Jhunjhunwala’s aviation bet: Capitalisation more crucial than biz model, says CAPA’s Kapil Kaul

He added, “So I think that if there is anything that I take positive is about the promoter. He has great credentials, he can also put in more capital if it is required. So I think the starting block is positive that the starting team has the credentials to make a successful venture out.”

On ultra-low-cost airline, Kaul said, “First capitalisation is critical before we come to the business model. My own assessment is if the sale and leaseback (SLB) route is the way they take, and they are going to order planes and then do another SLB, about 300 million of sale and leaseback, 50 million of startup capital is adequate to see them through, particularly post COVID.”

“As for the model is concerned, even ultra-low-cost models have been successful. They have closed as well, very quickly, but they have been very successful. I agree with your point that you have high fuel costs, infrastructure costs, regulatory issues, but there are opportunities to, look at the cost structure, reduce the cost structure. For example use of mobile technology, self-service technologies to eliminate checking so that is a positive.”

“They can get the pilot utilisation to 75-80 percent, which will increase the aircraft utilisation, is a positive. The other element, which Indigo gets most of it right but let us say about other carriers is the maintenance contracts. Tighter contracts ensuring budget versus actual this correct, so there are opportunities on the cost side. But ultra-low-cost means lower fares and lower revenues as well.”

“So as long as you keep costs and have the ability to maintain it, and you have the ability to deliver operational excellence that LCCS are known for I think you can see a business case. Now whether if you get into a global template of ULCC and compare to India, you may find some shortcomings.”

“But I think there is an opportunity and I am positive but two things as a starting point one is the team and the second is that if they are doing SLB, they will have an excess to about roughly $350 million, which I think is adequate to weather the storm which was going to happen post-COVID.”