Jet, Deccan to raise $460 mn for fleet expansion

Jet, Deccan to raise $460 mn for fleet expansion

Jet Airways and Air Deccan, India’s two biggest airlines, are looking for almost half-a- billion dollars in the next few months to help pay for their ambitious aircraft acquisitions, say officials at both the carriers.

Jet Airways wants to raise about $400 million (Rs1,768 crore), while Deccan Aviation, the parent company of budget carrier Air Deccan, said it needed about $60 million (Rs265 crore) over the next year. Both their fund-raising plans could include some form of equity from private investors, but neither airline would confirm details.

“We have not decided what route to take," said K.G.Vishwanath, finance general manager at Jet Airways. “It could be private equity, it could from the market or it could be a combination of many different options."

India’s mostly loss-making airlines are trying to keep their expansion plans on track, even after the industry lost an estimated $250 milion (Rs1,150 crore then) in 2006, and are increasingly seeking private equity to fund aircraft purchases.

Low-cost SpiceJet raised $65 million (Rs287 crore) this January by issuing shares to the Tata Group and investment house Goldman Sachs, and Kingfisher Airlines chairman Vijay Mallya said in December that he was also looking for private equity funds.

In 2005, Air Deccan had raised about $40 million (Rs176 crore then) from ICICI Venture and US-based Capital International in exchange for 26% equity. It also raised $100 million (Rs440 crore) from Cayman Islands-based Investec by selling the right to purchase any of the airline’s yet-to-be delivered 60 Airbus jets.

It seems unlikely that Jet Airways and Deccan Aviation could raise that money from the stock market today, given their troubled finances. Jet Airways’ stock dropped 46% last year and, at Rs762, a share is still trading below its initial listing price of Rs1,100 on the Bombay Stock Exchange in March 2005.

Air Deccan’s parent company, Deccan Aviation, declared its first profitable quarter since its 2005 May initial public offer, but most of those profits came from the Investec deal, without which the airline made an operating loss of about 120 crore.

A private-equity investor expressed cautious interest in the Indian aviation sector. “Investing in airlines in India is like catching a falling knife," said Puneet Bhatia, senior advisor at US-based Texas Pacific Group, a $16 billion (Rs70,720 crore) PE fund. “But we remain quite interested in the sector."

Jet Airways needs to make payments on 15% of a $2.5 billion (Rs11,050 crore) aircraft purchase deal. The rest of the deal is financed by the US Exim Bank. Air Deccan needs cash to restructure a deal on aircraft buys, where it partly buys an aircraft, leasing the rest.