Rakesh Jhunjhunwala To Partner IndiGo, Delta Veterans For Low-Cost Airline

Billionaire investor Rakesh Jhunjhunwala has said industry veterans from InterGlobe Aviation Ltd. and Delta Air Lines Inc. will partner him in launching an aviation venture in India. However, he didn't disclose their names.

"We're going to call it Akasa Air and we're not just another airline," Jhunjhunwala said in an interview to Bloomberg TV. "I have got some of the best airline people in the world as my partners. Someone who was No. 2 or 3 in Delta Airlines. Someone who headed IndiGo in India for 14 years. We have a very good technical team."

BloombergQuint reached out to Aditya Ghosh, former president of India's largest airline IndiGo, who said he will be joining Jhunjhunwala's venture. Ghosh left IndiGo in 2018 after a decade-long stint, and is credited with making it the country's largest and most profitable airline.

Jhunjhunwala's plan to set up an airline venture stems from his optimism that many more Indians will start to travel by air. "I'm very bullish on the Indian aviation sector in terms of demand."

Yet, prospects of a recovery in air travel seem far off right now. The country is bracing for a third wave of Covid-19 with vaccinations still moving slowly. Besides, Indian carriers—that haven't been running at full capacity since the pandemic began—are strapped for funds. According to the CAPA Centre of Aviation, Indian carriers will incur losses of $8 billion by 2022. And they will need about $5 billion just to stay alive.

But that isn't deterring the ever-bullish stock picker from going ahead with his plan. The ultra-low cost airline will see a combined investment of $50 million by the clutch of investors whose names were not revealed. Jhunjhunwala said he will invest about $35 million initially and own 40% of the company.

He said they expect to receive clearance from the country's aviation ministry in the next 15 days. Jhunjhunwala said they'll look to add 70 aircraft over the next four years. "I won't tell what planes we are looking at. But we are looking at 180-seater aircraft."

Here are edited excerpts of the interview:

You're a multi-year bull and you're saying at the moment that the bull run can continue for another 10 years and the valuations are reasonable given the potential of India or corporate India I should say. Give us your thinking here.

Rakesh Jhunjhunwala: See, India always had the inherent skills to have growth. I now think there is a confluence of factors and steps taken over the last 8-10 years, the fresh steps that the government is taking, which is leading the way to India having double digit economic growth and that's the crux of my prediction of a 10-year, 15-year or a 20-year bull market. Second, I think that in the last month following with selling, the market has been going up. If you think, if India's economy becomes $5 trillion with a $1.75 trillion of savings, we have set up the infrastructure for funnelling the savings in equity markets and other financial instruments. Third as the current valuations go, nothing is linear in life. Markets may get it at some point, but I don't think markets can reverse. So, this is a very broad basis of my bullish thinking. As far as Covid-19 goes, I feel it has to be accepted as another flu, not look at the number of cases but look at the number of deaths, and also take precautions. The world will accept it goes up to three to six months and I think we will get the herd immunity as always.

I just wanted to ask you about specifically what we've been seeing in the sell-off in Chinese equities and whether or not that could provide a buying opportunity for India, we heard from Sean Darby from Jefferies earlier. Just wanted to play what he had to say and get your reaction.

Sean Darby: The few points from the clients is that they are looking to take some of that emerging market risk out of China. I think one of the biggest beneficiaries will be India. Bear in mind that the Nifty is dominated by the IT outsourcing or software companies, and they see a really strong earnings background.

So, do you agree? Is it a case of one market down is India's opportunity?

Rakesh Jhunjhunwala: I'm not a very big expert on international allocation. One thing that I should tell you that China keeps on getting these kinds of surprises. I thought a lot of money will come to India with the double-digit growth and the potential rating and now with China acting the way it is and it was unpredictable. I think it will help in getting more money into India and especially in the tech sector.

Let's talk about what we've seen in the emergence of consumer tech. We had that major listing with Zomato, are you seeing more exciting areas of play in this space?

Rakesh Jhunjhunwala: Now, good luck to everybody, I don't know. I have learned in life that it's important what I buy but it's more important at what price I buy, and at its incredulous valuations, I have no interest.

I have just moved to some of these reports out there at the moment that you are exploring a new airline venture in the country, are you?

Rakesh Jhunjhunwala: Yes, I am. They have done the kick-off and they are partly flying.

So, what sort of airline are we talking about and what's motivated you to do so because I mean, they say that the best way to become a millionaire is to be a billionaire and start an airline.

Rakesh Jhunjhunwala: See when I first came to the stock market in 1985, they said the best way to go bankrupt is over the stock market and by God's grace, that's proven wrong. Now, we're having an ultra-low cost airline, I have got some of the best airline people in the world as my partners, someone who was number two or three in Delta, someone who headed Indigo in India for 14 years and we'are thinking of making a very ultra-low cost airline and have got a very good technical team. I’ve incentivised in a way, you will not believe and everything depends on the culture of a company. For the culture of a company to be frugal, you have to start off fresh and I believe I want to earn well with the effort of others. So, you have to incentivise, empower, delegate, respect. I'm very bullish on the Indian aviation industry in terms of demand and I think some of our incumbent players may not recall. I don't know whether they will or not.

I want to get a sense here of what sort of airline are you looking at? Are you already talking to plane makers and how much you investing in it and with whom?

Rakesh Jhunjhunwala: We're actually investing $35 million but we have a plan of 70 aircraft over the next four years.

We're looking as well at what kind of investment size you're looking to put into this venture and I guess what kind of approval you'd be looking for as well from regulations here. What kind of approvals, you'd be looking at from the aviation industry to get this off the ground?

Rakesh Jhunjhunwala: I don't need anyone from the aviation industry. I’ve got the team, I’ve got the money, we're putting in $50 million of our investors.

What sort of stake would you hold yourself in then in the airline?

Rakesh Jhunjhunwala: I don't know, around 40%.

You're talking about what kind of planes you're interested in what kind of other investment you're looking for and just getting to my broader point the approval for the no-objection certificate from the aviation industry because you would require that?

Rakesh Jhunjhunwala: We should get it in the next 15 days. I won't like to reveal what kind of a plane we are looking at but we're looking at 70-180 seater planes.

So, we’re talking of a low-cost airline, are you talking to plane makers already?

Rakesh Jhunjhunwala: Absolutely low cost. We're going to call it ‘Akasa Air’ and we aren't just another airline. The customer is the centrepiece of our airline.