Mumbai: India’s largest private carrier Jet Airways (India) Ltd is set to raise Rs1,500 crore from two domestic banks—State Bank of India and Punjab National Bank—to meet working capital requirements and fund expansion plans, according to a senior executive of one of the lenders who didn’t want to be identified.
A senior Jet Airways executive, on condition of anonymity, confirmed that the carrier is in talks with these two banks. “We are in talks with several banks to raise money. It is too premature to comment on details of the fund-raising,” he said. He did not want to be identified considering the sensitivity of subject.
The senior banker mentioned earlier said both the banks have in principle agreed to lend to Jet on “appropriate collaterals”.
Into thin air: A file photo of a Jet Airways plane at Leh airport in Ladakh. On 13 October, the carrier forged an alliance with Kingfisher Airlines to share infrastructure, jointly purchase fuel and rationalize networks. Ramesh Pathania / Mint
Jet Airways is also in talks with Abu Dhabi-based Mubadala Development Co., an investment company promoted by the government of the emirate of Abu Dhabi, for a Rs1,000 crore loan.
Rival Kingfisher Airlines Ltd is also looking at tapping overseas lenders in Singapore and Hong Kong.
A senior Kingfisher Airlines executive declined to comment on the issue.
The Mumbai-based carrier recently raised Rs1,000 crore from ICICI Bank Ltd to meet its working capital requirement. A person close to the development, who did not want to be identified, said Kingfisher Airlines has approached ICICI Bank again for another loan. The carrier is in talks with investors to raise $400 million (Rs2,048 crore) by diluting its equity.
Meanwhile, National Aviation Co. of India Ltd, or Nacil, that runs Air India, is also looking at raising $2.5 billion from the banks to fund the acquisition of 23 Boeing planes that will be delivered by 2011. The carrier will initiate the process of raising $2.5 billion from a consortium of banks in December. It is currently in the process of evaluating a proposal of borrowing $1.1 billion from various banks to fund the acquisition of Airbus-made planes.
“Considering the liquidity crunch in the market, we will time our fund requirement in such a way that Nacil gets the best deal. We had already raised nearly $3 billion through banks such as Standard Chartered, ABN Amro and KfW (a German government-owned development bank). We would be separately approaching banks for working capital as well,” a senior Nacil executive said.
Nacil wants Rs4,000 crore from the government in the form of equity as well as a soft loan.
“The government is currently evaluating this proposal at present,” the same Nacil executive said.
India’s air carriers, which are expected to register a combined loss of about Rs10,000 crore this fiscal year, are planning to raise Rs4,000 crore worth of working capital but are finding it difficult as banks do not have ample liquidity to support all firms’ credit demand.
Indian airlines have been hit by higher fuel prices and slowing passenger traffic. A year ago, passenger traffic was growing at 40%, but the growth has halved in recent months. With losses mounting, airlines have started cutting down flights, returning planes to lessors, trimming staff strength and increasing fares.
Cash-strapped Indian carriers are in talks with domestic and international banks for equity infusion and long-term loans to tide over the current crisis.
Jet Airways had been trying to raise $800 million via rights issue and other debt instruments for the last two years.
“Other than equity dilution, debt is the best way to get working capital considering the current market turmoil,” said Mark Martin, an analyst at audit and consulting firm KPMG. “Carriers could also tap private equity investment as they will be with the airline for a long time.”
Other airlines such as Go Airlines (India) Pvt. Ltd (that runs GoAir), Paramount Airways (Pvt.) Ltd and InterGlobe Aviation Pvt. Ltd (that runs IndiGo) are also looking at raising working capital from banks.
In August, WL Ross and Co. Llc., a private equity fund from New York and the US investment house Goldman Sachs Group Inc. agreed to invest $80 million and $20 million each in low-fare airline SpiceJet Ltd.
“At present, we have sufficient funds to meet our requirements. We are not looking for funds,” said outgoing chief finance officer Par Basu.
Kapil Kaul, chief executive, Indian subcontinent and West Asia, Centre for Asia Pacific Aviation, a specialist aviation consultancy, said the proposed move by the Reserve Bank of India to relax lending norms to airlines and possible inclusion of jet fuel into declared good status will help airlines get more funds from banks to meet their working capital requirements and expansion plans. The declared goods status will bring down the sales tax charged on jet fuel.
“I would see airlines borrowing more and in a much easier way in the near future in the backdrop of these measures,” Kaul added.
The turmoil in the aviation market had seen two arch rivals joining hands for a first of its kind alliance primarily aimed at reducing costs. On 13 October, Kingfisher Airlines and Jet Airways forged an alliance to share infrastructure, jointly purchase fuel and rationalize their networks. Jet Airways and JetLite Ltd—formerly Air Sahara—acquired by Jet in April 2007 have recently started sharing codes and a reservation system, besides merging departments and services such as network planning, sales, marketing, human resources, finance, and training facilities.