SpiceJet Ltd., the Indian budget airline that ran into financial trouble last year, has been approached by foreign airlines seeking to buy a stake as the company tries to turn around. The shares surged the most in three weeks.
The offers are “premature” and SpiceJet is keeping the “dialog alive” with the foreign airlines, Ajay Singh, who in February acquired a majority stake in SpiceJet, said in an interview yesterday. He declined to name the carriers that have approached his company.
“We have offers for a strategic sale, there’s no doubt about it,” Singh said. “We feel it’s a little premature for a strategic sale to be happening here.”
Singh rescued SpiceJet after aircraft lessors took away its planes for lack of payment of monthly rentals and the carrier delayed salaries to staff. Singh, who founded the airline in 2005 and then exited the company later, returned in January with an initial investment of 5 billion rupees ($80 million). The airline is now cutting costs, renegotiating contracts with vendors and is sharing the turnaround plan with the government.
“This was a brand that I created and therefore there was certainly some emotion involved in trying to revive it, but there was more rational business sense as well,” Singh said.
Shares of SpiceJet surged as much as 14 percent, their biggest intraday gain since Feb. 20. The stock has jumped about 80 percent since Dec. 18, when Singh’s interest to invest in the airline was first reported.
Singapore Air, AirAsia
High fuel charges and below-cost fares mean most carriers in India struggle to make money. Yet, a emergence of a middle class in a market where the number of domestic travelers are forecast to triple in the decade to 159 million by 2021 mean foreign airlines can’t ignore such a market.
Indian Prime Minister Narendra Modi’s government is trying to help the airline industry, with $10 billion of accumulated losses over the past seven years, by changing policies. The government is considering easing rules that force local airlines to serve the nation’s remote locations despite little demand.
The airline expects to post profit in the April-June quarter, Chief Administrative Officer G.P. Gupta said in a separate interview in New Delhi.
India’s government has opened the airline industry for foreign investment in recent years, a move that brought in investments from Etihad Airways PJSC, which bought a stake in Jet Airways India Ltd. AirAsia Bhd., the continent’s biggest budget airline, and Singapore Airlines Ltd. have both started their India operations partnering with the Tata Group.
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This article was written by Anurag Kotoky from Bloomberg and was legally licensed through the NewsCred publisher network.