civil aviation sector
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This article is written by Sukeshi Singh, pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from


The Indian aviation industry is divided into two parts- Civil and Military Aviation. Military Aviation is completely government owned and all decisions in this respect are made by the Ministry of Defence. In this Article, we’ll focus only on the civil aviation sector of the country. 

Jehangir Ratanji Dadabhoy (JRD) Tata is the pioneer of civil aviation in India.  He was the founder of India’s first commercial airline in 1946 called Air India, which was later taken over by the government. Currently, India is the third largest domestic civil aviation market in the world and fifth largest market in terms of air passengers both domestic and internationally. 

Market Structure

Indian aviation sector has seen a few market changes over the last few decades. In March 1953, the Indian Parliament came up with the Air Corporations Act, which nationalised the airline industry and the eight independent airlines operating were merged to form two government owned entities – Air India, operating internationally and Indian Airlines, operating domestically. 

After de-regulation in 1991, the increasing number of airline passengers, limited number of players in the market, huge entry costs and barriers and big market shares led to creation of an oligopolistic market.  

Growth and Investment 

Indian Government’s initiative UDAN was largely successful in bringing air travel to an average Indian by making the travel affordable. The initiative contains the Regional Connectivity Scheme which operationalised underdeveloped regional airports. 

It is pertinent to note here that government allows for 100% foreign direct investment in civil aviation sector, 49% of which is under automatic route and the rest with government approval. 

Covid-19 pandemic has adversely affected the entire world. The worst affected areas have been the travel and tourism sectors. Due to the lockdown, social distancing and other preventive measures adopted by the government, the air passenger traffic is likely to witness a de-growth of 41 percent. 

Source: FICCI and KPMG report on Vision 2040 for Civil Aviation Industry in India. The data does not account for changes as a result of covid-19 pandemic. 

M&A in Aviation sector 

The aviation market is more or less saturated and due to entry barriers, there are limited number of players. Mergers and acquisitions in this sector are highly strategic and following points need to be kept in mind:

(a). Operative and Financial synergies: Airline profit margins are quite low pertaining to the huge operational cost (including cost of aeroplanes, cost of purchasing airports space, rebounding oil prices, employee cost, cost of compliance with high safety regulations etc). Since the market is competitive, any change in pricing strategy would be detrimental for business. In such cases, strategic alliances between airlines as part of M&A is beneficial. An alternative to M&A is code share agreement or interline agreements which allows the parties to share resources and reduce costs. 

(b). Market Power Motive: As stated before, the airline industry in India is growing at a rapid race and the domestic demand is expected to grow five folds by the year 2040. Increasing customers and government’s liberal FDI policies have made this market lucrative for foreign investment and M&A can be a preferred method for entry into the domestic markets. Even domestic airlines enter into M&A to significantly increase their market share. 

Top mergers in civil aviation sector

Sr. No


Parties involved

Type of deal

Merged Entity/ stake acquired 

Deal Value 


12th April, 2007

Jet Airways and Air Sahara



Rs. 2050 Cr


15th July, 2007

Air India Limited and Indian Airlines


Air India brand name was retained 


31st May, 2007

Kingfisher Airlines (acquirer) and Air Deccan  


Kingfisher Red

Rs. 1000 Cr.


April 25, 2013

Etihad Airways (Investor)- Jet Airways 


24% stake acquired in Jet Airways

Rs. 2060 Cr.

Jet Airways and Air Sahara


Jet Airways and Air Sahara were both born as part of the Open Skies Policy of the government in 1990s. By 2006, Air Sahara had run into financial difficulties and to cope up changed its business model from a full-service airline (providing both business and economy class facilities) to a low-cost carrier. The losses kept on accruing and soon Air Sahara found itself looking for buyers to rescue itself. 

Purpose of Merger

The three main reasons for Jet Airways acquisition of Sahara were: 

  1. International Route synergies: Jet Airways was operating on long haul routes, like US and Europe and Air Sahara operated on neighbouring area routes like Sri Lanka, Nepal and Thailand. Sahara also had permit to operate in Gulf region. This would have allowed Jet to have wider presence globally.
  2. Operational synergies: The merger would give Jet access to Air Sahara’s parking lots in London (Heathrow), Delhi and Mumbai, Sahara’s airport infrastructure and maintenance facilities. Jet Airways was facing a shortage of airline pilots which could have been solved by this acquisition. 
  3. market share: The merger between these two airlines was the largest in India at that time. The market power of the merged entity was expected to be approximately 40% of the airline market. 

Challenges Faced 

Two most lucrative assets that Air Sahara possessed were flying rights to overseas destinations (like London and Singapore) and airline infrastructure.  This made it an attractive target for competitors in the market. New Players like Kingfisher and SpiceJet were also in the race to buy Sahara.

The deal with Jet Airways was supposed to take off in 2006 itself when Jet signed a Rs. 2,200 Crore deal with Sahara. The deal fell through due to two major reasons.

(i). The country had no aviation merger and acquisition policy specifying the terms of transfer of airport infrastructure so it was assumed that airport facilities belonging to Air Sahara would automatically be transferred to Jet. However, in anticipation of more future mergers and acquisition and due to limited airport infrastructure, the government decided to frame a comprehensive policy which required government clearance for the same. The clearance was issued in form of a policy which again was ambiguous on transfer of facilities like hangers, passenger lounges and check-in counters. The government’s delayed clarifications and explanations were one of the major factors for failure of the deal. 

(ii). Another major reason was the confusion relating to transfer of Sahara’s International routes. Jet was all set to be the only private airline to fly abroad (except West Asia) with no competition for the next three years. However, due to lack of clarity it was not sure if Jet would own Sahara’s flying rights.  

In the light of these issues, Jet Airways had asked Air Sahara to renegotiate price of the acquisition which the latter did not agree to and the deal was subjected to dispute resolution. In 2007, keeping all the differences aside, Jet agreed to buy Sahara Airlines for a lump-sum of Rs. 1450 crore and Air Sahara’s fleet was turned into Jet’s budget carrier subsidiary called JetLite. 

Outcome of Merger

The deal with Air Sahara was supposedly over-valued as Sahara was already incurring huge losses. The complexities, delays and unsuccessful attempt had adverse effects on stock market prices of both the companies. JetLite was made into a budget carrier. The company had a low-fare strategy but not a low-cost structure due to which it struggled with its operations and the brand image went down. The fierce competition provided by other low-cost private airlines and fluctuating oil prices did not help the situation.

Air India Limited and Indian Airlines


Aa part of the Air Corporation Act, 1953, the government nationalised the civil aviation industry. The then existing eight domestic airlines were merged to form Indian Airlines, which operated domestically and Air India was separately made operational on international routes. While Air India did not face much managerial difficulties due to this government decision, merging eight separate managerial and supervisory staff into one Indian Airlines was a mammoth task. The deregulation and privatisation of state-owned enterprises was announced in 1990s as part of Liberalisation, Privatisation and Globalisation reforms across the globe and deregulation of air transport happened in lieu of economic liberalisation and to further foreign investments. 

Purpose of Merger

The merger of Air India Limited and Indian Airlines into Air India was conceptualised due to the severe competition with, and growing popularity of low-cost private airlines. Since 2004, both Air India Limited and Indian Airlines had witnessed a drastic decline in revenues after which the government formally announced the merger of these two companies into National Aviation Company of India (NACIL). The brand name, “Air India” was retained. This was done with a view to gain significant market share and boost revenues. However, the merger did not fare well and led towards a non-recoverable financial crisis. 

Outcome of Merger

The net synergistic benefits of the merger were calculated at Rs. 8.2 billion. The potential recurring synergies were expected to increase profitability by Rs. 6 billion at the end of the third year of merger. Contrary to the expectations, the merged entity immediately stated losing money. This was attributed to the poor human resource integration, inconsistent leadership, pay disparities between staff members and employee unrest which led to a series of strikes hampering the airline’s operations. The fierce competition provided by low-cost private airlines added fuel to the deterioration. As reported, Air India incurred losses worth Rs. 280 Billion between 2007 and 2012. 

Kingfisher and Deccan Limited 


Owned by Vijay Mallya of United Breweries (Holding) Limited, the luxury airline Kingfisher Limited was started in 2005. It operated on domestic and international routes. Air Deccan on the other hand was a low-cost economic airline. Both these airlines catered to different segments of society and had different models. 

The acquisition was a two-step process, where UB Group (parent company of Kingfisher) and its nominees were allotted 26% of equity shares of Deccan Aviation and later through an open offer acquired 20 % more. Kingfisher became Air Deccan through a reverse merger but changed the name back to Kingfisher Airlines in 2008. Air Deccan’s fleet was spun off into a subsidiary called Kingfisher Red. 

Purpose of Merger 

There were three major reasons for the acquisition:

(i). Synergic benefits: Unlike Jet Airways and Air Sahara merger, both Kingfisher and Air Deccan airlines flew similar aircrafts (ATRs and Airbus A320s) and could share many facilities like engineering, infrastructure and ground handling.

(ii). Market Power: The domestic passenger market share of the combined entity was expected to be 33%.

(iii). Expanding overseas: The National Civil Aviation Policy of 2004, implemented the 5/20 rule which made it mandatory for domestic airlines to operate domestically for at least five years before flying abroad and must still deploy 20 aircrafts or 20% of total capacity in India. Established in 2005, Kingfisher was not eligible to start international flights till 2010, whereas, Air Deccan was eligible to operate internationally from 2008. 

Outcome of Merger

The merger was mostly driven by the view to start international operations. Initially this deal was supposed to save 300 Crores, however, Kingfisher ended up spending 500 Crores on a company that already had incurred losses of 550 Crores. Adding on, the merged entity accrued a loss of 1000 Crores in the next three years. The Company was never able to recover from these losses. The cut-throat competition provided by Jet Airways and Sahara merger, increase in fuel prices and economic recession of 2008 were just some other factors in the downfall of Kingfisher. 

In 2012, the Director General of Civil Aviation suspended the company’s license after Kingfisher was declared a non-performing asset by the consortium of banks headed by State Bank of India. 

Jet Airways and Etihad Airways 


In 2013, Jet Airways was faced with a near -death experience and was rescued by Etihad Airways. Etihad Airways agreed to purchase a majority stake of 24% shares of the Jet Airways. The Founder of the company Mr. Naresh Goyal owned 80% stake at that time. The deal also included Etihad’s investment in Jet Airways Frequent Flyer Scheme, sale and lease of Jet Airways slot at Heathrow Airport (which was a part of the Jet- Sahara Merger). It was a win-win on both sides because Etihad had been planning its expansion into India’s one of the fastest growing markets since some time and Jet needed to be rescued after the failure of JetLite. 

Challenges faced 

The deal between Etihad and Jet Airways was finalised right when the bilateral agreement on use of air space for flights and seats was concluded between the Indian and Abu Dhabi Government. Many suspected that the deal which approved an unprecedented 36000 seats on weekly flights would take over Air India’s customers travelling to the Gulf. The matter was referred to the Civil Aviation Ministry, Department of Industrial Policy and Promotion, Department of Economic Affairs and Ministry of Corporate Affairs for scrutiny. The deal was subsequently approved by all of them. The acquisition was also approved by Competition Commission of India and Securities and Exchange Board of India. Foreign Investment Promotion Board (FIPB) approved the deal with conditions, which required the company to seek prior approval from Government before making changes in shareholders’ agreement with Etihad and implementing Indian laws in event of arbitration between the parties. 

Outcome of Merger

Jet Airways had always been operating under a single management system led by the founder Mr. Naresh Goyal. This structure did not prove very efficient in the long run. The airline lost out on financial and strategic partnerships because the founder refused to lose control of the airline. Increasing crude oil prices in the international market, tough competition with low cost carriers also attributed to increasing losses. In 2018, Etihad had to rescue Jet once again by becoming a guarantor for the syndicate loan of $150 Billion.  In 2019, Etihad attempted to exit the company by selling its shares but could not find a suitable buyer. Later that year, lenders filed for Jet Airways’ bankruptcy. 


As observed from the numbers given herein, mergers and acquisition in aviation sector is very risky specially considering the fact that more often than not the companies are not able to recover the losses. The market is competitive and highly price sensitive and one uncalculated move can bring down a company like pack of cards. The best way to get maximum benefits without being debt-ridden is to enter into strategic alliance agreements like code-share or interline agreements, which would enhance customer experience, allow resource sharing and reduce costs. 

The aviation industry has been hit-hard during pandemic and due to the doubts around tourism and travelling, it is not expected to bounce back soon. Due to the steep profit margins, the companies are now facing a liquidity crisis and are trying their bets to stay afloat. To cope up with the loses largest airlines in the country like Indigo (having around 60% market share) have been involved in selling assets and leasing planes. Its rival carrier, SpiceJet is focussing on a long-term solution to cut losses and is planning to renegotiate its contracts with vendors.  

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