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How would you react when some ‘recognised’ band of wastrels and compulsive shoppers walked right up to you and asked you for some more, rather much higher sum (to waste? Sic!)? Would some feeling of optimism trickle out of your payback-oriented philosophy? Obviously yes, right? Well, that’s pragmatism. Go by the practical thread of incidences, which have occurred over the past couple of years in the aviation industry and you’d understand why we are having this argument in the first place. After losing a precious $500 million during 2006 and a further $700 million in 2007 (CAPA estimates), and with a further $400 million loss forecasted for 2009 (E&Y estimates), the Indian aviation champs have decided to raise a further whopping $4 billion! Participants in this include the Goyal-led Jet Airways, Mallya-led Kingfisher Airlines (and Air Deccan), V. Thulasidas-run & state-owned NACIL (which operates the Air India and Indian combine) and Thiagarajan-led Paramount Airways (industry experts say that this airline too is trying hard to make hay through the debt route). Would they be able to raise such a hefty sum is a question for another day (not to forget that all the players concerned have an adequate brand equity at least in the domestic market); what is more pertinent here is the ‘reason’ behind this ‘grand collection’ movement.

“What will they do with so much liquidity?” was the billion dollar nut to be cracked. And the hammer from Binit Somaia, Regional Director, Centre for Asia-Pacific Aviation (CAPA) came down as, “The capital raising is being done primarily for acquiring wide-bodied aircrafts, and in the case of Jet Airways and Kingfisher in particular, to set-up new international routes and services.” While the players are looking at Indian equity investors, they are also targeting US & European credit agencies for funds to finance their operations and acquisition plans. Industry sources reveal that they must raise money to acquire ‘widebody’ aircrafts (for going overseas), which can cost up to $150-200 million. Industry leaders like Naresh Goyal and Mallya are even mulling over dilution of their own stake to achieve this end.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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