Mumbai: Indian carriers have been hit hard by the spewing of volcanic ash, which has led to flight cancellations, and the fallout of the European debt crisis, hindering efforts to collectively raise at least $1 billion (Rs4,560 crore) as investors hold back amid signs of weakness in the recovery story.
Graphic: Yogesh Kumar / Mint
“Collectively, as an industry, there isn’t an appetite for aviation paper of this magnitude,” said Mahantesh Sabarad, senior vice-president (equity research) at domestic brokerage Fortune Equity Brokers (India) Ltd. “Moreover, equity market confidence is being tested once again with sovereign fiscal problems surfacing.”
Jet Airways (India) Ltd, which flies the most passengers in the country, has been looking to raise $400 million for the last two-three years, while India’s second largest carrier Kingfisher Airlines Ltd is looking to raise $250-350 million through a rights offer and a GDR issue. The company expects to raise these funds by the second quarter, its spokesperson said.
In February, low-fare carrier SpiceJet Ltd started roadshows for raising $75 million by selling new shares and shortlisted half a dozen funds, but has not been able to finalize anything because of differences in valuations.
Other carriers such as IndiGo, operated by InterGlobe Aviation Pvt. Ltd, and Wadia Group’s GoAirlines (India) Pvt. Ltd, which runs low-fare carrier GoAir, have also been looking for fresh funding.
“The airlines have been bleeding for long. It is rather recently that things have started looking up, but the sustainability of these ‘good times’ is yet to be proven,” said Hemant Bhattbhatt, senior director (transportation leader) at financial advisory services firm Deloitte Touche Tohmatsu India Pvt. Ltd.
“Only those airlines who have a sound business plan and track record can hope to raise funds,” added Sabarad of Fortune Equity.
National Aviation Co. of India Ltd, which runs Air India, and has a debt of Rs21,000 crore, has successfully raised a little over $3 billion, largely because it has been backed by sovereign guarantees.
“Indian carriers are in a difficult situation. Any delay in raising funds would result in higher debt on the books and erosion of airlines’ net worth,” said Cyrus Guzder, chairman and managing director of the AFL group, a leading logistics business house.
There could be more serious consequences, analysts said.
“Delays (in fund-raising) will mean compulsion to defer taking deliveries of new aircraft, missing the current market wave and possibly losing a bit of market share (because others who can raise funds will grow),” Bhattbhatt said, warning that the weaker carriers may be compelled to merge or sell out under stakeholder pressure.
At the same time, Guzder warned that if airlines manage to get funds and use them to add excess capacity, they could end up making more losses during the slowdown.
Echoing Bhattbhaat, he said that the long-term solution for the industry would be consolidation.
“Rather than more planes chasing fewer seats, there should be fewer airlines with high yields and better load factors,” Guzder said, adding that airlines need to dilute their ownership stake as there are always investors who are willing to keep an airline flying.
Jet Airways was originally looking at raising $800 million to fuel expansion plans. Of this, $400 million was to be have been raised through a rights issue and the rest by selling new shares to large investors through a qualified institutional placement.
The cabinet committee on economic affairs had late last year approved Jet Airways’ QIP issue. However, it attached certain conditions to it, such as that the stake of the promoter should not fall substantially, and that there should be no change in the controlling structure.
A Jet spokeswoman declined to comment on the airline’s funding plans as it is in the silent period in the run-up to announcing its quarterly financial results on 20 May.
Kingfisher Airlines has also been struggling to raise funds through various instruments, including global depository receipts (GDRs).
A spokesperson for the Vijay Mallya-owned airline also declined to comment. The airline will announce its results on 28 May.
“The volatility of the aviation industry and the fluctuating fortunes of the airline industry do not provide the financiers the required confidence to deepen their commitment to the sector,” said Bhattbhatt.
As passenger airlines scramble to raise funds, at least one cargo airline has been able to find an investor.
In mid-April, Reliance Industries Ltd, India’ most valuable company, bought a stake in Deccan Cargo and Express Logistics Pvt. Ltd, a dedicated cargo airline, that operates under the brand Deccan 360.