M&M may set up aircraft financing arm in Australia

Move to boost sale of aircraft manufactured by Gippsland Aeronautics, which is part of the Mahindra group.

Mahindra & Mahindra (M&M), the diversified business group with significant interest in automotive and information technology (IT), is looking at setting up an aircraft financing arm in Australia to boost the sale of aircraft being manufactured by Gippsland Aeronautics, which is now part of the Mahindra group.

The over-$6.3 billion diversified business group is mulling to use its non-banking financial arm Mahindra & Mahindra Financial Services (Mahindra Finance) to set up an independent or partly-owned financial services entity in Australia to finance the customers who want to buy aircraft built by Australian aircraft producer Gippsland Aeronautics that is part of Mahindra Aerospace.

In December last year, M&M, along with Kotak Private Equity, had acquired two Australian companies, including Gippsland Aeronautics and aerospace component maker Aerostaff Australia. These acquisitions were made by its under-subsidiary Mahindra Aerospace with a total commitment of $37.4 million over the next five years.

“Most aircraft in the world are financed by a financing company. Now that Mahindra Finance exists in India and helps the sale of tractors and SUVs, it is possible that Mahindra Finance can look at setting up something in Australia independently or as a minority or as a majority,” said Hemant Luthra, president of Mahindra Systech, which looks after the aviation business of the company.  

Gippsland, which produces two- to 20-seater aircraft, has sold 250 of its aircraft in 32 countries, a majority of them in Australia. M&M believes with a financing arm in place, the orderbook of Gippsland will improve dramatically, as easy finances can be made available to the customers.

Luthra said owing to its (smaller) size, Gippsland was not able to make financial arrangements earlier. “I think the order book will improve dramatically because so far they (Gippsland) could not get its own financing and financial arrangements. Now that they can make a financial arrangement on the back of the Mahindra ownership, they will become a very strong proposition,” said Luthra, who is also a member of the management board of M&M.

Post the acquisition, M&M has also committed to infuse a working capital to the tune of Rs 200 crore for the running of Gippsland’s business. It is quite possible that the company may set aside a part of this fund for the financing purpose, Luthra added.

According to the company, Gippsland’s eight- to 10-seater aircraft, including the single engine GA8 Airvan, are in biggest demand among buyers in Australia and other countries. These aircraft, which are capable of landing and taking off from unpaved and short runways, can be used for disaster relief, pilgrimage, corporate travels, air surveillance at costs per seat kilometre that approach road transport and are half of jet travel.

After the acquisition of Gippsland, M&M is also infusing working capital to design and develop a 18-seater general aviation aircraft, which could not be done earlier because of unavailability of working capital. With the acquisition, the necessary certification has been transferred from the Australian government to Mahindra Aerospace, which is now building a team of both Australian and Indian engineers to take up the programme. “Our estimate is that the 18-seater aircraft will be ready for take off in calendar 2012. We have to built four prototypes which will be destructively tested to test the ruggedness,” said Luthra.

Meanwhile, M&M plans to transfer some aircraft designing works like wings, tanks and interior to the plant it has proposed to set up in India. The company said it could take at least three years for its plant in India to become fully-equipped to completely design and develop the aircraft. “It will happen step-by-step,” said Luthra.

According to a study done by M&M in partnership with management consulting firm AT Kearney, about $5 billion of general aviation aircraft are being sold every year, out of which more than half are turboprop aircraft, like the ones being developed by Gippsland.