Wednesday, August 17, 2022

How Will Akasa Air Go Forward Following Co-Founder Rakesh Jhunjhunwala's Passing?

India's newest airline, Akasa Air, began operations with much fanfare on August 7th, with its largest shareholder Rakesh Jhunjhunwala also present at the event. But just a week after the carrier's inaugural flight, Mr Jhunjhunwala sadly passed away after a period of poor health.

Not even a month old, Akasa Air will now have to navigate the tricky territory of Indian aviation without its biggest patron. The big question, however, is whether Mr Jhunjhunwala's passing will affect Akasa's larger expansion goals or whether enough groundwork has been laid for it to march through.

Known for his sharp business acumen, Jhunjhunwala was expected to provide plenty of guidance to Akasa as it began its journey in the challenging Indian aviation space. And while the ace investor was suffering from long-term ailments, his demise on August 14th came as a shock to everyone.

Not too long ago, many would have questioned Akasa's CEO Vinay Dube's decision to start an airline in the middle of a pandemic. Reports of Dube (former CEO of Jet Airways and GoAir) wanting to start a new airline began circling in early 2021.

By then, he had already filed for a no-objection certificate (NOC) with the aviation ministry but was looking for a credible name to back the project. After all, the ministry needed some assurances that the airline's idea was based on sound business decisions.

Dube's immediate task was to hunt for an investor not just to infuse the much-needed capital but also someone who carried enough respect and credibility to secure future deals and regulatory approvals.

A source told The Economic Times that Dube's search for an anchor investor came to an end after he met Utpal Sheth, chief executive of Jhunjhunwala's flagship investment company, RaRe Enterprise, who then introduced him to Jhunjhunwala.

Jhunjhunwala's commitment to invest $35 million got him around 40% of the company, and his backing was a huge PR boost for the company. It is widely known in the industry that Jhunjhunwala had the ability to sniff out a good deal, and just his name behind Akasa Air opened many doors for the airline.

But now that he is sadly gone, many are wondering if Akasa will be able to push ahead with the same intensity as it had initially planned.

With not even a month into business, Akasa still needs to find its footing. This is probably why some believe that Mr Jhunjhunwala's passing could affect the trajectory of the airline, at least temporarily, if not in the long run.

A senior research analyst tracking aviation, and requesting anonymity, told Business Today,

“He [Jhunjhunwala] was critical in providing financial capital to the company. The management could potentially explore the option of finding another investor, though it remains to be seen who would be willing to invest such large amounts of money in the airline with the path to profitability yet to be established.”

Another senior executive in an airline said that Akasa is likely to be under stress and could potentially turn out to be a different animal than what was originally envisaged. He added that Jhunjhunwala was critical to Akasa as he was not only an investor in the company but someone who could arrange cheap financing for them from both Indian banks and foreign institutional investors.

Jhunjhunwala's family holds the majority shares in the airline through three trusts named after his children, Nishtha, Aryaman, and Aryavir.

The airline, however, is optimistic about its future, acknowledging that Mr Jhunjhunwala left it strong enough to survive in his absence. The Economic Times quotes Bergis Desai, another investor in Akasa, as saying,“He (Jhunjhunwals) was never supposed to be involved in day-to-day operations of the airline … It (the shareholder agreement) has been structured in a way that it will be managed by the estate, and every commitment that has been made will be honored.”

Desai also added that Akasa is currently led by a strong team comprising co-promoter and CEO Vinay Dube and former IndiGo CEO Aditya Ghosh, both of whom are very capable of managing operations.

Many still believe that Akasa is adequately funded and will get more cash in the future with the sale and leaseback transactions from the many Boeing 737 MAX planes it is expected to receive in the coming months.

16/08/22 Gaurav Joshi/Simple Flying

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