Bloomberg News

Jet Air, SpiceJet Rise in Mumbai on Foreign Investment Plan

January 18, 2012

Jan. 18 (Bloomberg) -- Jet Airways (India) Ltd. led gains by carriers in Mumbai trading after the aviation and finance ministries recommended allowing foreign airlines to buy as much as 49 percent of local operators.

Jet Airways, the nation’s biggest airline, rose 4.9 percent to 246.4 rupees at close of trading, after surging as much as 14.5 percent earlier. Kingfisher Airlines Ltd. advanced 1 percent and discount carrier SpiceJet Ltd. 2.5 percent.

A proposal to relax the investment rule will soon be sent to the cabinet for final approval, Aviation Minister Ajit Singh said yesterday. The move may help local airlines access cash and expertise amid industrywide losses and give an opportunity for overseas carriers to get a slice of the Indian market, where domestic traffic is forecast to surge fourfold by 2020.

“Now there is hope of a fresh lease of life for airlines,” said Jagannadham Thunuguntla, head of research at SMC Global Securities Ltd. in New Delhi. “These stocks have been battered badly for the last one year. This euphoria is understandable.”

Jet Airways and Kingfisher each plunged more than 65 percent in 2011 as their losses widened because of higher fuel costs and a price war. The carriers have been planning to raise funds through rights offers for more than two years.

Foreign airlines are now barred from owning stakes in Indian carriers. Non-airline investors from overseas can hold as much as 49 percent. India’s civil aviation ministry had earlier proposed allowing 24 percent ownership for overseas operators.

Brand, Furniture

Kingfisher, controlled by billionaire Vijay Mallya, is seeking cash to maintain services after 16 straight quarterly losses prompted it to reduce flights. The carrier, based in Bangalore, has pledged assets ranging from its brand to office furniture for loans of 64.2 billion rupees ($1.2 billion).

The airline told lenders it may receive an equity infusion of $250 million by March, three people familiar with the matter said yesterday. Banks have told the airline they will provide short-term working capital loans after it secures the investment, said one of the people, who declined to be identified because the talks are private.

Prakash Mirpuri, a spokesman for Kingfisher, declined to comment on the matter.

In November, the heads of Indian carriers met Prime Minister Manmohan Singh as they sought the government’s assistance to stem industry losses. The nation’s airlines will probably lose $2.5 billion in the year ending March, according to the CAPA Centre for Aviation, an industry adviser.

Starbucks, Ikea

Prime Minister Singh has pledged to open India further to overseas companies. His government removed a 51 percent cap on foreign investment in single-brand retail on Jan. 10, a decision that will benefit companies including Starbucks Corp. and Ikea. The move raised expectations the government may also loosen restrictions on overseas-based supermarket operators.

Indian carriers’ debt may reach close to $20 billion in the year ending March 31, the aviation ministry said in a December report to the Planning Commission, an agency that designs five- year economic and social programs. Working capital loans and dues to airport operators and fuel companies account for half of this amount, according to the report.

“Strategic investment by foreign carriers will play an important role in providing confidence for further institutional capital to follow,” said Binit Somaia, a Sydney-based director at CAPA. It will also “strengthen management capability.”

--Editors: Vipin V. Nair, Terje Langeland

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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