Airlines and airports in India will absorb close to $100 billion (Rs4,42,000 crore) in the next 10 years to maintain the aviation sector’s current growth, civil aviation minister Praful Patel told investors from about 20 countries at a conference here.
That money, said Patel, would be instrumental in extending the benefits of aviation to more Indians. According to government data, less than 1% of India’s population has ever sat in an airplane.
“I would encourage more and more serious investors to take advantage of this sector,” Patel told the audience, which consisted mostly of investment bankers and private-equity financiers assembled for the CitiGroup Investor’s Conference.
Patel’s comments come immediately after his meeting with Prime Minister Manmohan Singh on 14 March 2007, when he asked for lower taxes on aviation fuel to help airlines turn their financial fortunes around. The ministry is also considering a proposal which may open up the sector for foreign investment beyond the allowed 26%. “After all, we’ve allowed up to 100% foreign investment in (brand new) airports,” he said
But investors present at the conference said investing in airlines was often a risky proposition. All but three of India’s airlines are still, in what investors call the gestation period, when they are bleeding money but trying to establish credibility and a market share. Jet Airways, the biggest domestic airline, and state-owned Air India and Indian are still not consistently profitable. “What investors want is to spread that risk out: Pick up 5%?in one airlines, 6% in another, just so we know we’ve picked the right guy,” said a Hong Kong-based investment banker.
Indian carriers have regularly looked to equity banks and experienced investors to provide capital infusion. Spicejet, a publicly traded low-cost airline, raised close to $100 million in December 2006 by diluting its equity; and in January 2007, Jet Airways said it needed to raise $400 million to fund its international expansion. Its finance director K.G. Vishwanath said that money was not likely to come soon.
That doesn’t signal a lack of interest in the sector. Instead, according to several large private-equity financiers, it means that investors are waiting for the right moment.
“The right airline, at the right time, asking for the right kind of investment—that is what will see one of those big investments that will change the market,” said the India head of a US-based investment fund. He asked not to be named because his fund is currently in talks with one of the airlines for an investment he called “sizeable.”