DUBAI (Reuters) - SpiceJet (SPJT.BO) has been approached by several Gulf-based and Southeast Asian airlines but will not jump into negotiations before the government reaches a crucial decision on foreign investment, its chief executive said on Wednesday.
“We have been approached by several Gulf and Southeast Asian airlines, all on a tentative basis,” Neil Mills, the loss-making budget carrier’s chief executive, told Reuters.
India allows up to 49 percent foreign investment in Indian carriers but bars foreign carriers from picking up stakes. But with most carriers suffering losses, the government is now mulling allowing foreign airlines to invest directly.
The cabinet is expected to make a decision on Foreign Direct Investment (FDI) rules this week.
“There is nothing more serious than tentative talks to see if we are interested. We have said that we are interested in exploring any option for us that makes business sense but until a decision has been taken on FDI there is no point in taking it further,” Mills said in a telephone interview.
“Once we get regulatory confirmation in place then we can see whether it makes sense to look at alternative funding options. We are just talking about a concept until the law is amended.”
He declined to name any of the airlines involved.
Dubai’s Emirates airline said earlier this week it is studying new opportunities to buy foreign carriers if they fit the Gulf emirate’s strategy, adding that it is interested in an investment in India if carried out at the right price.
India’s embattled carriers have long lobbied for looser foreign ownership rules.
Indian airlines are laden with $20 billion in debt and probably lost $2.5 billion in the fiscal year that ended in March, according to Centre for Asia Pacific Aviation, a consultancy.
Kingfisher, India’s second largest carrier by market share, is urgently seeking funds as it battles to stay afloat.
Despite the turmoil, industry analysts say India represents a tempting prize for foreign airlines seeking access to its market of 1.3 billion people.
However questions have been raised over how much actual interest there would among international carriers for a stake in Indian airlines given its brutally competitive market.
Access to Indian airports is limited by the fact that most nations have used up their allotted traffic rights to India, whereas part-ownership of an Indian airline could allow them to take advantage of spare frequencies unused by India.
SpiceJet reported a net loss of 392.6 million rupees in the final quarter of 2011 compared with a profit of 944.5 million rupees in the same period in 2010.
The airline is controlled by Kalanithi Maran, who also owns one of the country’s top media firms Sun TV (SUTV.NS).
Talk of India’s potential and low traffic compared to its population stoked up a recent boom in airplane orders.
Mills raised doubts over whether all airlines would take full delivery of a backlog of hundreds of aircraft currently on order from Airbus EAD.PA and Boeing (BA.N), but said he was not worried about his company’s own airplane order from Boeing.
Spicejet operates Boeing 737 aircraft and has yet to take delivery of 31 more worth $2.6 billion at today’s list prices. Although aircraft are ordered years ahead, delivery is the point at which most of their value must be paid.
“We have four or five deliveries a year up to 2019... We are a long way from what you could call an over-ambitious level and it is something we can comfortably manage and absorb,” Mills said.
Spicejet’s needs for the next three years are covered by leases from third parties. Aircraft ordered directly by Spicejet from Boeing will arrive between 2014 and 2019, while some of the leases expire during the same period, freeing up cash, he said.
The 737 and competing Airbus A320 are popular with low-cost airlines. Unlike airlines including the world’s largest low-cost carrier Southwest (LUV.N), Spicejet has not yet contemplated buying Boeing’s latest model, an upgrade known as 737 MAX.
“The MAX is available from 2017. We have been talking to them and they (Boeing) have approached us. But we haven’t taken anything forward yet,” Mills said.
“The MAX is a concept. Once they have put a bit more meat on the bones, we will look at it. Last time I looked it was all a bit skinny.”
Reporting by Tim Hepher and Praveen Menon; Editing by Reed Stevenson