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Jet Airways offers stake to raise $250 mn

India's Jet Airways plans to raise $150 million to $250 million through a private equity placement, offering some well-heeled outsider for the first time a stake in the country's fastest growing airline.

Jet Airways, founded in 1992 and owned by entrepreneur Naresh Goyal, has become in less than a decade India's second-largest domestic airline.

It owns 42 per cent of the domestic market, and is gaining fast on market leader Indian Airlines, a money-losing state-run airline that is virtually its only competitor in a market that could be the world's fastest growing over the next decade.

"We have not decided on the exact amount, but our capital requirement for future expansion could be somewhere in between these numbers," the airline's executive director Saroj K Datta said in an interview with Reuters.

Datta said the money would be used primarily to finance expansion and also to repay debt.

"The fresh capital will be used for a number of expansions. New aircraft are coming in, we're investing in infrastructure, we've just bought a simulator -- there are a number of projects."

US investment bank Goldman Sachs and its local affiliate Kotak Mahindra are managing the private placement of shares, and are discussing it with domestic as well as foreign financial institutions, he said.

NEW AIRCRAFT

Jet is acquiring 13 new aircraft, both in an effort to overtake Indian Airlines as the largest domestic carrier, and to fend off competition from a new wave of start-up airlines.

Jet is buying 10 new Boeing 737s, and leasing three smaller turbo-prop aircraft for flying feeder routes.

It has already secured a Rs 16 billion loan to fund 85 per cent of the cost of buying the new Boeings.

Under that $400 million deal, Jet has already taken delivery of the first two 737s, with two more to arrive this year, four next year and the last two in 2003.

It has also made arrangements to lease three more 62-seat turbo-prop aircraft by French-Italian company ATR.

Jet now operates 215 flights daily to 39 cities in India.

It would like to expand by flying internationally if allowed by the government, and is eyeing destinations in the Gulf, Southeast Asia, China and other Asian countries.

India's civil aviation policy now allows only state-run airlines Air India and Indian Airlines to fly abroad. Jet is hoping that the proposed partial privatisation of the state-run airlines will result in a rule change.

"We are hoping for a level playing field once the privatisation takes place," Datta said. "The Indian government should also consider Jet Airways when it is distributing flight entitlements to foreign destinations."

IMPROVE DEBT-EQUITY RATIO

The private placement will raise money to finance that expansion, while simultaneously reducing Jet Airway's debt-equity ratio of 4:1, Datta said.

Jet Airways' equity stands at $25 million, he added.

The International Finance Corporation, a body of the World Bank, last December pumped $15 million into the airline as subordinated debt.

"The IFC funds are for cumulative redeemable preference shares which are convertible (into equity)," Datta said.

Though the airline has no plans yet to float a public issue, Datta did not rule that out in the future to create an exit route for investors buying a stake through the private placement.

"Look, anything is possible. We will have to study the terms and conditions. But the first step is the private placement," he said.

TRAVEL BOOM

A World Travel and Tourism Council report to be unveiled August 5 in New Delhi forecasts that India will be the fastest growing travel market in the world over the next decade, the Financial Express, a domestic daily, reported last week.

The study projects the value of the Indian travel market will triple, to $51 billion by 2011 from $16.3 billion now.

Yet currently there are only three airlines providing scheduled service in India -- Jet, state-run Indian Airlines and tiny Sahara Airlines, a primarily regional airline with a fleet of just eight aircraft.

The government wants to partially privatise Indian Airlines by selling a 26 stake, but so far has found few takers -- in part because of the money it would take to overhaul the airline.

In the past year to March, Jet carried 17,000 passengers a day by filling 71.7 per cent of its available seats, while Indian Airlines carried 22,000 passengers daily by flying 67 per cent of its seats, according to Business Today, an Indian weekly news magazine.

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