Mumbai: India’s aviation industry, which is expected to lose $2.1 billion in 2009-10, is cautiously expanding routes and adding capacity as an economic recovery sets in, but fund raising continues to pose a challenge.

“Return to growth was sharper than we expected because of impressive economic growth and significant capacity reduction by airlines, especially Jet and Kingfisher," said Kapil Kaul, chief executive Indian subcontinent and West Asia, Centre for Asia Pacific Aviation (Capa), an aviation consulting firm.

In the last two years, the airlines sector in India and globally had been battered by a spike in fuel prices and economic slowdown resulting in lower travel spends.

The past few months though have thrown up evidence of a turnaround with travellers returning and passenger traffic grew 20.54% in January-March over a year ago, government data showed.

All private carriers posted seat factors of over 72% in February-March, while three budget airlines- SpiceJet, Indigo and Paramount - recorded over 75%.

Jet Airways, India’s top private carrier by sales, reported around 80% load factor for international routes.

“We are happy with the bookings we have received for April to June. Volume driven yields will go up," said Raj Sivakumar, vice president, revenue management, Jet Airways.

The new-found confidence is prompting airlines to reach out to newer overseas locations though the pace of expansion is more measured now than what was seen in 2008, before the slowdown hit.

While Jet has launched a daily Mumbai-Johannesburg flight, Kingfisher has received approval for seven new international routes and budget carrier SpiceJet is getting ready to make its international debut.

The airlines are also adding seats and planes to service new routes after having slashed capacity by 15 percent during the slowdown, analysts said.

Capa estimates the domestic aviation industry to add 7-8% capacity in a year, but expects a capacity crunch in the third quarter this year.

Kingfisher Airlines chairman Vijay Mallya said the firm may look at inducting new aircraft sooner than planned to capitalise on the upturn.

Ravi Nedungadi, chief financial officer of the UB group, which has a controlling stake in Kingfisher, said the carrier would become profitable from fiscal year 2012.

Fund Raising Roadblocks

But airlines’ plans to raise funds and de-leverage their balance sheet has hit an air pocket as both Jet and Kingfisher have delayed their fund raising plan through share sale and a rights and GDR issue respectively to the current fiscal.

“A persistent problem is that domestic investors are reluctant to invest in this industry as it’s a risky industry," said an aviation analyst from a local brokerage.

“Crude (oil) has played havoc with them in the past, the rupee-dollar movement has effects and demand is very elastic. The confidence level is low," he said.

SpiceJet, in which US investor Wilbur Ross holds foreign currency convertible bonds worth $68 million, too is looking to raise $50-75 million.

It has been approached by Anil Dhirubhai Ambani group and the founder of Sun TV Networks for a majority stake, according to media reports.

SpiceJet CEO Sanjay Aggarwal refused to comment on the stake sale reports but said the airline would make a preferential allotment of shares later this year to raise the funds.

He also said Ross had not yet taken a decision on whether he would convert his bond holdings into equity.

“They will make a decision at any point in time. The options are in the money, based on the current stock price so it’s up to them".