Mumbai: Amitabh Malhotra, director of investment banking firm N.M. Rothschild and Sons (India) Pvt. Ltd, has seen Indian aviation from close quarters since the sector was opened to private investments.
Bang for the buck: Amitabh Malhotra says the aviation industry should restore common sense in fares, pushing out the predatory pricing. Photograph: Ashesh Shah / Mint.
He was instrumental in bringing in the first private equity investor into Air Deccan (now Simplifly Deccan) in 2004. Four years later, Malhotra brokered another important deal — WL Ross and Co. Llc’s $80 million (around Rs338 crore) investment in Delhi-based low-fare carrier SpiceJet Ltd.
Malhotra says finding an investor for a private carrier in India, when the rising price of jet fuel is pulling down their profits, is a very tough job.
The SpiceJet deal will certainly not open up a floodgate of such deals in the industry that is gearing up for consolidation. There could be only two full-service and low-fare carriers each, Malhotra says in an interview. Edited excerpts:
How difficult is the job for an airline deal?
It’s extremely difficult to work on an aviation mandate and convince an investor even though such deals have a glamour quotient and give us visibility. We have done better transactions than this, but people talk more about the SpiceJet deal.
Incidentally, this is not my first aviation deal. I had helped Deccan Aviation Ltd to get private equity in 2004-05. I had also helped it to get a sale and lease back for its ATR planes. We were advisers to the GVK-South African consortium for the Mumbai International Airport project.
The SpiceJet deal is an example of changing times. When we were doing the Air Deccan deal, there were nine offers and we took only three to the data room. That was the time when supply was more favourable than demand. Now, it is the other way round.
What led Ross to invest in SpiceJet?
All airlines in the domestic aviation market are enjoying a level playing field when it comes to making losses. I would be glad to see more investors participating in Indian aviation sector.
It’s important to know why Ross has decided to make an investment in SpiceJet when other carriers in the market are queuing up to raise capital. The investment in SpiceJet speaks volumes about the company’s inherent business strength.
It’s no secret that SpiceJet has stuck to its core low-cost business model. It almost started making profits in its first nine months of operations of the last financial year (to March) before airlines started losing money because of the rising jet fuel prices.
What finally clinched the deal?
Ross has taken a view on oil and possibly on the company. Considering the opportunities in the sector, Ross has selected a firm where it is going to get the best for its bucks. It has invested money in a company that is on the path of profitability, has a decent market share and a strong business model.