Akasa Airline likely to get $139-140m funding injection

Mumbai-based Akasa Air will likely get a fund induction of between $130-140 million from existing and new shareholders. Economic Times, a leading economic daily in India, reported on Friday that a consortium which includes the close to 100-year-old Indian group the Manipal Group chief, Ranjan Pai, and Premji Investment and Claypond Capital Wipro, the Bengaluru-based family office of Wipro founder, Azim Premji is to pump in the money into the airline (Premji-Ranjan Pai family offices to board Akasa with big stake buy - The Economic Times). The consortium is likely to pick up a minority stake in the airline. While the Manipal Group is an industrial conglomerate navigating the world and offering services and products for a better world, Wipro is a leading technology services and consulting company. The newspaper said that the airline signed a term sheet with the consortium earlier this month and that the deal was at the last leg of completion, adding that the stake size could not be immediately confirmed. Akasa Air, Pai, and Premji Invest declined to comment on the transaction. While the consortium is expected to bring in around $100 million, some existing shareholders are expected to bring in $30-40 million. The money raised will be used to make pre-delivery payments and further expansion. Why the need for fresh funding less than three years after starting operations Starting an airline is an expensive proposition as many start-up costs like setting up new stations, meeting salary costs, airport charges, the vast cost of purchasing aviation turbine fuel, which accounts for up to 40 percent of the operating cost of an airline, and aircraft lease rental payments have to be met. All these make it a business that requires constant cash flows. How Akasa has fared financially since taking to the skies in August 2022 is not known as the new airline is not a listed company, so it is not bound by law to publish its financials or make them public. The market estimates that the start-up airline lost about Rs 23 billion in the first two years of operations. Akasa operates a fleet of Boeing 737 MAX, an aircraft facing delivery schedules for airlines globally. Production of this variety of aircraft only started recently after a gap of about a year. There is no doubt this will add to Akasa’s woes. Akasa Air has placed a firm order for 226 Boeing 737 MAX airplanes powered by CFM fuel-efficient LEAP-1B engines. It currently operates 26 737 MAX aircraft. The airline currently has investments from a handful of people, including those who have long been involved with airlines in India and abroad. This includes Vinay Dube, one of the founders of the airline and currently its Chief Executive Officer, who has had previous stints in leadership roles with American Airlines, Sabre Inc., Delta Air Lines, Jet Airways, and GoAir and Praveen Iyer, another co-founder and currently Chief Commercial Officer, Akasa, who has over 20 years experience in India and abroad. So why invest in an airline in India India has become the third largest market globally, but the gap between the countries holding the number one and two positions, namely the US and China, tells a story. India is the third largest domestic market, with 17.1m seats in December, while the US has 86.9 million seats, and China has 67.1m seats, according to OAG. It added that the fastest-growing domestic markets during the current month amongst the top 10 largest are Turkey, up 7.7 percent, and India, up 7.6 percent (Airline Frequency and Capacity Statistics | Aviation Data | OAG). In 2016, a government document, the National Civil Aviation Policy, also pointed out the potential in the aviation sector, stating that India could be among the top three domestic and international air passenger markets. It based its assumption on the fact that India has an ideal geographical location between the eastern and western hemispheres, has a middle class of 300 million, and a rapidly growing economy. The document estimated that if every Indian in the middle-class income bracket took just one flight every year, it would result in the sale of 350 million air tickets, up from 70 million in 2014-15.

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