Wall Street Journal Article (reprint)
Mumbai: India’s cash-starved airlines plan to raise at least $4 billion (Rs15,88crore) in 2008-09 to fund new planes, expand networks and help tide over a projected combined loss of $700 million this fiscal. The fund-raising will be the largest ever by the country’s carriers as some of them start or get ready to fly overseas routes.
In the current fiscal year, the country’s airlines raised just about $1 billion.
State-owned National Aviation Co. of India Ltd, or Nacil, which operates Air India, Jet Airways (India) Ltd, Deccan Aviation Ltd, Paramount Airways India Ltd and Kingfisher Airlines Ltd are the leading airline companies that plan to raise funds by offloading equity and raising debt.
DEBT ON RADAR (Graphic)
Most of them are also knocking on the doors of US and European credit agencies for financing aircraft acquisition.
The airlines have no option but to raise fresh funds for their capital expenditure as some of them are acquiring widebody planes for international operations, said an analyst who tracks the aviation business for an international brokerage. “A bigger widebody plane will cost $100 million. Airlines will end up diluting their equity to acquire these planes. It is going to be a tough time for them as the business is highly volatile worldwide and airlines are making losses internationally,” he said, declining to be identified.
Nacil, for instance, plans to raise $1.5 billion to fund fleet expansion and meet the cost of daily operations. The firm, into which Air India and Indian Airlines merged last year giving it a combined fleet of 140 planes, is buying 111 aircraft from plane makers such as Boeing Co. and Airbus SAS.
Nacil has already appointed Standard Chartered Bank as a facilitating institution to raise funds from US’ Export-Import Bank for buying planes from Boeing. It is also tying up with other financial institutions for tapping funds from European credit agencies.
“The subprime crisis and liquidity crunch, besides hardening of the Libor (London interbank offered rate), have made” it difficult for airlines to access external commercial borrowings, said S. Venkat, executive director (finance), Nacil. Banks offer unsecured loans to other banks in the London money market at interest rates on the basis of Libor. “Though these factors have increased the cost of borrowing, the drop in the US Federal Reserve rate has helped cool the condition,” Venkat said, adding that external borrowings are still cheaper than rupee loans.
Jet Airways, with 78 planes, has firmed up plans to raise $800 million. Half the amount will be raised by selling shares to select financial institutions through a procedure popularly known as qualified institutional placements. “Another $400 million would be raised through selling shares to existing shareholders. We’re in talks with our bankers to finalize the modalities,” said a Jet Airways executive, who did not want to be identified.
Deccan Aviation, which runs the country’s largest low-fare carrier Deccan, too, has decided to raise up to $400 million for its expansion plans. “The fund-raising plans are to supplement our international operations and aircraft acquisition,” a Deccan executive said, preferring anonymity.
Kingfisher Airlines, owned by UB Group, has similar plans to fuel its international operations, widely expected in August following its acquisition of Deccan Aviation in 2007. The airline will also start taking delivery of bigger planes this year.
Other smaller carriers such as Paramount Airways, Go Airlines India Pvt. Ltd, which runs GoAir, and InterGlobe Aviation Pvt. Ltd, the operator of IndiGo, are also looking at raising funds from the domestic and global market. “We will be raising around $350 million in the next fiscal,” said M. Thiagarajan, Paramount’s managing director, adding his firm is in talks to source funding from overseas credit agencies for purchase of planes. The airline, which flies five Embraer planes, is negotiating with Boeing and Airbus to buy bigger aircraft.
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