MROs, pilot-training centres attract Private Equity funds

The entry of big daddies such as the Tatas and global private equity players Texas Pacific Group, Istithmar and Goldman Sachs have re-ignited the interest of PE funds in the Indian aviation industry, with ancillary segments such as maintenance, repair and overhaul (MRO) facilities and pilot training centres attracting attention. This comes at a time when airline companies are looking at raising working finances for their network expansion and adding aircraft to their fleet. According to an estimate by Centre for Asia Pacific Aviation, an aviation industry consultancy, existing airlines would need to raise around $250-300 million through the PE route, while cargo carriers would need start-up funds to the tune of $50-75 million. Interestingly, MRO facilities and pilot training centres are likely to attract investment of $100-125 million over the next one year. PE players point out that setting up maintenance, repair and overhaul (MRO) and pilot training facilities in the country would be the new segment that would come into play in 2007.

Both Airbus and Boeing are facilitating the setting up of MRO start-ups that would require a minimum funding of $100million -150 million in 12-18 months. Most private airport operators — at Delhi, Hyderabad and Bangalore — are also in process of facilitating setting up of MRO and training facilities. “There’s a huge opportunity in the segment. This market is yet to develop in India and would require a lot of PE funding. It’s the ancillaries segment that will witness a lot of funding over the next 12-15 months,” said IL&FS Investment Managers associate director Rajesh Adhikary. Airlines are also likely to witness some big ticket private equity deals. Most companies in the sector including Jet, Kingfisher, Go, IndiGo and Air Deccan are in talks with private equity players for raising a substantial amount of money. At least $600 million will flow as PE funding into the sector over the next 12-15 months”, said NewBridge Capital MD Puneet Bhatia. Air Sahara is close to bringing in some financial investors - after the bitter break-down of their merger plans with Jet Airways - even though company officials refused to confirm the move.

Compare this to the current year when private airlines including SpiceJet and Air Deccan are raising around $180 million of private equity funds. SpiceJet is currently in the process of evaluating investment proposals from Texas Pacific Group, Goldman Sachs and Dubai-based Istithmar, apart from the Tata group, which is firming up plans for raising $80 million. Air Deccan entered into long-term aircraft deals with two European banks for raising $100 million. Some players, including Jet Airways and Go Air, are looking at launching dedicated freight airlines. Though business models of most airlines are being evaluated, only companies with sound financials will attract funding. Industry analysts say 2007 will witness increase in fares helping existing players to improve their bottom line. This augurs well for the industry, making it more attractive for investors, said an analyst with Edelweiss Capital.

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