Jupiter Capital Pvt. Ltd, a Bangalore-based investment company promoted by Rajeev Chandrasekhar—an entrepreneur who made his millions when he sold his cellular phone services company BPL Mobile—will launch a first-of-its-kind aviation-focused investment fund in India to invest in airlines and related projects.
The new fund will enter the market at a time when most privately-held airlines in the country are looking to raise money to support their cash-strapped balance sheets. India’s largest low-cost carrier Air Deccan, part of Deccan Aviation Pvt. Ltd, is planning to raise $100 million (Rs420 crore) through private equity firms, while another budget carrier, the New-Delhi-based SpiceJet Ltd, raised $65 million earlier this year.
“There’s a lot of consolidation happening in the industry and we think it’s the right time to have such a fund for the sector,” said Chandrasekhar, chief executive officer of Jupiter Capital, which owns Jupiter Aviation and Logistics Ltd.
He did not specify details of the fund size but said it would be a “medium-size fund”, which will be launched jointly with a foreign partner in two months. Jupiter Capital also has interests in infrastructure, media and technology, but “aviation is going to be the thrust area for us”, he said.
With infrastructure costs and aviation fuel in India steeper than the international average, airlines in India are finding it difficult to sustain growth in a market getting used to low-priced tickets, and are seeking financing. Kingfisher Airlines Ltd, a ful-service carrier, is on the lookout for raising $110 million while Jet Airways (India) Ltd, which earlier this month said it is acquiring smaller rival Air Sahara for Rs1,450 crore, is seeking $400 million to buy planes.
Currently there are no specialized aviation funds in the country. The US-based TPG Inc., UK’s Irelandia Investments Ltd and Goldman, Sachs & Co. are among the few funders investing in the aviation industry.
But getting their backing isn’t easy for airlines. With a volatile aviation market, it has become difficult to get private equity investment, says Air Deccan’s former director of finance and now a consultant with the airline, Mohan Kumar.
The industry is expected to make losses of $500 million this financial year, double the amount it lost last year.
“People like Texas Pacific Group (the old name of TPG) and Capital International have a lot of investment expertise in airline companies but there is a limit for that model domestically,” he says. “You need at least 150-200 million passengers flying to be able to support airlines.” India’s passenger traffic stood at 33 million last year.
According to Kumar, it will take another 18 months for the airline companies to turn around.
Last month, Jupiter Aviation and Logistics sealed a deal with state-owned carrier Indian to establish a Rs300 crore maintenance, repair and overhaul (MRO) facility for planes. Talks are still on to decide the exact location of the facility. Indian and Jupiter Aviation are likely to hold a 25% stake each while a third partner, from the France-based Airbus Industrie’s network of MRO operators, will offer technical capabilities and will own the rest.