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Destination Anywhere
After burning millions of dollars on domestic tracks, comes the $4 billion plan to raise cash. How do they plan to spend it and what (if any) remains the sole means to save Indian aviation giants from doomsday? STEVEN PHILIP WARNER analyses…

How would you react when some ‘recognised’ band of wastrels and compulsive shoppers walked right up to you and asked you for some more, rather much higher sum (to waste? Sic!)? Would some feeling of optimism trickle out of your payback-oriented philosophy? Obviously yes, right? Well, that’s pragmatism. Go by the practical thread of incidences, which have occurred over the past couple of years in the aviation industry and you’d understand why we are having this argument in the first place. After losing a precious $500 million during 2006 and a further $700 million in 2007 (CAPA estimates), and with a further $400 million loss forecasted for 2009 (E&Y estimates), the Indian aviation champs have decided to raise a further whopping $4 billion! Participants in this include the Goyal-led Jet Airways, Mallya-led Kingfisher Airlines (and Air Deccan), V. Thulasidas-run & state-owned NACIL (which operates the Air India and Indian combine) and Thiagarajan-led Paramount Airways (industry experts say that this airline too is trying hard to make hay through the debt route). Would they be able to raise such a hefty sum is a question for another day (not to forget that all the players concerned have an adequate brand equity at least in the domestic market); what is more pertinent here is the ‘reason’ behind this ‘grand collection’ movement.

“What will they do with so much liquidity?” was the billion dollar nut to be cracked. And the hammer from Binit Somaia, Regional Director, Centre for Asia-Pacific Aviation (CAPA) came down as, “The capital raising is being done primarily for acquiring wide-bodied aircrafts, and in the case of Jet Airways and Kingfisher in particular, to set-up new international routes and services.” While the players are looking at Indian equity investors, they are also targeting US & European credit agencies for funds to finance their operations and acquisition plans. Industry sources reveal that they must raise money to acquire ‘widebody’ aircrafts (for going overseas), which can cost up to $150-200 million. Industry leaders like Naresh Goyal and Mallya are even mulling over dilution of their own stake to achieve this end.

NACIL, too, is on its way to acquire 111 more aircrafts from both Boeing and Airbus and for that matter, it plans to raise $1.5 billion, which would primarily be used for the expansion process. Besides planning a debt scheme from EXIM Bank, NACIL also has plans for an IPO. Ask Ashok Chawla, Civil Aviation Secretary, and he defensively asserts, “We’ll have to take a view on when to consider having the IPO based on the performance (of Air India), which will require the approval of the Cabinet.” Of course, he disclosed nothing about the deadline, but one thing’s for sure – NACIL can’t wait for long, if they are to keep abreast with aggressively expanding private players…

Then there are a host of private airliners – Jet Airways, for one, plans to raise $800 million. “50% of this total amount would be raised through dilution of shares through rights issue & qualified institutional placement. We’re in talks with financial institutions to finalise the finer details,” revealed a Jet Airways official. Then there is the now-Mallya run Kingfisher and Air Deccan combine, which is raising about $400 million for “overall expansion and international foray of Deccan & Kingfisher Airlines,” as G. R. Gopinath, MD, Air Deccan puts it. Interestingly, Mallya might end up diluting 15% of his stake in the merged entity. “There are talks in the boardroom that Mr. Mallya might just sell-off about 15-20% shares out of his 76% holding in the airline to raise Rs.16 billion and expand authorised capital by Rs.3.5 billion,” reveals a source in Kingfisher Airlines.

There are also other fish in this aviation sea that are willing to try their luck at the fund-raising game. Paramount Airways too plans to raise about $350 million and would absorb this sum to acquire more aircrafts to take the total count of its fleet to 47 by the year 2010. As M. Thiagarajan, MD, Paramount Airways adds, “By 2010, we would have a national presence and will get 40 more Embraer aircrafts till then. We’ll focus on one region, saturate and dominate before moving to other regions like we did in the South. We wanted to establish the brand before expansion even within the country and with our international plans we will always be a premium product offering only first and business class products when we enter Europe, the Far East and it will be a matter of fact before we fly the United States as well. We will have a global presence by 2015-16.”

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