Co-founder of SpiceJet agrees to take control

By Tommy Wilkes and Aman Shah

MUMBAI/NEW DELHI (Reuters) - The co-founder of airline SpiceJet Ltd has agreed to buy out its billionaire owner, the first part of an effort to turn round the fortunes of the low-cost carrier in an increasingly crowded aviation sector.

Ajay Singh, who helped found SpiceJet in 2005 and was likely to submit his rescue plan by the end of the month, has agreed to take control of the ownership and management from majority owner Kalanithi Maran's Sun Group, the airline said on Thursday.

SpiceJet has been struggling to pay its bills for months because of a cash crunch and looked on course to become the second Indian carrier to collapse in as many years after it was forced to ground its fleet briefly last month.

It did not disclose financial details of the deal but analysts say Singh will need to inject hundreds of millions of dollars to revive the airline. Singh could not immediately be reached for a comment.

The civil aviation ministry, which has lobbied SpiceJet's creditors hard to help keep the airline in the air, is expected to approve the rescue plan in the coming days.

"We think whatever relief is required in the larger interest of preserving the airline would be forthcoming from the government and the regulator," Sun Group Chief Financial Officer SL Narayanan told the ET NOW television network.

Narayanan said Sun Group, which bought into SpiceJet in 2010, would remain a minority shareholder.

Maran and his KAL Airways Private Ltd owns nearly 59 percent of SpiceJet, assuming the full conversion of warrants and securities, according to Bombay Stock Exchange data. The stake is worth about $102 million at the current market price.

Analysts say Singh, who has reportedly partnered with at least one private equity investor, will need cash to help pay SpiceJet's immediate dues, and then to help cut costs that have left SpiceJet unprofitable since 2013.

It was not immediately clear how would he raise the funds.

"Survival for SpiceJet requires a lot of things to materialise," said Harsh Vardhan of Starair Consulting. "It needs a large chunk of cash flow, it needs operations streamlined. And a lot of it will depend on the competition."

In India, one of the fastest growing air travel markets in the world, fierce and growing competition has pushed fares to among the lowest in the world. Together with high operating costs, this has left the majority of carriers losing cash.

(Additional reporting by Devidutta Tripathy; Writing by Sumeet Chatterjee; Editing by Clara Ferreira-Marques and Keith Weir)