Mumbai: India may have to wait a bit longer for a new round of airborne nuptials.

Three merger deals that would have begun the much anticipated second round of consolidation in the fragmented Indian aviation industry failed to take off in the past two months, said four people familiar with the matter.

Distant dream: Aircraft of various carriers at the Mumbai airport. Indian airlines may delay mergers as passenger volumes grow in the country. Satish Bate / HT

An email sent to Ross went unanswered and the other airlines did not want to comment on the matter.

The Indian aviation industry had a first round of consolidation when Jet Airways (India) Ltd bought Sahara Airlines Ltd (now JetLite) in April 2007, Kingfisher acquired Deccan Aviation Ltd (now Kingfisher Red) in June 2007, and Air India merged with Indian Airlines in August 2007.

According to a March report by consulting firm Centre for Asia Pacific Aviation (Capa), another round of consolidation is overdue as Indian carriers have been repeatedly battered by price wars, a spike in jet fuel prices and slowing demand.

The accumulated losses of Indian carriers over the last three-four years are estimated by Capa to be in excess of $4 billion (Rs18,680 crore).

Consolidation could be delayed further as passenger volumes increase and some airlines hope to emerge with better financials as the Indian economy picks up speed, said an investment banker.

“While individual efforts may have been made, I still don’t see a real rush for consolidation. It (consolidation) isn’t happening due to a combination of factors, including differences over (relative) valuations and a feeling that airlines can do better in coming quarters," said Amitabh Malhotra, managing director of investment bank NM Rothschild and Sons (India) Pvt. Ltd.

Malhotra was instrumental in bringing in the first private equity investor into Deccan Aviation in 2004. In 2008, Malhotra brokered another major deal—Ross’ $80 million investment in SpiceJet.

“First, nobody has free cash to buy a company at this point in time, as profitability waxes and wanes on a quarterly basis, and that too for a select few. Second, when a few select airlines sit together to talk, some of the parties feel they can do better in the changing environment," Malhotra added.

A senior airline officials said that consolidation has its advantages.

“Consolidation would have eliminated overcapacity and overlapping of flights on certain routes. It must have reduced competition in the key metros. Now, Delhi-Mumbai alone must be having some 50 odd flights," said Sanjay Agarwal, chief executive officer at SpiceJet. He did not comment on the specific deals.

Agarwal—who has on earlier occasions described himself as a “buyer in the Indian skies"—has made several public statements reiterating that his airline is open to buy another airline. He still believes consolidation will bring some sense to the loss-making aviation business, but added that the market was not good for sellers since the valuations were too low.

“I don’t see a consolidation in next 12-18 months," said Agarwal.

“It is imperative that the aviation sector in India starts getting focused on making the business work by aggressively focusing on continuous operations improvement and cost optimization aimed at lowering costs, thereby ensuring an early break even," said Mark D. Martin, chief commercial officer of RwandAir, the national carrier of Rwanda. Martin was an aviation analyst at audit and consulting firm KPMG and most recently SpiceJet’s head for airline strategy, planning and operation. “Consolidation in a premature market, where airlines have been in revenue service for less than four years, signals a weak and unsustainable platform, and in turn questions promoters’ intentions and credibility of being able to manage an airline," Martin said.

What if airlines go ahead and consolidate? Martin has reservations: “Should the industry witness another merger, this may lead to the airline business in India being downgraded by leasing companies, aircraft manufacturers, financial institutions and private equity investments as this will be the signal of instability."

Malhotra adds the aftermath of past mergers does not confidence, either. “But I believe consolidation, if done with the right objectives and executed properly, will create shareholder value."