DH Analysis: Curse of acquisitions in India's aviation

In the past decade, India witnessed grounding of two of its premiere airlines -- Kingfisher and Jet Airways. Both used to provide five-star services to their respective customers, both melted down after their debt became unsustainable.

But the similarities don't stop here. The trajectory of descent for both the airlines has been more or less similar: it all started with a high-cost acquisition of a competing airline by over-aspirational founders. The only difference was that Jet -- with its deep coffers -- could sustain the brunt longer than Kingfisher could.

The twin acquisitions that took place within a gap of two months from each other in 2007, were expected to change India's aviation industry forever. It did, albeit, in a negative way.

Back in April 2007, Jet decided to buy Air Sahara from Subroto Roy, who was facing the crunch of funds, for a whopping sum of Rs 1,450 crore -- all financed through the debt. The airline was later rebranded as JetLite by Naresh Goyal.

In a bid to counter Jet's growing influence, liquor baron Vijay Mallya went ahead and bought out Air Deccan for a sum of Rs 550 crore. However, the planes of Air Deccan were marred with issues of narrow aisle space. With customer service in focus, Mallya decided to remove one column of seats on the left side of the plane and relaunched them as Kingfisher Red.

Many at that time believed that this was a potential gamechanger in the industry, that was poised for growth commensurate with the growing aspirations of India's middle class.

Immediately after the two buys, there was a cut-throat competition between Mallya and Goyal for the market share leadership: Mallya controlled 31% of the market, while Goyal controlled 34%.

However, in the garb of increasing their market share, both failed to realise that the aviation industry runs on wafer-thin margins. As the low-cost no-frills carriers, like IndiGo and SpiceJet, came up with cheaper prices, the premium airlines like Jet and Kingfisher found it difficult to sustain their market share. With falling prices, they even found it difficult to service their debt.

Within five years of 2007 dual acquisitions, the aviation map of India had completely changed -- while Kingfisher was grounded, Jet had ceded its market leader position to IndiGo. In just two years of the acquisition, Jet had announced a layoff of 1,900 employees, who were later reinstated after the intervention by the Ministry of Civil Aviation.

To sustain its operation, Jet was able to manage a deal with Etihad Airways in late 2013, wherein, Goyal ceded 24% of his stake to Etihad for a sum of $379 million. However, since then the company's market value has continuously eroded along with the decline in the bottom line. However, the water reached the brink last year, when Jet became unable to service its debt and ultimately got grounded like its competitor of 2007 - Kingfisher.