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It is now possible to approach strategic investors for the long haul: SL Narayanan

Interview with CFO, Sun Group

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The shares of media tycoon Kalanithi Maran-owned companies have been rising since September 14, after the Government opened doors for foreign direct investment in aviation, and cable TV. His is one of the largest media houses in the country and also the owner of airline SpiceJet. Group’s chief financial officer, SL Narayanan, talks of the impact of the government decision on their airline in particular, to TE Narasimhan. Edited excerpts:

How will in aviation change things for Indian carriers?
First, at a fundamental level, this will change the way India is being perceived globally. The proposals on retail, media and aviation collectively will send a resounding message to the world at large that we as a country are back in the reckoning. This has already boosted investor sentiments across the board and revived business confidence.

The liberalisation of FDI regulations on aviation is an essential first step, towards the right direction. Till now, Indian carriers could only access capital from financial investors, whose IRR (internal rate of return) expectations are often so high that any deal negotiation had slim chance of a successful closure. With this new amendment, it is now possible for Indian carriers to approach strategic investors, which can invest for the long haul and seek returns in other indirect ways, such as code sharing synergies.

Do you expect the government would consider other aviation reforms?
I hope the crippling effect of high taxes on fuel get moderated soonest. We learn reliably that there is a move to notify ATF (aviation turbine fuel) as a declared good, which will then harmonise sales tax rates on fuel at a uniform four per cent across states. This could be a life saver for the sector.

What does FDI in aviation mean to SpiceJet? Will you bring in a new investor soon? There were reports you are in talks with Middle East-based airlines.
We are evaluating various options but it may be premature to say anything on the quantum and the source of funding. While we are certainly looking to raise funds, I cannot hazard a guess at this juncture if will be able to induct a foreign partner within the current financial year.

Meantime, we are also prepared. The promoters at Sun Group have stood by the airline during the most difficult period in the company's history, infusing Rs 230 crore in the past 10 months, besides supporting working capital loans with collateral. Many of these reports on roping in a Middle East-based airline are pure conjecture and we do not want to comment on speculative stories.

For an Indian aviation company, which country’s airline would be a right bet as a partner? Would foreign airlines be averse due to the high level of debt and losses in Indian carriers?
SpiceJet will be a great asset to any large international carrier that operates several flights out of the busy hubs in the major metros in India. We have built a fairly good network over the years and we serve 41 stations in the country, with 300-plus flights a day, with a fleet of 35 Boeings and 12 Q400 Bombardiers, ferrying almost 40,000 passengers daily. That passenger base is something a large global carrier will certainly see as valuable.

If I can be blunt, the Indian aviation industry is not in any shape to excite overseas players. The entire sector has been through a pretty rough year and most knowledgeable global investors are acutely aware of the industry's performance and the extent of losses sustained in fiscal 2012. Most airline balance sheets are in need of urgent repair and ATF prices continue to grievously impact our viability. The FDI relaxation is just a start; this needs to be aggressively followed with measures that will make the sector attractive enough to whet the appetite of global carriers. We are a developing economy. A vibrant air transportation network and improved connectivity will be vital for our future.

Will FDI in aviation lead to intensified competition, since foreign airlines coming in would lead to hostile takeovers?
I don't think we will ever see hostile takeovers, given the safeguards built into the regulations.

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