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April 14, 2024

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An airline spokesperson said Delhi-based low-cost airline SpiceJet attracted the Abu Dhabi Investment Authority (ADIA), buying shares from the open market.

Neither SpiceJet nor ADIA volunteered details of how many shares or what percentage of the low cost airline’s stake is now owned by the Abu Dhabi based sovereign wealth fund.

ADIA is said to have purchased the shares in the LCC in late February. Last December, the airline said it would raise fresh capital of Rs 22.5 billion.

Established in 1976, ADIA is a globally diversified investment institution that invests funds on behalf of the Government of Abu Dhabi through a strategy focused on long-term value creation. While 45-to-60 percent of its assets are invested in the US market it also invests 10-20 per cent in emerging markets like India.

Indian media reported that the ownership of Foreign Institutional Investors (FIIs) in SpiceJet had witnessed a jump of late, increasing from 0.33 percent in December 2023 to 6.21 percent in February 2024.

While analysts declined to comment on why ADIA is investing in the low cost airline citing insufficient information of how much stake had been picked up by the sovereign fund. Hence, it is difficult to comment on the latest developments.

The reason for ADIA investing can only be guessed by the fact that India has the world’s lowest per capita GDP flights, a growing middle class with disposable income, and is willing to travel by air.

Late last year, Kapil Kaul, the head of Centre for Asia Pacific Aviation in India, said India’s per capita seat consumption stood at 0.13 while that in Australia, it was  3.11

Despite having a population of over 1.4 billion, India’s airlines in 2023 flew 152 million passengers, an increase of 23 percent over the previous calendar but a fraction of the population.

The middle class in India is estimated to be around 30 million, which is expected to grow to 40 million by 2031. The middle class typically does not mind spending money on buying expensive clothes, gadgets, cars, mobiles, and houses. Flying is still considered a luxury in India, but not for many of those who are part of the middle class. Though domestic airfares are among the cheapest in the world, it is still a dream for the common man to take a flight

Interestingly, the news about ADIA acquiring shares in SpiceJet came a day after SpiceJet stated that it settled with aircraft leasing firm Cross Ocean Partners, resolving a dispute of about $11.2 million.

The parties made this joint announcement before the Delhi High Court in the ongoing execution petition being pursued by Cross Ocean Partners. The settlement is expected to result in significant savings for SpiceJet and also put an end to the dispute. As part of the arrangement, the airline will also benefit from transfer of airframe and an engine at no additional cost, augmenting its operational capabilities,” the airline’s statement said.

A few weeks back, the airline concluded a similar agreement with Celestial Aviation, a subsidiary of AerCap, one of the largest aircraft lessor groups. The settlement was valued at $29.9 million.

SpiceJet and its promoter Ajay Singh have been in the news for weeks. In late February this year, it emerged that Ajay Singh had tied up with an online travel portal EaseMyTrip to bid for the grounded GoFirst. Singh made it clear that he had bid in his personal capacity.

This moved earned a rebuke from the apex court in India, the Supreme Court, which directed SpiceJet to settle its outstanding dues of $1.25 million to Credit Suisse bank by March 15 while raising concerns about the bid for GoFirst

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Former Senior Deputy Editor at Business Line (aka The Hindu Business Line)

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