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Billionaire Ross invests in loss-making India airline

Jul 15, 2008

U.S. billionaire Wilbur Ross, who worked on the bankruptcies of Continental Airlines Inc. and Trans World Airlines Inc. in the 1990s, will invest in SpiceJet Ltd. after record fuel costs deepened the Indian carrier's losses.

WL Ross & Co. will buy 3.45 billion rupees ($80 million) of foreign currency convertible bonds held by Istithmar PJSC and Goldman Sachs Group Inc., Kishore Gupta, a director of the New Delhi-based airline, said in a phone interview. The U.S. financier will join SpiceJet's board, according to a statement by India's second-largest budget airline.

SpiceJet declined 67 percent in Mumbai this year as fuel prices drained funds needed to buy Boeing Co. planes. Ross may be betting on winning more passengers in the world's second-fastest growing major aviation market as mergers reduce competition.

``This investment reflects the fact that there is still belief in the long-term potential of Indian aviation,'' said Binit Somaia, a director for the Indian sub-continent at the Sydney-based Centre for Asia Pacific Aviation. ``There is interest from investors when assets are available at good valuations.''

SpiceJet gained 2.2 percent to 28.55 rupees in Mumbai trading, after earlier rising as much as 16 percent, giving the carrier a market value of $159 million.

Long-Term Prospect

Combined losses for Indian carriers may double to $1.5 billion this year because of rising fuel prices, according to the Centre for Aviation, an industry consultant. The losses will lead to mergers, reducing competition and boosting fares, it had earlier predicted.

India is set to become the fastest-growing air travel market in the next two decades as more people shun trains and opt for discount airlines, Airbus SAS, the world's largest planemaker forecast in 2006. India's air travel will grow at an average annual 7.7 percent pace until 2025 compared with China's 7.2 percent and the global average of 4.8 percent, it had said.

``We believe in the long-term validity of the low-cost airline model in India, and that fuel prices eventually will stabilize,'' Ross said in the statement.

Ross, whose company has about $7.9 billion of assets under management, made his fortune taking over bankrupt steel, coal and textile companies. A native of Weehawken, New Jersey, Ross also worked as an airline analyst at Faulkner, Dawkins & Sullivan Securities Corp. in New York.

The transaction is Ross's second investment in India. In February 2007, Ross acquired OCM India Ltd. a worsted suiting maker, for about $37 million, according to the statement.

Goldman, Istithmar

NM Rothschild & Sons (India) Pvt. was the financial adviser to SpiceJet.

Ross will buy the convertible securities owned by Dubai- based Istithmar and Goldman, Gupta said. The purchase will enable SpiceJet to use funds from the account it couldn't utilize, he said. The bonds are due for conversion in Dec 2010, Gupta said.

The airline had raised $80 million in 2005 by selling the convertible bonds. Last year it sold shares to India's Tata Group and BNP Paribas raising $100 million.

SpiceJet has more than 20 single-aisle planes on order with Boeing Co. The airline, which began flights in May 2005, has a fleet of 15 planes.

India's UB Group, controlled by billionaire Vijay Mallya, was competing to buy a stake in SpiceJet, the Economic Times reported July 5. UB Group runs the Kingfisher Airlines Ltd. and Deccan Aviation Ltd.

SpiceJet shifted focus to billionaire Ross as the price offered by Kingfisher was too low.

Billionaire Ross invests in loss-making India airline

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