Big Bull Rakesh Jhunjhunwala’s bet on the aviation sector, which surprised many, seemed extraordinary but after listening to him analyse it from a risk-reward perspective, ace investor and friend Ramesh Damani was impressed and would have liked a piece of the action as well.
“I would be excited (about it). If he had asked me, I would have put money in it. He didn’t. That apart, I think it’s a shrewd bet. If it works, it will be a permanent legacy in his name in the air,” said Damani, remembering his friend of more than 30 years.
Jhunjhunwala, India's best-known stock investor, passed away on August 14 after a cardiac arrest. He was 62.
Jhunjhunwala’s Mumbai-based Akasa Air was launched exactly a week before his death on August 7, with the Mumbai-Ahmedabad flight, which would also be the billionaire's last public appearance. He invested $35 million for an estimated 40 percent stake in the airline.
In an interview to Moneycontrol's N Mahalakshmi on August 15, Damani said, “Rakesh sees five to 10 years into the future. He wasn’t looking at it from one or two quarters. So, by using his own mental model of risk-reward, it makes a lot of sense to me.”
According to Damani, Jhunjhunwala analysed the investment like he did every other, by considering the loss he may have to bear and then ringfencing that amount, and by looking at the returns the airlines could give. “He said he liked the risk-reward ratio in it,” Damani said.
A day after the launch of Akasa Air, Jhunjhunwala had spoken to CNBC-TV18 and said as discretionary spending per capita goes up, there would be a lot more flying. He also cited Civil Aviation Minister Jyotiraditya Scindia’s estimate of 40 crore air travellers in India, roughly 30 percent of the country’s population, by 2027.
India would need 1,200 aircraft–or double the present number–by that year, Juhunjhunwala said.
Damani said the cost of running an airline had come down over the last ten years or so because of the sale-and-leaseback (SLB) arrangement.
He cited the example of IndiGo that capitalised on this model of buying planes and selling them to a lessor and then leasing it back. The airline could buy aircraft at more competitive prices because of the large orders and then money in the difference by selling it to the lessor at a higher cost.
The airline also saves on maintenance cost and can replace its fleet faster to keep pace with newer technologies.
According to Satyendra Pandey, a civil aviation veteran, the success of the strategy depends on two things—the price at which the airline is buying the plane and the model that is being acquired.
The first determines the profits that can be made when the airline is selling it forward and the second determines the interest a lessor would have in entering into such an arrangement with the airline.
Damani said that he wasn’t privy to any conversation but his understanding was that a similar model was being used for Akasa.
In the CNBC-TV18 interview cited above, Jhunjhunwala said Akasa would be competing with IndiGo and SpiceJet for India’s domestic air-travel market.
16/08/22 Moneycontrol
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