Mumbai: After losing the battle to acquire the country’s largest low-fare carrier Air Deccan to Vijay Mallya in May last year, Anil Ambani, chairman of the Reliance-Anil Dhirubhai Ambani Group (R-Adag), is once again pursuing his ambitions to enter the aviation business and has initiated buyout talks with Gurgaon-based low-fare carrier SpiceJet.
Again, the battle is going to be tough for Ambani as full- service carrier Kingfisher Airlines Ltd’s controlling shareholder Mallya and the country’s largest private carrier Jet Airways (India) Ltd are also in the race for picking up a stake in SpiceJet, which completed three years of operations on 23 May.
SpiceJet is valued at around Rs755 crore on the stock markets. With 17 aircraft, it ranks the lowest in terms of the cost of operations among airlines in India and operates 117 flights daily to 17 cities—Ahmedabad, Bangalore, Bagdogra, Chennai, Coimbatore, Delhi, Guwahati, Goa, Hyderabad, Jaipur, Jammu, Kolkata, Mumbai, Pune, Srinagar, Varanasi and Visakhapatnam.
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A person familiar with the matter who did not want to be identified said SpiceJet has appointed investment banking and corporate advisory firm NM Rothschild and Sons Ltd for raising funds.
The interest in SpiceJet comes a few months after the expiry of a clause that barred the Gurgaon airline’s main promoter, the UK-based Bhupendra Kansagra, from selling his 12.91% stake in the firm. Kansagra holds his equity in SpiceJet through Royal Holding Services Ltd. Ambani, Jet Airways and Kingfisher Airlines, too, are in talks to buy the 13.42% stake held by West Asian private equity firm Istithmar PJSC, which wants to expand its holding or sell off shares at a premium.
Shares of SpiceJet rose 4.32% to close at Rs31.4 each on Thursday.
The Tata group owns a 6% stake in SpiceJet, but has reiterated that this is purely a financial investment. “I cannot comment on rumours. At present, I am not meeting anybody and not thinking about diluting my stake. We are exploring various modalities of raising funds for SpiceJet to funds its expansion,” said Kansagra. “But who would not want to exit, if he is getting a right price for his stake?”
“I have no comments to offer,” added SpiceJet’s director Ajay Singh, who also holds a 4.16% stake in the airline, when asked to comment on the buyout talks. An R-Adag spokesperson declined comment. Besides investments in telecommunications and power, Ambani, ranked among India’s richest with a net worth of around Rs55,000 crore, has interests in the logistics and online travel businesses.
“Ambani has deep pockets to take up a challenge when the airline industry is reeling under heavy losses mainly because of high jet fuel prices,” said a Mumbai-based analyst who asked not to be identified because he is not authorized to speak to media.
Ambani was eyeing a controlling stake in Deccan Aviation Ltd last year when the latter decided to raise capital to fund its expansion plans. However, Kingfisher Airlines’ parent company UB Group quickly sewed up the deal, picking up a 26% stake in the low-cost carrier.
In April last year, Jet Airways acquired Sahara Airlines Ltd that ran Air Sahara. Last year also witnessed the merger of two state-run airlines, Air India and Indian Airlines, into one company, National Aviation Co. of India Ltd.
Analysts and airline executives have predicted another round of consolidation in the airline industry in the context of high jet fuel costs and mounting losses.
Airlines are estimated to have made losses of at least $1 billion (Rs4,260 crore today) in the last financial year, a number that will likely double in fiscal 2009.
Airlines have begun cutting down flight frequencies, reviewing their fleet acquisition plans, deferring plane deliveries and pulling out from non-profitable routes.
Shares of listed airlines companies—Jet Airways, Deccan Aviation and SpiceJet—have plummeted on the bourses by 50-70% after reaching their all- time highs last December.
A senior executive from UB Group said his chairman had always publicly expressed his interest in buying out SpiceJet.
“Excess capacity and high fuel prices have necessitated consolidation,” he said.
Another person with the same group said Mallya had met representatives of both Istithmar and Royal Holdings in the last month.
For Mallya, SpiceJet will be an operational misfit, given that his Kingfisher Airlines predominantly uses Airbus SAS-made planes while SpiceJet’s fleet is composed of Boeing Co.’s B737 planes. Yet, Kingfisher will gain a 10% market share if it acquires SpiceJet, vaulting ahead of bigger rival Jet Airways.
A senior Jet Airways executive said his chairman Naresh Goyal and other board representatives are in touch with SpiceJet’s promoters for a possible acquisition.
SpiceJet is an ideal fit for Jet Airways, which also operates a low-fare carrier JetLite, with a fleet made up largely of Boeing B737 planes.
“Only big corporate houses with deep pockets can take a plunge in the aviation sector at this point of time,” said a senior executive with a low-fare carrier who did not wish to be identified.