NEW DELHI (Reuters) – The co-founder of India’s SpiceJet is leading a $240 million rescue effort to pull the low-cost carrier back from the brink of collapse, in a bold bet on the recovery of an industry plagued by high costs and heavy losses.
A source with direct knowledge of discussions said Ajay Singh, who helped set up the airline in 2005, was in talks with private equity firms and the government to hammer out the deal.
India’s second-largest budget airline has been struggling for months, and this week was forced to ground its fleet after suppliers refused to refuel the planes.
That prompted speculation it was heading for a collapse embarrassing for both India and its aviation industry – just two years after Kingfisher Airlines imploded leaving billions of rupees in unpaid debt.
“This is a good time to be in the aviation space, with fuel prices being as low as they are and the economy set to grow,” said the source, who declined to be named.
“Some mistakes have been made in the past but … this is a situation that can be rectified.”
Singh – a well-connected businessman credited with coining Prime Minister Narendra Modi’s winning campaign slogan – will present the plan to ministry officials on Monday alongside his financial backers, the source said. Due diligence, however, could take a further 4 to 6 weeks.
The cost of the rescue deal is estimated at between 12 billion and 15 billion rupees ($237 million), the source said, though that could still change.
Singh, who owns roughly 5 percent of SpiceJet, will certainly need deep pockets.
SpiceJet’s current owner, media billionaire Kalanithi Maran’s Sun Group, has said it cannot afford a bail out after sinking $400 million into the airline since buying it in 2010.
Many other Indian carriers have also struggled to translate rapidly growing demand for air travel into profits. Instead, price wars and some of the highest operating costs in the world have left carriers bleeding cash, while new entrants like AirAsia add to competitive pressure.
Under Maran, SpiceJet aggressively expanded its fleet of Boeing planes and started flying more routes, using heavy discounts to win passengers.
Returning to profitability will depend, in part, on the government following through on plans to lower taxes and airport charges, as well as SpiceJet’s own efforts to revive margins.
“I suspect they are spending too many years looking for a white knight and not enough time spent on sorting the business out,” said Shakeel Adam, managing partner at Aviado Partners, a specialist in airline restructuring. ($1 = 63.2100 Indian rupees)