According to Sharan Lillaney of Angel Broking, SpiceJet will be most positively benefitted from foreign direct investment in the aviation space because of its low debt levels and strong presence amongst low cost carriers.
“After SpiceJet, I expect Jet Airways to benefit from FDI because of its strong international presence as well as domestic presence,” he added.
He also says Kingfisher will be benefitted, but only if they go in for a complete restructuring of their debt. “I think the company will have to convert part of their debt into equity, only post that can they expect a foreign airline to buy stake and infuse capital in the company,” he explained. He further adds that any stake sale in KFA will happen only at a premium.
Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: Which company specifically you think will be most positively impacted if indeed this FDI in aviation comes through?
A: I think SpiceJet would be most positively affected because the company’s debt levels are close to Rs 700 crore, which is very less compared to Kingfisher’s Rs 7,000 or Jet Airways’ Rs 14,000 crore. The company is also present in the fastest growing LCC (low cost carrier) segment where Kingfisher has just exited
After SpiceJet, I expect Jet Airways to benefit from FDI because of its strong international presence as well as domestic presence.
Q: What could it do to Kingfisher given the state of its balance sheet?
A: I think Kingfisher will also benefit from the FDI. But prior to a stake sell to a foreign company, I think the company will have to go for a complete restructuring where they convert part of their debt into equity. Only post that can they expect a foreign airline to buy stake and infuse capital in the company.
Q: Any sense you have of what kind of global carriers would be interested in the Indian companies and whether the companies that you mentioned would be willing to sell stake at these beaten down equity valuation levels?
A: At the current valuation, I don’t think stake sale will happen at a premium. But given the current state of the industry, they require money very soon otherwise it will be very difficult for them to plan their future expansion.
I think for low-cost carriers, a foreign low-cost carrier would be a good partner. For SpiceJet or Indigo, AirAsia could be a good partner or Southwest Airlines. For Kingfisher or Jet Airways, maybe Etihad, Emirates or Singapore Airlines could be a good partner.
Q: Aside from any foreign carriers entering this space, what are you picking up about the potential of large Indian conglomerates looking to enter the aviation space?
A: Even if big corporates in India plan to enter the aviation industry, I don’t think they will buy a highly debt-ridden company. So basically their investment will be into the high growth low-cost carrier segment.
Q: If some of these currently operational airlines get funded by any of the global carriers, what could it do to the demand-supply dynamics in the market? Prices had gone up of late because of supply getting restricted due to balance sheet issues of many of the companies, but do you think if funding is sorted out the market dynamics will become difficult once again?
A: It is very difficult to add capacity quickly even if you have money because you have to place the orders and aircraft delivery takes place only after four to five years. So the companies who have already planned expansion would get delivery on time, otherwise even with the invested new capital coming in it will take time for the capacity to increase. So there will not be a sudden increase in capacity; capacity will increase over a period of time gradually.