India airlines may gain from new rules

 India’s decision allowing airlines to sell stakes of as much as 49 per cent to overseas carriers may be most beneficial to operators least in need of investment.

SpiceJet Ltd, which has said it’s in “no rush” for funds, may be the most appealing target for foreign investors because of the discount carrier’s low debt and record of profitability, said Sharan Lillaney, an Angel Broking Ltd analyst. Kingfisher Airlines Ltd may struggle to win investment, even as billionaire Chairman Vijay Mallya seeks new financing, after posting at least five straight annual losses.

“The biggest beneficiary will be SpiceJet as it has lower debt and a decent brand image,” Lillaney said. “Kingfisher needs to restructure its balance sheet and convert debt into equity before it can look at attracting any foreign investment.”

The two carriers and Jet Airways (India) Ltd jumped in Mumbai trading on speculation the rule change will help the industry win funds following years of losses caused by price wars, high fuel taxes and a weaker rupee. Prime Minister Manmohan Singh’s government announced September 14 the end of the ban along with a similar easing for retailers as its moves to open up Asia’s third-biggest economy.

Kingfisher has said it is in talks on investment that depend up regulatory changes as it struggles under an 86 billion rupee ($1.5 billion) debt pile. The carrier has also cut two- third of services, grounded planes and halted international flights in a bid to end losses.

The airline, named for liquor tycoon Mallya’s flagship beer, needs an immediate capital infusion of $600 million for a turnaround, according to CAPA – Centre for Aviation. The company’s founders will need to provide at least half of this before talks with a foreign airline could begin, the research company said.

Kingfisher has only an “outside chance” of selling a stake compared with SpiceJet and Go Airlines (India) Ltd, CAPA said in an e-mailed statement. The carrier has a long-term debt to total capital ratio of 162 per cent, according to data compiled by Bloomberg. That compares with 76 per cent for SpiceJet and 58 per cent for Mumbai-based Jet Air.

SpiceJet and Kingfisher jumped as much as 20 per cent in Mumbai today. Jet Air gained 8.5 per cent. Kingfisher has plunged 50 per cent in the past year, while SpiceJet has jumped 62 per cent and Jet Air has climbed 41 per cent. India’s three other main carriers, state-owned Air India, IndiGo and Go Airlines are all closely held.

Kingfisher Re-Engagement

The easing of the investment rules will help Kingfisher re- engage with prospective airline investors “in a more meaningful manner,” Prakash Mirpuri, a spokesman, said in a September 14 text message. The carrier will also move toward re-capitalization and ramp up its operations, he said.

SpiceJet Chief Executive Officer Neil Mills didn’t answer calls to his mobile phone on September 14. GoAir Managing Director Jeh Wadia, IndiGo President Aditya Ghosh and Jet Air Chief Operating Officer Sudheer Raghavan also failed to answer calls the same day.

Kingfisher posted a 6.5 billion rupee loss in the quarter ended June, compared with 2.6 billion rupees a year earlier. SpiceJet and Jet Air both posted profits in the period.

Non-airline investors from overseas were allowed to hold as much as 49 per cent in local carriers before the rule change.

Gulf Airlines

Middle East airlines may be the most likely to buy into Indian carriers because of their geographical proximity, existing service connections and state backing.

Qatar Airways Ltd Chief Executive Akbar Al Baker said in April that anyone who didn’t want to invest in China or India “must be crazy.”

The country’s annual passenger numbers may surge to 180 million by 2020 from 61 million last year as rising wealth makes travel affordable to more people, according to a government forecast. Qatar Air declined to comment by e-mail yesterday.    – Air Aviation News