SpiceJet, GoAir in talks for consolidation

CEOs met late last month to discuss agreement.

elhi-based low-cost carrier SpiceJet is in talks with the Wadia group-owned GoAir for either a merger or to acquire a controlling stake.

Sources close to the development said SpiceJet CEO Sanjay Aggarwal met GoAir Managing Director Jeh Wadia to discuss a deal late last month.

When Business Standard contacted Aggarwal, he said: “It is true that Jeh and I travelled together. But I cannot comment on anything relating to a deal at the moment.”

He said he had “said before that there is a need for more consolidation in the market and that there will be fewer carriers than at present”.

Pointing out that there are several ways of organic growth, he added that “consolidation is definitely one of them, and it may take place through a merger or an acquisition”.

Wadia, however, declined to comment on the issue. “How can I comment on market speculation?” he said in reply to a question on whether SpiceJet had approached his airline for an alliance. An email questionnaire sent to him was unanswered.

Sources from both companies also said SpiceJet recently made an offer to GoAir Chief Financial Officer G P Gupta to join the Delhi-based airline as chief administrative officer.

On February 26, Aggarwal told an international news agency SpiceJet wanted to set up a regional airline to connect smaller cities in the country.

Apart from Delhi and Mumbai, GoAir currently flies to smaller towns like Goa, Jammu, Srinagar, Jaipur, Ahmedabad and Kochi.

Sources in the airline said applications had also been made for slots to Chandigarh, Amritsar, Hyderabad and Bangalore.

Industry experts said another advantage of a merger would be the fact that GoAir was looking at increasing its fleet to 20 aircraft by 2011, from five at present.

“If SpiceJet acquires the airline, it will gain access to slots for the aircraft orders, which it can sell,” said an industry expert. Selling order slots has emerged as a lucrative revenue stream for several Indian airlines that are feeling the pinch of falling passenger traffic.

“The difference in the nature of the two airlines’ fleet could, however, be a problem, since SpiceJet operates Boeings and GoAir operates Airbuses. But then, GoAir has a very competent engineering team that would make for good synergies,” he added.

SpiceJet has a market share of 11.8 per cent and GoAir 2.4 per cent.

US investor Wilbur Ross recently invested $80 million in SpiceJet. GoAir is understood to be looking for investors.