Mumbai: Hit by spiralling jet fuel costs for much of the year and intense competition, India’s rapidly expanding airlines are looking to raise a second round of funding of about $2 billion (Rs9,080 crore) in all, even as they struggle to meet their first round targets.
Indian carriers are expected to register a combined loss of $2 billion this fiscal.
Performance Card (Graphic)
Some of these airlines are cashing in on the financial strength of parent groups to raise funds for their day-to-day finance requirements.
“Since the capital market is not suitable, airlines are increasingly depending upon commercial banks for raising working capital. Airlines are wooing commercial banks with customized products with banks, though it is a tougher exercise,” said an aviation analyst with a domestic brokerage.
“Some of them are even offering a part of ticket revenues as collateral security for a loan. Since there are several lenders such as banks, oil companies selling jet fuel and plane lessors to settle, offering ticket sales as security is a tougher option. Therefore, most of them are using the financial muscle of their parent groups to raise money,” he said.
Only low-fare carrier SpiceJet Ltd could succeed in getting $100 million in the current economic turmoil. The investors in SpiceJet will convert their investment into equity in future, though. National Aviation Co. of India Ltd, or Nacil, that runs Air India, has deferred its initial public offer indefinitely. It the airline did manage to get loans from commercial banks to fund aircraft acquisition. Indian carriers, in the first round, had been collectively looking at raising $4 billion to fund expansion.
Carriers such as Jet Airways India Ltd and Kingfisher Airlines Ltd both bet big on international routes but while Jet Airways is already consolidating international operations, Kingfisher just made its international debut on 3 September.
“All carriers are looking at sale and lease back of airplanes as revenue generation. For instance, Jet Airways has a target of selling four planes and leasing them back every year,” the same analyst said.
Another aviation consultant, advising a leading airline group, said sale and lease back of airplanes are the most popular mode for raising funds, though it will add future costs. “General practice is to sit with banks and structure a customized product suiting for that particular airline. But banks are more comfortable with the parent group’s guarantee,” he added.
For instance, Nacil has asked for an equity infusion of Rs2,000 crore from the government, the owner of the airline. “Apart from equity infusion, we are looking at raising another Rs2,000 crore from commercial banks as working capital. We are looking at raising $600 million more to fund aircraft acquisitions,” a senior Nacil executive said.
UB Group promoted Kingfisher is also planning to raise $400 million through the private equity route or by tapping the capital market. Kingfisher, which had acquired the country’s largest low-fare carrier Air Deccan, run by Deccan Aviation Ltd, is in the process of raising Rs1,000 crore from ICICI Bank Ltd.
Meanwhile, the Wadia Group’s GoAirlines (India) Pvt. Ltd, which runs GoAir, has appointed singularity advisers for raising $100 million. The carrier is exploring primarily private equity investments or even other sources of funds.
“The main aim is to repay the old debts and to fund aircraft acquisitions. It has around $50 million debt to retire. The airline would consider initial public offer or sale to another strategic investor to facilitate exit for the current investor,” said a person familiar with the development.
However, a GoAir spokesperson said, “GoAir has not confirmed any appointments of any kind on financial matters. We have no further comment on your query.”
Other airlines, such as IndiGo and Paramount Airways, have strong backing of parent groups InterGlobe Aviation Pvt. Ltd and Paramount Textiles Group, respectively.
The country’s largest private carrier, Jet, had deferred its proposal to raise $800 million from the market due to poor market conditions. “We have shareholders approval to raise $800 million. We (can) go for it at the right time. Now we are talking to a clutch of banks to raise funds for day-to-day operations,” a Jet Airways executive said.
“Jet Airways may not be having the support of a huge conglomerate but (it has) a strong balance sheet and real estate to show as collateral to banks,” says the same industry analyst.
SpiceJet remains in the market for working capital even though Goldman Sachs Group Inc. decided to invest $20 million in this low-fare airline through equity warrants, in addition to an $80 million infusion into the company by WL Ross and Co. Llc., a private equity fund from New York.
“The government has also tightened the situation by asking to pay the airport dues. The interest rates are shooting up. We are really struggling to get even short-term funds as the general market condition is also bad,” said a chief financial officer of a low-fare carrier.