Indian domestic aviation sector poised for next phase of consolidation
05 Jul 2008
New Delhi: Given the unceasing turmoil now being faced by the Indian aviation sector it is likely that the next phase of consolidation may well roll out earlier than many of domestic players may have bargained for. Dramatically rising costs are only one part of the story, albeit major, as airlines with short cash positions and ''low-cost''business models are beginning to find themselves exposed in the market place.
Persistent market speculation would now have Kingfisher once again assuming 'pole position' in an attempt to acquire a stake in low-cost carrier, SpiceJet. In tandem, persistent market rumours suggest that GoAir promoters, the Wadia family may also be in an advanced stage of talks to sell a substantial stake in the airline. The stake-sale may be held up, according to market speculation, only on the issue of valuation.
There would appear to be a mis-match between the valuations asked for and that which may be on offer. In the case of GoAir there is no information on the identity of the party interested in the acquisition.
Meanwhile, reports suggest that UB Group chief, Vijay Mallya, may be in talks with SpiceJet's main promoter, Bhupendra Kansagra, to pick up the Kansagra family stake of 12.91%. Also being lined up for acquisition would be a 13.42% stake held by Dubai-based investment firm, Istithmar PJSC.
If UB Group should successfully acquire both the holdings, amounting to a little more than 26%, then the amount payable by them would range anywhere between Rs145 to Rs155 crore, depending on the valuations placed on the airline.
According to market information, the lock-in period of Kansagra and Istithmar stakes has expired early on this year and they are free to dispose of their stakes.
Along with other carriers, SpiceJet, too, is hemorrhaging huge amounts of cash daily on account of high fuel prices. and also dipping load factors.
If UB Group should pick up both the stakes then under stock market rules any acquisition over 15% would compel the Group to buy an additional 20% from the open market. A 45% holding would ensure that Kingfisher becomes an undisputed market leader in Indian aviation, commanding a near 40% share in the domestic market.
Interestingly, the Tata Group holds a minor stake in SpiceJet through two investment companies as well. However, they have shown no inclination to assume a larger role in the airline business,.
SpiceJet has slashed operations in a bid to reduce costs, cutting number of flights to 94 per day from 117 a day last month.
