With three mergers in less than six months giving more than 80% of the domestic passenger market to the new Big Three of India’s commercial airlines industry, the Little Four are scrambling to find ways to pull through tough market conditions. And, the route finding favour: talking mergers.
One small carrier that has hit a bit of an air pocket is GoAir Ltd, an airline started by textiles major Bombay Dyeing. The Mumbai-based carrier, which has had to trim the number of planes in its fleet and the routes it flies, is losing about Rs20 crore every month, according to a former senior executive who preferred not to be named.
Meanwhile, GoAir’s managing director Jeh Wadia, who wouldn’t confirm the loss figures, says he has appointed an investment bank—Morgan Stanley’s India unit—to vet investment proposals.
“Airline business is not a sprint; it is a marathon. Wadia Group has been there for the past 250 years, we know how to run a marathon,” said Wadia in a phone interview. “(But) we need to have endurance.” People close to the situation say the Wadia family is in favour of a bail-out, but Wadia declined to comment on that.
The strongest candidate among the Little Four with big ambitions to acquire scale—and, with seemingly deep pockets to match—is Chennai-based Paramount Airways Ltd, also backed by a family with a textiles background. SpiceJet and IndiGo make up the Little Four.
Paramount has five planes on lease and prudently has avoided the crowded metropolitan routes, such as the Mumbai-Delhi sector, where carriers face intense price competition. Instead, it is flying regional routes in the south. It has kept its fares above the full-fare carriers and claims it flies at 80% capacity, though some analysts put the figure, on average, at 50%-60%.
M. Thiyagarajan, Paramount’s managing director and, at 29, the youngest airline chief in the country, has bet on Brazil-made Embraer jets for short-haul routes targeting the premium corporate tr-aveller. The only user of the Embraer in India, Paramount has gone on an aggressive mode announcing plans to buy 40 Embraer aircraft—in addition to the 15 ordered to be delivered by end of 2008—for $2 billion (Rs8,200 crore).
But, for Thiyagarajan, professionally trained as a pilot, that pace of expansion is not enough. With just 1.5% share of the market by passengers, he knows he needs to get bigger or be left behind by theBig Three: Air India/Indian; Jet/Sahara and Kingfisher/Deccan. So, Paramount would like to buy out another small airline. “It will be a buyout and the brand will be dissolved,” he insisted earlier this month.
Industry observers say GoAir would be an obvious choice for Paramount.
GoAir’s parking bays in Mumbai and Delhi, its 14 daily flights between the two congested airports and another 29 flights to other destinations from Mumbai and Delhi, seem valuable enough for Thiyagarajan to want to pay Rs200 crore, including debt.
“I have various proposals to buy my company,” says Jeh Wadia, 33. “None of them is from any domestic airline and not from Paramount. I have talked about selling 26% stake on merit. But, I am not up for sale at the moment.”
As a result, Paramount is also being forced to look at other options, such as a majority stake in SpiceJet Ltd, another low cost carrier. But SpiceJet too denies it is in sale or merger talks with Paramount or any other domestic airline. Meanwhile, Paramount isn’t alone in eyeing SpiceJet, which has 8.2% marketshare, or about the same as Air Sahara that was acquired by Jet Airways (India) Ltd.
SpiceJet shares rose on market speculation that Jet was keen to pick up a stake in the Delhi-based airline as is, it appears, Kingfisher Airline Ltd’s Vijay Mallya. SpiceJet’s director Ajay Singh said he does not see himself selling his 4% stake in the airline in the “forseeable future” and nor does he see other SpiceJet investors selling. “Right now, they (larger airlines) will be too busy bearing the pain that comes with the merger,” says Singh.
“We will see when the pressure comes (on us),” he said.