Going gets tougher for airlines

Mumbai: Dark clouds seem to be looming large for domestic airlines as equity funding becomes difficult to find. Input costs are mounting, even as the airlines try to expand and consolidate at the same time.
The result is a fall in return on capital, and it is not surprising that private equity players and strategic investors are steering clear of taking an equity exposure to the business. Industry officials said most carriers operating domestically are still in need of funds to pay for increasing working capital requirements.
Fleet expansion is being financed largely through credit from export credit agencies like the US Exim. Sources told ET that Kingfisher and SpiceJet are among those currently in the market trying to offload equity to prospective investors, but their airline promoters have denied any such move.
Investment bankers say there is a significant mismatch between expectations and the valuations being offered in the market. Many airlines, including big names such as Jet Airways, have deferred plans to raise funds, preferring to wait till conditions change.
For over a year now, private equity players, hedge funds and commercial banks have been chary, as the airlines struggle to make profits.
22/10/07 Cuckoo Paul & Anto T Joseph/Economic Times

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Categories: General Aviation Oct 2007