assets including infrastructure and parking slot facilities in the country would now be owned by Jet.

Pre Acquisition Review

Jet Airways Scheme of things

In 2003, Jet airways had a 44% market share which reduced to 33% market share in 2006 due to competition by low cost airlines so Jet airways wanted to maintain the leadership position in te industry.

To reduce the congestion time in Airports. To enter into the low cost airlines business in a big manner. To avoid the delay to purchase new airlines which typically had a waiting

time of 2-3 years. To diminish the no. o f aviation companies in the market, thereby achieving

a pricing power in the market.

Air Sahara Scheme of things

The mismanagement of the airlines was adding burden to the group . It was making losses.

It wanted to exit airlines business & focus more on its booming Real estate business.

There was a huge liability both Long term as well as short term & its aircrafts were also on lease or on loan. So it wanted some quick money to pay off its mounting debts.

Solution A merger with Jet Airways was an attractive & an easy bailout for Air

Sahara from the Aviation Industry.

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What Jet will get from the Air Sahara Merger?

• Complete dominance of parking bays and airport infrastructure

• Analysts estimate that a cost saving of Rs. 150 crore -200 crore is achievable

• Jet will now be the only private Indian carrier to fly international with not

competition for 3 years

• If Jet can bring Sahara up to its own standards and charge its own fares, there is

a revenue upside

• A dominant market share of about 48 per cent. Jet can increase its capacity

without expanding supply.

More than in the capital or asset value, it is in the entrepreneurial advantages and the rights Air Sahara holds in the various domestic sectors and airports, as well as the license to fly a few international routes, that its true value lies. Although others in the aviation industry, including rival Kingfisher, were also interested in the acquisition, the price tag apparently kept them out. Jet Airways has taken its own time to work out the deal, under which it says it will not take on the liabilities of Sahara. Symbiosis Institute of Business Management, Pune. The deal has distinct advantages for both the parties — it can make Jet the major player

in the domestic sector, with a market share of about 48 per cent in traffic, and bale Air Sahara out of its mounting liabilities. Going by market reports, much of the Rs. 2300 crore may go towards settlements of dues and debts. Further, the deal marks the first major step towards consolidation in the Indian aviation industry which has witnessed unplanned and unbridled growth over the past few years. The two airlines were among the first to enter the field when it was opened to the private sector. It remains to be seen what lessons the more recent entrants will draw from the Jet-Sahara deal — they will have to decide if it will be advantageous to remain separate or go in for consolidation through mergers and acquisitions.

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Jet Airways’ decision to acquire Sahara is very significant from a larger perspective, both in the Indian and Asian context. The competitive landscape has been altered. This combination will dominate the Indian airline market for the near term as Jet will have a larger scale and scope than any other Indian carrier. The next biggest competitor (Indian) will be unable to offer effective competition in the present circumstances.

Jet Airways has been able to arrest the development of an emerging hyper-competitive environment. It will help Jet’s new business model to align market shifts with products (network, aircraft size, and frequency), cost structure and financial resources. It will also be able to leverage its domestic size to develop a stronger international presence.

Moreover, in international operations, Jet has bought time, by reducing competition, to put its house in order. It’s no secret that Jet’s international operations need some serious attention considering that last year (April-December), the airline incurred losses worth $8 million on international routes, out of which $6 million were on account of the Delhi London and Chennai-Singapore sectors. Its passenger load factor is 52.4 per cent (average) on international routes — much lower than the break-even level of over 70 per cent. Symbiosis Institute of Business Management, Pune Jet has appointed its vice-president (marketing) GaurangShetty to lead the integration process from its end. Jet plans to address four key issues again — rationalization of routes, renegotiating Sahara ’s leases, replacing a part of its fleet, and improving asset utilization.

How the deal could impact Jet’s financials

Jet also has to ensure that the integration happens quickly enough. Any delays will create openings for rivals. Its biggest threat is likely to come from the public sector Indian — with a market share of around 30 per cent — and maybe, even national carrier Air India.

Indian officials believe that Jet may not be able to capture all of Sahara’s existing

44

clientele after the merger. They expect that Sahara’s passengers may choose low-cost carriers, as they are far more price-sensitive than Jet loyalists. Indian hopes to exploit this chunk. Both Indian and Air India have just ordered 111 aircrafts.

Jet has ordered 30 new aircraft for $2.5 billion to expand international routes.

Interestingly, Sahara’s airport infrastructure could help Jet get better returns. Jet is also keen to expand capacity on domestic routes by 15 per cent.

The competitive scenario

Indian. It could be the biggest competition for the Jet- Sahara combine. Has

ordered 111 aircrafts along with Air IndiaAir India. Seriously considering a full-fledged entry into the domestic market either on its own or through a merger with Indian Air Deccan. Has stayed away from joining the lobby group that hopes to take on Jet. Likely to tie up with Jet for an interline deal.

Kingfisher. A former bidder for Sahara .Likely to be most hurt by this merger.

Has questioned the price of this deal and raised questions about monopolistic

Practices SpiceJet .Has plans to expand fleet rapidly. May survive purely as a low cost carrier playerSymbiosis Institute of Business Management, Pune

Go Air. May continue to depend on low cost carrier advantage. Plans to set up for

an entry into the cargo business as well as an aircraft engineering company

Major areas of concern preventing the deal from taking off:

The government has expressed concern regarding the deal and has opposed it on a

number of fronts.

Firstly, the provision to award Sahara’s entitlements to the Jet Airways has been raised by the CPI (M). The point that an entitlement to airport infrastructure were awarded to an entity, but if the entity (Sahara) ceased to exist, entitlements couldn’t be transferred was strongly supported by the party.

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Secondly, reservations about how Jet got the money for the acquisition are strongly expressed

Thirdly, delays in securing regulatory clearances have forced the two airlines to extend the timeline for the culmination of the deal.

However last month the airport panel cleared the Jet- Sahara deal transferring all of Air Sahara’s assets to Jet Airways. It was also decided that the government would have nothing to do in the Jet- Sahara deal on whether they would merge or set up a separate company.

With the clearance issues done with and non interference on part of the government, the Jet- Sahara merger looks promising for the Indian aviation sector. With competition rising and many small players entering, perhaps mergers and

acquisitions have finally caught on this sector of the industry too...with the Indian

and Air India next in queue.

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CHAPTER -3

METHODOLOGY AND DATA COLLECTION

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METHODOLOGY

3.1 Methods of data collection : The different methods used for data collection are

survey from JET and Sahara employees, research from web and magazines and

journals.

3.2 Sample of Study :

Sample Questionnaire -

Name of the Employee and Department: _____________________

Please answer the following questions about Jet and Sahara merger

Questionaaire :

1. How does Jet and Sahara merger affect the employees?2. Are you satisfied with the process?3. What are the major changes occurred due to merger?4. Mention the challenges faced?5. What kind of structural changes taking place?

Based upon above questions below answers were achieved : Merger has given birth to forced attrition in organization. Both Jet and

Sahara resources were asked to leave the company. Process is found to be too time consuming and less results and also

unexpected results are seen. Many lives are affected. Change in management staff is a big issue and creates communication gap. Difficult to deal with new culture. Abrupt changes within the teams and management are disturbing.

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3.3 Source of data : the different sources used and referred are as below.

Magazines

Journals on merger and acquisitions

Jet and Sahara websites

Internal employees of Jet Airways.

3.4 Limitations : There were many challenges and limitations faced during this

project. The internal data of any company is not easily revealed and is not available

in magazines or websites. Also one is not allowed to interact with internal

resources or access internal data. By some acquaintance some data is been

collected.

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CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

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M ergers and Acquisitions: Issues and Concerns Mergers and acquisitions fail if they are not in conformance with the strategic objectives. A study carried out by McKinsey & Co. concluded that some companies focus too much on cost cutting while neglecting day-to-day business, and thereby profits suffer. A merger may also have been done for just glory than conforming the strategic objectives. An executive’s ego gets satisfied when he buys the competition, especially when he gets a big bonus for the deal. Bankers, lawyers and other assorted advisers who can earn big fees from clients engaged in mergers are biggest motivators for these deals.

Economies of scale thought of at the time of deciding the merger can become elusive. The organization may become too fuzzy and unmanageable. Mergers may also be driven by the fear of Globalization. The step may be defensive when the management thinks that it is better to acquire before getting acquired.

Some mergers and acquisitions have also failed because of differences in the top management. It is a result of lack of clarity, at the time of decision of merger or acquisition, of the future strategic steps to be taken. It is most important that mergers and acquisitions are backed with strategic objectives and not driven by the hype or selfish motives of the management. It needs proper corporate governance on the part of management. Talent retention becomes very important in the wake of merger or acquisition. The company needs to ensure that the best talent remains in the company. For that it needs to have proper plan at the time making decision of merger or acquisition.

It also needs to ensure that the culture does not change drastically or if it needs to be changed there is proper change management in place. Also, the top management needs to form a clear common vision at the time of making the decision for merger or acquisition.

Importance of Valuation

A valuation of a target company or business in needed to decide the maximum price that a purchaser should be willing to pay for control. The seller responds to the offer that a bidder makes, based on the bidder’s valuation. However, a seller also could make his own valuation of a shareholding or business unit, as the minimum cash price that would be acceptable or as the target price to achieve.

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There are many mergers that have failed due to difference in the Valuation techniques used by different companies. A recent case in the Indian context is the HLL-TOMCO merger that took place in the 1992.

A reason why there was large hue and cry was raised:

a) The swap ratio that was derived and finally agreed upon was that for 2 shares of HLL, the HLL shareholders will get 15 shares of TOMCO. This was deduced on the basis of three valuation methods. Weightings were given and then a value was derived at. The valuation methods that were used were the yield method, the asset value method, the market value method.

b) And, an independent committee arrived at a value of 5:15 swap ratio as against 2:15 as was agreed upon by the parties in merger. This was the reason behind the deal falling out.

The Matrix-Stride merger plan was also called off due to non agreement on the valuation front of the company.

The Jet-Sahara Fallout (absence of strategic planning)

The major reasons due to which the much talked about aviation industry felt flat on its face were:

a) The policy related to mergers and acquisition in the aircraft industry did not clearly specify the terms of transfer for airport infrastructure. The guidelines though clear on parking bays and landing slots, did not specify the status of aircraft hangars, check-in counters, cargo warehouses, passenger lounges and other such airport facilities.

b) Also, Jet Airways enthusiastically overvalued Air Sahara, and later wanted a discount on the original price (20 to 25 percent). This is typically a case of overvaluing a company whose business model was not robust.

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Some of the reasons why Mergers & Acquisitions have failed in recent times are as follows :-

1. No Guiding principle

As rudimentary as this sounds, we often see merging companies fail to develop a set of guiding principles linked to the merger's strategic intent. These principles should get at the very logic of the transaction—is the merger absorption of one company into another or a combination designed to take the best of both? Perfection may not be possible, but these principles will ensure that all decisions drive the combined entity in the same direction. In a best-of-both-companies transaction, for example, one principle might be: "Combine IT organizations by selecting the most up-to-date systems and deploying them across the combined entity."

2. No ground rules

While this sounds similar to point number one, ground rules for planning provide nuts-and-bolts guidance for how the planning teams should act as they begin to put the face of the merged entity on paper. These rules should include processes for how decisions are to be made and how conflicts should be resolved.

3. Not sweating the details It's hard to believe, but detailed post-close transition plans can be lacking even when two companies are working hard and have top-level leadership closely engaged. Why? To some extent, this reflects the daunting complexity of any integration. It can also, however, reflect the culture of the companies and a resistance to detail and top-down accountability. The acquirer may be suffering from acquisition fatigue, management distraction, and reluctance to share information, or a simple unwillingness to follow a methodical decision timeline.

4. Poor stakeholder outreach All relevant stakeholder groups—both internal and external—must receive communication about the transaction, early and often. While employees (see sin number eight), customers, and regulators get the bulk of the attention, there is a long list of additional stakeholders such as communities, suppliers, and the like who also need care and feeding. Management must strive to understand how these groups view the deal and how they might react to changes such as new pricing, the elimination of vendors, and adjustments in service and personnel.

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5. Overly conservative targets Management must set aggressive targets from the start. This helps reinforce and clarify the transaction's guiding principles and strategic intent, specifically, how hard the integration teams need to push for cost savings and revenue growth. Most companies tend to focus on one or the other—but neglect to place adequate emphasis on both. Experience demonstrates that management never gets more in synergies than it requests. So, build your targets with some stretch and expect that your people will find a way to get there.

6. Integration plan not explicitly in the financials We have seen merging companies build detailed integration plans only to stop short of driving them into the combined entity's operating financials in a clearly identifiable manner. Institutional memory is short and the plans are often redone on the fly (see sin number nine). While the integration plan will evolve, you need to create financial benchmarks that can be tracked.

7. Cultural disconnect Bringing disparate groups of people together as one company takes real work and represents an effort that is often largely overlooked. Culture change management is not indulgent; it is a critical aspect of any transaction. However, simply acknowledging the issue or handing it off to specialists is not enough. Management must set a vision, align leadership around it, and hold substantive events to give employees a chance to participate. Detailed actions and well articulated expectations of behavior connect the culture plan to the business goals.

8. Keeping information too close There is a natural hesitancy to share information, and current regulations put pressure on what management can tell the organization without going to public disclosure. However, absent real facts, the rumor mill will fill the void. Tell employees what you can. Also, tell them what you can't tell them at the moment, why, and when you will be able to do so.

9. Allowing the wrong changes to the plan

All the hard work and despite meticulously avoiding sins one through eight, some

companies still miss the mark. The popular trend toward empowered line managers

and decentralization carries the risk of handing off carefully designed plans to new

decision makers who are not steeped in the balances and considerations that made

the plan viable in the first place. Following handoff, every company needs clear

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decision rights about who can change the agreed-upon plans, under what

circumstances, and with what approvals.

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CHAPTER 5

CONCLUSION AND RECOMMENDATIONS

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CONCLUSION

Mergers & Acquisitions (M&A) has become the most important strategic element

driving business growth and excellence. Mergers and acquisitions will continue to

be an ever-present characteristic of the modern corporate landscape. Merger and

acquisition (M&A) bring together different sets of people, processes and

technologies with the common objective of creating a larger, unified organization.

The organization aims to benefit from the synergies of merging organisations by

consolidation, rationalization and integration of the people, processes and

technologies of both organizations. Human Resources (HR) has the potential to

play an important role during all stages of M&A. However, these issues are rarely

considered until serious difficulties arise. The Human Resource dimension of

M&A should be accorded the same emphasis and attention given financial, legal,

operational and strategic concerns. HR no longer plays a dormant role and is

emerging as a strategic business partner where key initiatives undertaken such as

communication, training, counseling, career planning, support workshops, building

trust, coaching and compensation planning, have significant business impact.

HR Challenges in Mergers and Acquisitions

The rapid changing business scenario in the market place, due to the globalization

phenomenon, growth in the outsourcing mode of working, the need to speed up

growth, and the shortening of product cycles, has forced companies to think about

using "mergers and acquisitions" as a part of their business strategy, to meet their

business goals. Depending on how the two companies see their position in the

merger, they would broadly fit into one of the four situations - rescue, partnership,

adversarial, hostile.

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The problem

Mergers are failing to meet their objectives. In the last decade, mergers and

acquisitions have become a worldwide growth story, despite the high risks

attached, and the information that over 85% of them have failed during the process

of integration. It has been determined that most cases of failures have been because

of employees not being able to adjust to the new environment, and/or many good

employees leaving the organizations during the process of the integration. Despite

a well planned strategy acquisitions have found to be a failure, and the main reason

attributed for the failure is the challenges faced in managing people related issues. 

Some reported findings People are the key to making a merger work, and it is the

people-related problems like, culture clashes, management disputes, loss of talent

and the inability to manage change, which are the basic reasons why mergers fail.

The top seven obstacles to achieving success with a merger or acquisition are:

1. An inability to sustain financial performance

2. Loss of productivity

3. Incompatible cultures

4. Loss of key talent

5. A clash of management styles

6. An inability to manage / implement change

7. Objectives / synergies not being well understood

All these obstacles are either directly or indirectly related to the strategic

management of people and that cultural differences between companies may be the

single highest barrier to success. HR professionals usually have little involvement

at the pre-deal stage, which goes a long way to explaining why people,

organization and culture issues tend to get overlooked, the usual members of the

deal team not being trained to identify or assess such issues.   Stages of a

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Merger  A merger has a profound effect on the people of both companies, and

managing this impact is an important part of managing a successful transition to a

unified leadership, business model, and organization. By recognizing and

responding appropriately to the impact of the deal on each employee, HR managers

can set the tone for long-term success or failure of the new company. In the pre-

deal stage, it is the Organizational Design that needs focus, particularly assessing

and selecting the right leadership talent - Right people in the Right

Positions. Remuneration also plays a key role and needs to be considered from the

multiple perspective of strategy impacting employer, employee, and cost.

Maintaining and building morale and loyalty, and treating people fairly are the

other areas in this stage that plays a significant role. In the post-deal stage, it is the

responsibility of the HR to plan and manage the integration process.  Given below

are some reasons that resulted in successful integration.

Detailed HR due diligence

Employee communication

Talent retention and selection

Integrating the HR function

Integrating pay and performance management programs

HR planning and project management

Leadership development

Change management and culture 

Cultural integration The major sub-area of the HR challenges faced in a merger is

the issue about culture. It is also the most difficult area to understand and get right

in combining two or more organizations. Cultural integration is a major barrier to

success in a merger. Every organization has its own unique business culture.

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Companies may be dominated by a sales mentality, or an engineer's rule. Some

companies have a culture of paternalism while others are more democratic and

participative. Bringing two different business cultures together in any transaction

can create frictions. This situation is further compounded when differences in

national customs and language are added to the mix. Fortunately, cultural

differences are not insurmountable. The steps a company can take to help reduce

the potentially negative impact of culture differences. Anticipate cultural

challenges. Ask for guidance on cultural issues. Understand that cultural

differences can exist within the same country. Have a strategy for overcoming

cultural conflicts.· Remain alert to the symptoms of the post-deal cultural clash.

Recognize that business culture in emerging markets does not stand still. 

SUGGESTIONS/ RECOMMENDATIONS

The challenges faced on the cultural integration, is suggested to be handled using

these 8 steps.

1.Build transaction context and rationale

2. Determine degree of organizational integration

3. Assess organizational behavior

4. Develop change hypothesis

5. Determine drivers of behavioral change

6.    Design appropriate drivers

7.    Implement change

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8.    Measure and reinforce change outcomes  

The study brings out that for mergers to be successful, it is important to address

issues revolving around 

1. Clarity - provided at the earliest and constantly addressed to satisfy queries

from employees is a must manage situation. Companies must look at

establishing suitable processes that could be set up to manage this as suited to

their work environment.

2. Competence - must be the focus area to assess quickly and establish its link to

the new business plans and strategies. It is important to be able to utilize the

existing competencies to further the objectives of the company.

3. Commitment - from all employees needs to be obtained, and this is possible by

bringing into alignment current and future needs of employees with the

objectives of the company.

MORE RECOMMENDATIONS

The following recommendations are being put forth for companies to consider in

making the process of mergers useful in retaining the people, and thereby

protecting perhaps the most valuable assets that the company has acquired. 

1. Evolve a clear vision and business strategy of the merger during the process of

negotiation, and have it ready for communication across the two companies.

2. Involve the HR early in the cycle of negotiations, to map the culture of both

the companies, and where necessary evolve a culture that suits the merged

entity. 

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3. Create a new Organization Chart, and take up a detailed audit of the

competencies of the employees to map their roles and responsibilities as

aligned with the new chart. 

4. Establish a strong communication system, to proactively stall the arising fears

and insecurity amongst the people. Establish a single point of contact for the

employees of the company to talk to and seek clarifications / answers to their

queries. This person should have easy access to the Senior Management team

to get their views to help clarify matters that arise. 

5. Communicate to provide clarity of the plans, and communicate continuously.

If needed, using an external agency that can be seen as a neutral agency, for

this purpose could also be considered. 

6. Engage employees in productive work and keep their motivation /

commitment levels at the highest possible levels.

Concluding remarks

It is clear that the success of a merger between two or more companies depends as

much on culture fit as it does on strategic and financial fit and the proper

management of change and employee response thereto.

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CHAPTER 6

LIMITATIONS OF STUDY

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LIMITATIONS

The interview and questionnaire were conducted within the company JET and

SAHARA from their employees. However to ensure that the data holds enough

validity and reliability, we have asked for written confirmation on data. But the

same was not received and it had become a challenge to prove the data is true and

upto the mark.

Due to the same reason we had to depend upon websites, journals and magazines

for data collection. Also aviation sector being on high security we were not

allowed to do much of the research inside the office premises.

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REFERENCES

PCTE Journal of Business management,

Pragynan : Journal of Social and Management Sciences

Indian Economic Review

Pragynan : Journal of Social and Management Sciences

Center of Aviation

Jet Airways

Sahara Airlines

Investopidia – The Basics of Merger and Acquisitions

Wikipedia

Badawy MK (1988). "What we’ve learned about managing human

resources in R&D in the last fifty years", Res. Technol.Manage. 31 (5):

pp.19-35.

Blau G, Boal K (1989). "Using job involvement and organizational

commitment interactively to predict attrition", J. Manage. 15 (1): 115- 127.

Bluedorn AC (1982). "A unified model of attrition from organizations",

Hum. Relat. 35: 135-153.

Brooke PP, Price JL (1989). "The determinants of employee absenteeism:

An empirical test of a causal model". J. Occup.

DeMicco FJ, Giridharan J (1987). "Managing employee attrition in the

hospitality industry", FIU Hosp. Rev. pp.26-32

Locke E (1976). “The nature and causes of job satisfaction", in Dunnette.

MD (Eds). Handbook of Industrial and Organizational Psychology, Rand

McNally, Chicago, IL, pp. 1297-1349.

Aviation News

Aviation Today

Flight Global

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Flight Journal

Aero-News Network , June 28, 2011

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Bibliography

(1)Books & Journals: PCTE Journal of Business management,

Pragynan : Journal of Social and Management Sciences

Indian Economic Review

(2) Websites:

www.google.com

http://www.wikipedia.org/

http://www.investopedia.com/

http://www.jetairways.com/

http://www.iloveindia.com/airlines-in-india/domestic/air-sahara.html

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