Kingfisher may buy SpiceJet in cash deal

Vijay Mallya looks to fly away with SpiceJet
Nirbhay Kumar, ET Bureau

NEW DELHI: Another round of consolidation in the domestic skies seems imminent with UB Group chairman Vijay Mallya engaging in talks with two major shareholders of SpiceJet to buy the budget carrier in an all-cash deal.

According to industry sources, Mr Mallya is negotiating with Gulf-based fund Istithmar and the UK-based Bhulo Kansagra family, who together hold 26.33% in the low-cost airline. Acquisition of their stake by Mr Mallya would trigger an open offer for another 20% from other shareholders.

The Kingfisher chief had followed the same strategy to acquire the country’s largest low-cost airline Air Deccan last year. As per the current market price, the 26.33% stake is valued at Rs 158.40 crore. On BSE, SpiceJet shares closed at Rs 25 on Friday, up 7.76% over its previous close.

The Tatas too hold a minor stake in SpiceJet through two investment companies. There was speculation that the Tatas may take a larger role in the airline, but the group denied the buzz, insisting that the holding was purely a financial investment.

Mr Mallya’s move to acquire SpiceJet is expected to give Kingfisher enough muscle in the domestic market. If the deal goes through, the UB group would hold 40% share in the domestic market and could set fare levels across key sectors.

“Kingfisher has been talking to SpiceJet for a possible stake acquisition since a month. Mr Kansagra and Istithmar are likely to exit the company. While Mr Kansagra is keen for an early deal, Istithmar is looking for good value,” a source said.

SpiceJet is also talking to a non-aviation investor for infusion of fresh funds, the source added.

The Gurgaon-based SpiceJet has cut down its flights to 94 per day from 117 a day last month. The airline is not immune to the financial crisis in the aviation industry due to the spiralling fuel price. In a move to cut down losses, the low-cost carrier is reducing capacity and sub-leasing aircraft. It has already sub-leased one aircraft to the Netherlands-based Trasavia Airlines. SpiceJet is also planning to sub-lease two more aircraft soon.

Kingfisher, along with its low-cost arm Deccan, operates about 83 aircraft and flies 440 flights a day across the country. SpiceJet, which has nearly 11% market share, flies 94 flights a day with 15 Boeing aircraft. To expand its fleet and operations, the budget carrier is planning to raise $100 million from the market. It has been looking for an investor for months, but without success.

With oil prices reaching all-time highs, almost all the carriers in the country are reducing capacity.

Source : The Economic Times

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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