Aviation business to enter consolidation zone in 2007

The entry of big corporate houses, such as the Tata group and the Reliance-ADA group as financial investors and global private equity players like US-based Texas Pacific Group, into the Indian aviation business may well expedite the consolidation in the industry leading to mergers and acquisitions in 2007. In a year when a strong national carrier — with merged domestic and international operations — will play out in the market, passenger yields for domestic carriers are expected to improve, with air fares heading northwards. For the industry, this means cut-down in losses, expected to be in the range of Rs 2,500 crore for the current financial year. While expansion of seat capacity — through introduction of new aircraft — will continue to meet the growth in passenger demands next calendar year, many in the industry feel that the interest shown by big corporate houses in the aviation business bodes well for the industry.

Many stock market analysts feel corporates may be just testing the water as financial investors to start with, but their entry into the business as strategic players is expected in a major way over the next 12 to 15 months. “Corporates are now buying into our vision that the airline industry has the potential to scale up in the coming years, given the fact that only 1% of Indians currently fly in and out of the country,” said Air Deccan MD Capt G R Gopinath. What many in the industry are excited about is the interest shown by US-based fund Texas Pacific Group in India. “This is a positive move for the industry that brings it in the radarspace of global private equity funds,” said an analyst from Edelweiss Capital. Texas Pacific Group has major investments in major airline companies around the world, including US-based Continental Airlines, and is currently involved in an acquisition bid for Australia’s Qantas Airways.

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