In an interview with CNBC-TV18, SL Narayanan, group CFO, Sun Group & Promoter, SpiceJet said that the company is in expansion mode and is looking for capital to finance its plans. "We may see FDI deal being struck this year," he said.
Narayanan further pointed out that high aviation fuel cost remains an overhang on the sector. "More action is needed in addressing ATF related issued," he added.
Here is the edited transcript of the interview on CNBC-TV18.
Q: You as an entity are looking at inducting foreign equity into the company and what kind of an equity infusion could you be looking at?
A: This is a tough one because these are decisions that will be taken by the board. It is sufficient to say that Spicejet is an expanding airline. In the last year and half our market share has moved from 10% to 18%. We are a 47 aircraft fleet now with 12 Bombardier and 35 Boeing 737.
We do have an ambitious plan to expand our footprint. But, at this time we will not be able to discuss any numbers and also cannot comment on what's going to be the source of financing.
Q: Is it true that you had some discussions with any of the global airlines and relative to your other peers in industry that they have evinced some interest in you?
A: Of the three listed companies, we do believe that we are better positioned in terms of the attractiveness of the balance sheet and also in terms of the ability to place equity because one other equity has significant shareholding which is held from overseas. Therefore, the ability for that airline to place equity is rather limited. In our case, since almost 51% of shareholding is widely distributed, I think we are better positioned in terms of a possible foreign direct investment (FDI) investment happening.
Q: By when do you expect the deal to happen with SpiceJet? Could it happen in this fiscal itself?
A: Business is a funny thing, I don't think we can predict anything. It might happen, we will not be able to say anything at this time, it may not happen also.
Q: Can you give us some general sense in the kind of interest levels that you are seeing from global airlines because we keep hearing some of the comments from them saying we are not interested in Indian carriers, their balance sheets are bloated, and it does not make sense to make an investment there. But you would have had conversations with many of them. What would you say is the general level of interest in India or investing in this space in India?
A: I think they would still approach this issue with a lot of caution. If I were to put myself in the shoes of a CFO of a foreign airline I would look long and hard before I decide to recommend an investment proposal simply because there is a very strong state owned carrier whose financing is being met out of a budgetary grant and therefore, it reduces the need for them to run an extremely tight ship.
On top of that we also have the issue of ATF prices refusing to come down and also the distortions caused by the range of taxes across the various states. I think it is going to take a while before the foreign airlines start looking at an investment proposal here. That said, the flip side is, this is a huge market, a lot of Indians are travelling outward, some of the large airlines in the region in the west and the east, are located in countries with very small population and they depend on the feeder traffic from a large market like India.
The synergies that they would get out of strategic alliance with an airline like Spicejet will be commendable. Therefore, it's a very interesting stage in which we are. The attractiveness of the feeder markets from Calicut, Trichy, Hyderabad into a place like Abu Dhabi, Doha or Singapore is going to be an interesting analysis going forward.
Q: Are you looking for more now by way of help for the sector, in terms of changing around ATF duty structures etc which maybe far more crucial from an operational point of view for a company like yours?
A: Yes and I think that's something which is sorely needed. I am delighted that the civil aviation minister has already made some moves, he is trying hard to make sure that the deleterious effects of tax cascading is taken away. I think ATF in India is perhaps among the highest in today's world.
Our weighted average cost of ATF is around Rs 72,000 a kilo litre and state taxes range anywhere between 12% in Goa to 29% in West Bengal and many states are taxing this product upward of 20%. It is simply not sustainable and we petitioned to the central government to look into this matter immediately because unless this is fixed, the industry is going to be in a very difficult situation structurally.
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