Impact of Mergers and Acquisitions on Financial Performance of Select Airline Companies in India

Purpose: Increase in competitive pressures fuelled by globalization, deregulation and privatization have forced many firms to adopt a variety of strategies including mergers & acquisitions. In 2007, the Indian aviation industry had witnessed three such consecutive mergers & acquisitions of airlines(notably merger of Indian Airlines with Air India, acquisition of Air Sahara by Jet Airways and merger of Kingfisher Airlines with Air Deccan). Global evidences on mergers and acquisitions show that there is a high rate of failures due to cultural indifferences and carry forward liabilities by the merging firm. In this study, an attempt has been made to analyze the financial performance of the three merged airline companies.

Design/methodology/approach: The pre-and-post merger performance ratios are calculated and compared by using paired sample “t-test” to see if there is any statistically significant improvement in their performance during the post-merger period. Further, to analyse whether effects of mergers & acquisitions are similar or different, we applied two-way ANOVA technique.

Findings: The results found are mixed. While the authors have found a considerable improvement in the financial performance of Jet Airways and Air India, the performance of Kingfisher Airlines had deteriorated due to post-merger acute financial crisis caused by heavy debt resulted the company to close off its operation.

Keywords: Mergers & Acquisitions, Financial Performance, Liquidity, Profitability, Debt Coverage, Investment Valuation, and Managerial Efficiency.