Leading global private equity fund TPG Capital (formerly Texas Pacific) is in talks with budget carrier IndiGo to pick up a 10-15 per cent stake in the airline.
Top executives of the airlines have started negotiations and the deal is expected to happen in the next few months, according to investment banking sources.
"IndiGo is considering dilution of promoters’ equity and are is in talks with TPG for a possible sale of shares,” a source said. When contacted, Rahul Bhatia, managing director of InterGlobe Interprises, which owns the airline, said that the company was not looking at any dilution of promoters’ equity. “We do not have any plans to dilute equity. We have enough funds to take care of the future requirements of the airline,” he said. InterGlobe Enterprises and the former president and chief executive officer of US Airways, Rakesh Gangwal, had jointly promoted IndiGo.
However, sources close to TPG said that that the private equity firm is exploring investment opportunities in the aviation sector in the country and Indigo is one of its target companies. “As the ATF (aviation turbine fuel) prices went up and airlines were forced to reduce fares, valuation of the industry came down in 2006. Though airlines were interested in PE placements, not many players were interested. Now its the time of consolidation and global PE firms will have a major role to play," said an analyst from Lehman Brothers.
If successful, the transaction will make TPG's first aviation investment in India. TPG was in talks with Air Deccan before Kingfisher air chairman Vijay Mallya acquired a 26 per cent stake recently. The group was also in talks with SpiceJet. However, these transactions failed either due to differences over valuation or the airlines were not ready to offer a higher stake in the company.
Mallya had offered Rs 550 crore for 26 per cent stake in Air Deccan while ICICI Ventures had invested $50 million for 19 per cent stake in Air Deccan in 2005.
TPG, which manages over $30 billion assets across the world, is one among those PE players that have made substantial investments in the aviation sector. It has invested in Continental Airlines, Rynair, Australia's Qantas and has also placed a bid for Midwest Airlines.
IndiGo is expeccted to use private equity finance for its expansion plans. It has placed a $6 billion order to acquire 100 Airbus A320 family aircraft. The airline has so far received 11 Airbus A320-200 and another 89 are on order. It receives one brand new plane every four to six weeks. By 2010, IndiGo plans to serve 30 Indian cities with a fleet of 40 A 320 aircraft.The airline started operations in August 2006. It currently operates 78 daily flights connecting 15 destinations. Investment bankers say entry of private equity players will speed up consolidation in the domestic aviation industry. “The industry has already seen two mega consolidation deals this year--Air Deccan-Kingfisher and Jet-Sahara. As the cost of operations are climbing up, airlines are looking to raise fresh funds," said a Mumbai-based banker working with a foreign investment bank.
ICICI Venture was the first to invest in the high-growth sector when it picked close to 20 per cent in Air Deccan in 2005.
PE Placements in Indian Aviation sector.
ICICI Ventures invested 19 per cent in Air Deccan in 2005.
UB Securities picked up 3.5 per cent in Air Deccan.
PE Players including TPG, Cereberus and Blackstone
have held talks with Kingfisher Airlines
TPG has held talks with SpiceJet
Recent deals in the aviation sector
Jet Airways acquired a 100 per cent stake in Air Sahara
UB acquired 26 per cent stake in Air Deccan
Airline investments by TPG
America West Airlines