Indian aviation industry already entrenched in problems relating to losses of Rs 10,000 crore in FY09, now has private equity players shying away from investing in the ailing sector, say experts.However, low-cost airlines that have reported profits in Q1 of FY10, at a time when the sector is bleeding, are offering a silver lining for private equity players wanting to invest in the sector and thereby choosing the “low-cost space”. Private equity players say they do not find it a viable option to invest in’ full service carriers’ due to reasons ranging from ‘faster cash-burn each day at operating levels’ and ‘diminishing revenue per kilometers flown’.
Says Raj Halve, principal consultant at Samara Capital,” Unlike their full service counterparts, low fare carrier Spice Jet and even Indigo have made profits of Rs26 crore and Rs 60 crore respectively .Though these carriers are managing their cash flows, Pe players would be interested in investing in the ‘no-frills space’bacause of their improving market share, improved IT that’s boosts sales and lower turnaround time”. Given their smaller reach and fleet size compared to Jet Airways and Kingfisher, Indigo has a 14% market share and Spice Jet 12.5% in July according to the Directorate General of Civil Aviation statistics .Even their on time performance for Indigo and Spice Jet is 86.5% and 80% respectively .Speaking anecdotally. Halve said that if 5,000 travelers were to board a Delhi-Mumbai flight, roughly 250 would book on a full service carrier but the remaining would prefer low fare travel.
All said, apart from global equity player Wilbur Ross investing Rs345 crore in Spice Jet last year, there have been no PE investments in the overall airline space, since then, For assistance, Mumbai-based low cost carrier GoAir has been talking about ‘offloading minority stakes’ to a private player, but there has been no development on this front. As Kingfisher Airline’s total debt stands at approximately Rs6, 000 crore.its board recently decided that rather that go for more debt, it will actually raise equity. The airline has recently said that it has multiple options and will appoint a merchant banker and decide that way forward very quickly.Arn Natrajan,founder and CEO of Venture Intelligence says,” Global players might be having an appetite to invest in Indian carriers ,but every PE player a the time of that deal would look for an opportunity of exit in the near future.Second,if the government policy allows foreign carriers to invest in their Indian counterpart, buying environment can be created in the presence of clear government policies.”
|
|
