Air Deccan in expansion mode

Air Deccan, India’s second-largest domestic airline by marketshare, has approached some of the country’s leading conglomerates to raise $75-100 million for its expansion plans. The low-cost airline has sounded out the Reliance Anil Dhirubhai Ambani group, which operates the country’s second-largest private telecom company, and a leading Delhi-based conglomerate about the investment, said a source familiar with the development. The carrier has given investment bank Edelweiss Capital the mandate to help it raise funds from an Indian conglomerate or a clutch of private equity players to create a war chest for the year ahead.

Private equity funds who are being targeted for this round of fund raising include Texas Pacific Group, Carlyle Group, Standard Chartered Private Equity, Macquirie Capital, Chrys Capital, Lehman Brothers, General Atlantic Partners and GIC of Singapore. Air Deccan, which clawed its way back into profitability last quarter, is also looking to raise money by securitising its future receivables or issuing bonds. Industry sources said it is talking to global players like International Lease and Finance Corporation (ILFC) and General Commercial Aviation Services (GECAS). “We are talking to a variety of people. But no decision has been made yet,” said Air Deccan promoter Captain GR Gopinath.

The entry of a strong corporate name on the company’s board can change the dynamics of the marketplace,” said COO Warwick Brady. “We would prefer those who stay invested in the company on a relatively long-term basis,” added finance director Mohan Kumar. Reliance ADAG fits the bill, sure. But a Reliance ADAG group spokesman, when contacted, declined comment. When asked, Mr Kumar said the only investment that Reliance ADAG group currently has in the company is the 3.5% equity Reliance Capital held through its mutual fund arm. Air Deccan had earlier said that it was open to divesting around 15% equity to raise $75 million from the market. The process is expected to be completed over the next three months.

The development is significant as the success of the negotiations could mean the entry of more big-ticket corporates in the fast-growing and high-profile aviation industry. Their deep pockets and strong fund-raising abilities would be of invaluable use to firms like Air Deccan who have to battle stiff competition and rising fuel costs. Air Deccan is growing fast and can look at consolidation through various means, including the acquisition of a smaller domestic carrier if it has a stronger balance sheet. The airline raised $118 million in two rounds of fund-raising, including an IPO, in the past two years. Air Deccan has just opened the booking of three lakh seats at Rs 7 per ticket.

SpiceJet has countered by offering 99,999 seats at 99 paise. Full-service carriers like Jet Airways and Kingfisher, that are in a stronger position financially with better margins, are expected to enter the fray with discounts soon. This could further erode margins for everyone, sources said. ILFC, a subsidiary of the AIG group, is among the world’s largest lessors of widebody aircraft. It also boasts of owning the world’s most valuable fleet, about 750 planes worth about $40 billion. Gecas, a division of GE, is another large US company with similar interests.

visit us @ http://www.silkrouteholidays.com