Qatar Airways looks to grow India reach, eyes SpiceJet stake

Both airlines recently signed a non disclosure agreement but due diligence is yet to take place

Qatar Airways is in talks with SpiceJet for the possible acquisition of 24 per cent stake in the Indian airline. Recently, the two airlines signed a non-disclosure agreement, but due diligence in this regard was yet to be carried out, said a source privy to the development.

In January, Qatar Airways had denied it was in talks with SpiceJet or any other Indian airline. Asked about the talks with SpiceJet earlier this week, a Qatar Airways spokesperson said the airline didn’t wish to comment on the issue.

SpiceJet denied it was in talks with the Gulf airline. “While we are not averse to the idea of partnering a reputed name in aviation, it will be improper to comment prematurely on the possibilities of a deal fructifying. That said, we wish to categorically state it is totally misconceived to say SpiceJet is in talks with Qatar Airways for a possible stake sale. A similar rumour was doing the rounds earlier, and we had denied it as soon as it hit the wires. Yet again, we have to simply reiterate there is absolutely no truth in this story,” said S L Narayanan, chief financial officer of the Sun Group, which owns SpiceJet.

According to sources, however, the talks were in preliminary stages and Qatar Airways might infuse $200 million in debt and equity in SpiceJet.

Counted among the three major Gulf airlines (along with Emirates and Etihad), Qatar Airways has been considering increasing its presence in India. Currently, it operates 95 weekly flights to twelve Indian cities. While Emirates flies 185 weekly flights to 10 cities, Etihad has 63 flights to nine Indian cities. After the civil aviation ministry recently increased seat capacity between India and Abu Dhabi from 13,000 a week to about 50,000, the Qatar government, too, sought seat capacity between India and Doha be increased by 48,000 a week. If cleared, this could help Doha (with 72,600 seats a week) emerge as an alternative hub to Dubai and Abu Dhabi.

An alliance with an Indian carrier such as SpiceJet would help feed traffic into the Qatar Airways network and make it easier to seek additional traffic rights to Doha, as the civil aviation ministry is already under fire for enhancing traffic rights to Dubai and Abu Dhabi through the last few years.

For 2012-13, SpiceJet had posted a loss of Rs 191 crore, against a loss of Rs 605 crore in 2011-12. In its annual report for 2012-13, auditors S R Batliboi and Associates said, “The company’s operating results have been materially affected due to various factors and as on March 31, the accumulated losses have fully eroded the net worth of the company.”

SpiceJet has total equity of Rs 484 crore. Promoter and Sun TV Chairman Kalanithi Maran owns 52.14 per cent stake in the airline — individually and through group companies. Through the last two years, the Maran family has invested about Rs 230 crore in the airline. Foreign institutional investors own 3.8 per cent stake in the airline, according to BSE data. Through the last few months, SpiceJet has been considering raising funds from institutional and strategic investors.

“The LCC (low-cost carrier)’s modest profitability in the first quarter was not encouraging and the structural fault lines in the business are becoming visible. Given the current weakness in the market, SpiceJet may be headed for a record second quarter loss. The next few months will be critical for the long-term future of SpiceJet, as the carrier needs to focus on minimising red ink in the second quarter and recovering some of these losses in the third quarter, which seems challenging at present. Seeking investment from a strategic or financial investor is high on the carrier’s agenda... In light of the financial challenges faced by SpiceJet, investment by a foreign airline is not expected soon and it appears inevitable that the promoter will need to provide significant additional funding,” the Centre for Asia Pacific Aviation had said in a recent report.