Spicejet better placed than Kingfisher for foreign funds

Shares of aviation companies were on the rise after the government allowed FDI in aviation.

Jitendra Bhargava, Former ED, Air India is of the view that Spicejet with 18% market share is better positioned to take in foreign capital as compared to cash-strapped Kingfisher Airlines. Furthermore, Bhargava said that Jet Airways is not keen on infusion of foreign funds since they are market leaders. “They are well placed; they are market leaders, only a notch below Indigo as per data of July. But the reality is they are on firm footing, it all depends how much more capacity augmentation can take place in the Indian market. If the market does not expand hugely, the growth is not taking place in double-digits, Jet Airways may firm up or may consolidate. I don’t think fund is a factor for them but fund is a factor for Kingfisher and Spicejet because they need to grow fast,” he said. Below is the edited transcript of the interview Q: Do you agree with the assertion that you have just heard from SL Narayanan of Spicejet that in the Indian listed space, Spicejet may be best positioned to take in any foreign capital? A: I think SL Narayanan of Spice Jet is absolutely spot on considering the fact that the other listed entity, which is Kingfisher has a very low market share of 3.5%and a huge debt on its balance sheet. Spicejet with 18% market share is certainly better placed. He is also right when he says other factors need to be in place before you can say that the aviation sector is on a firm footing because ATF prices, infrastructure have to be attended to before you say airlines can breathe normally. Q: You don’t share the enthusiasm of the promoter of Kingfisher because he has been record over the weekend suggesting that it will enable him to find a partner for the embattled Kingfisher. Do you think it will be a difficult or a hard sell? A: Before taking a decision on injecting money, the CFO of a foreign carrier will see whether the airline will get returns, and also, whether the money invested is safe. That is what you cannot assure at the moment. With Kingfisher’s market share at 3.5%, you will need to build that market share. India is a price sensitive market; by keeping your fares very low, it would mean bloodbath in the Indian aviation market again. It is okay that once some money is coming in through a foreign airline, Indian banks may also respond. In that way, fund infusion can take place but it is not going to be easy. It will be a painful exercise. So that is what Indian government needs to do; it should not look at piecemeal reactions, first allow AFT imports by the airlines then FDI. Now the question is to take a holistic view; see what the airline industry needs to create an environment, which is conducive of profitability at the moment. What has unfortunately happened is that in the previous quarter, some airlines did report profits but that is an aberration. It does not reflect the ground realities for the simple reason because Kingfisher dropped its capacity by very large margin, which is why other airlines gained, and the prices went up. As a result, they could reflect some profit on the balance sheet. Q: Where does all this leave Jet Airways because the way foreign ownership is structured, it may seem difficult for them to get in some more foreign equity? A: I don’t think they have been overtly keen on getting infusion from funds from abroad. They are well placed; they are market leaders, only a notch below Indigo as per data of July. But the reality is they are on firm footing, it all depends how much more capacity augmentation can take place in the Indian market. If the market does not expand hugely, the growth is not taking place in double-digits, and reduced to in the previous years. Jet Airways may firm up or may consolidate. I don’t think fund is a factor for them but fund is a factor for Kingfisher and Spicejet because they need to grow fast.