Co-founder of SpiceJet agrees to take control in rescue effort

By Tommy Wilkes and Aman Shah

NEW DELHI/MUMBAI (Reuters) - The co-founder of low-cost airline SpiceJet Ltd has agreed to buy out its billionaire owner, the first part of a rescue attempt to turn round the loss-making carrier's fortunes in a fast-growing but crowded aviation sector.

Ajay Singh, who helped found SpiceJet in 2005 and was expected to submit his 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.

Together with at least one financial investor, Singh will invest 15 billion rupees ($241 million) in the airline, a civil aviation ministry official said, declining to be named. The ministry will approve the bailout in the coming days, he said.

The deal involves a fresh equity injection that will dilute existing shareholders, Singh told Reuters. He declined to comment on the financial details of the deal.

"Oil prices are low, we have a pro-growth government in India. If you can deal with the past liabilities of SpiceJet and get the costs low, I think it's a great time to be in aviation," he said.

"Breaking even in the next financial year is what we should be aiming for."

Analysts say Singh will need cash to pay SpiceJet's immediate bills, and then to help cut costs that have left the carrier unprofitable since 2013.

"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.

Sun Group CFO SL Narayanan told two Indian TV channels that Maran's company 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.

($1 = 62.0550 rupees)

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