PE firms shy away from aviation companies

Bangalore: Private equity companies prefer to keep their distance from the Indian aviation sector as earnings prospects remain dim.
Although aviation companies such as Kingfisher have been courting PE firms during the last few weeks, not many are enthusiastic about investing in the Indian aviation sector. One of the reasons given was that with traffic dropping by 21 per cent on a year-on-year basis, net earnings of airline companies are not likely to be good this year.
The Chief Executive Officer of Kotak Private Equity Group (KPEG), Mr Nitin Deshmukh, said, “Immediately, we are not keen on any investments in the aviation sector.” KPEG has an investment corpus of close to $1.5 million. The PE company already has a substantial investment in Paramount Airways that was acquired at the incipient stages of the company in 2005.
Mr Deshmukh declined to divulge the stake in Paramount but said that Kotak was looking for an exit from Paramount with a rider. “We need the right price to make an exit either through the initial public offering route or by divesting in favour of a strategic investor,” he added.
KPEG’s right price estimate is based on an internal rate of return of at least 30 per cent. This is in line with most PE investors’ return expectations. However, given the current state of the domestic aviation sector, most analysts are sceptical of airline companies generating positive net income in the immediate future to meet these return expectations.
30/12/08 C. Shivkumar/The Hindu

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Categories: Indian Aviation- In General Dec 2008