Mumbai: India’s second largest low-fare carrier, SpiceJet Ltd, is likely to place an order for buying at least 20 more planes as part of a renewed expansion drive after media baron Kalanithi Maran agreed at the weekend to purchase a 37.75% stake in the airline to become its single largest shareholder.
Key role: Sun TV promoter Kalanithi Maran will pick up a 37.75% stake in the airline. SpiceJet executives say the airline would be able to speed up key decisions by having one shareholder with a majority stake.
The planned aircraft purchase would double the fleet of the Gurgaon-based airline. Maran’s entry into the airline, which follows six months of talks, is also expected to stabilize SpiceJet’s operations, improve its focus and enable it to better compete with bigger rival IndiGo, run by InterGlobe Aviation Pvt. Ltd, which is also in expansion mode.
SpiceJet executives, who spoke on condition of anonymity pending a joint statement expected after a board meeting on Monday, said the company would, for now, drop its plan to raise $75 million (Rs351 crore) through a sale of new shares.
Maran, who heads Sun TV Network Ltd, is acquiring the stake in his personal capacity from its promoter Bhupendra (Bhulo) Kansagra and US-based distressed assets buy-out specialist Wilbur L. Ross, the SpiceJet executives said. The structure of the transaction and deal value haven’t been disclosed.
An open offer to shareholders for an additional 20% of the airline will follow the deal. The open offer is expected on Monday. Under Indian takeover rules, any acquisition of a stake of 15% or more triggers an open offer for at least another 20% of the target firm.
Citing investment bankers familiar with the development, Mint on Friday reported that Maran was close to signing the deal to acquire a nearly 40% stake in the carrier. Maran is expected to join the board after the completion of the purchase.
Maran is purchasing the stake at Rs47.50 per share, according to an investment banker familiar with the situation, compared with its closing market price of Rs56.05 on Friday. The investment banker didn’t want to be named.
SpiceJet closed 3.11% down on Friday on reports of the discount to market price, taking its market value to Rs1,355 crore. At the price of Rs47.50 a share, Maran may have to spend around Rs1,100 crore on the entire transaction, including the open offer, said an analyst who declined to be named.
The airline’s “board will go for another round of fleet acquisition in order to boost its expansion on domestic and international routes,” said a senior SpiceJet executive who didn’t want to be named.
“But a final decision would be taken by the new acquirer shortly. Also, the airline has dropped its plan to raise $75 million for the time being,” said the executive, who did not want to be identified.
SpiceJet has an all-Boeing 737 fleet of 20 aircraft to which it plans to add four more this fiscal. The 20 planes it is likely to order will be in addition to the four. SpiceJet operates 137 flights daily to 19 cities. The airline has received approval to operate flights to the capitals of Nepal, Bangladesh and Maldives.
SpiceJet declared a net annual profit of Rs61.4 crore for fiscal 2010 compared with a loss of Rs352.5 crore during the previous fiscal.
“Maran’s capital capability will mean that SpiceJet can expand much quicker once it starts international flights and be able to pick and choose where it wants to go by perhaps snaring slots for deferred airplanes at Airbus and Boeing—particularly while other Indian airlines are struggling with both capacity, demand, profitability and capital expenditure requirements,” said Saj Ahmad, a London-based aerospace analyst who tracks the firm.
Mint could not reach Dinesh Keskar, vice-president of Boeing International and president of Boeing India, for a comment. Airbus SAS executive president (marketing and contracts) and president (India) Kiran Rao said the European plane maker is talking to all Indian airlines because they need more aircraft, “but nothing is finalized”.
Executives at SpiceJet say the airline would be able speed up other key future decisions with one shareholder who has a majority stake; its split shareholding has delayed several expansion plans at a time when IndiGo is seeking to increase its size and reach.
IndiGo has secured government approval to buy 150 more planes in addition to the 100 it had ordered as it seeks to cement its place as India’s largest low-fare carrier. In April, SpiceJet had a market share of 12.6% among domestic carriers, behind IndiGo’s 15.7%.
“I feel entry of Maran will bring stability in the board. There used to be uncertainty in terms of transfer of ownership, shareholders and leadership of the airline,” said Ajay Singh, a director at SpiceJet who holds a 4.13% stake in the airline.
“This was detrimental for smooth functioning of the airline and led to uncertainty in planning and made decision making slower,” Singh said.
Tarun Shukla contributed to this story.