Emerging low-cost carrier Akasa Air plans to raise about $130-140 million from a family-office led consortium headed by two of India’s best known entrepreneurs, Premji Invest founded by Wipro scion Azim Premji, and Claypond Capital headed by Manipal Group founder Ranjan Pai. The family of late billionaire investor Rakesh Jhunjhunwala is reinvesting to restate their commitment to Akasa’s growth, as the family takes some hits in their finance. Strategic infusion of capital is expected to help Akasa navigate the challenges it will face in the future with aircraft delivery delays and thus allow for its continued expansion.
Strategic Partnership for Akasa Air’s Growth
The deal, now nearly final, has been formalized through a term sheet signed some time earlier this month by Akasa and the Premji Invest-Ranjan Pai consortium. Much-needed liquidity will flow to support Akasa’s expansion plans, particularly through pre-delivery payments for aircraft. The funding round will likely close soon after CCI approval in India.
- Premji Invest and Claypond Capital: These two prominent family offices are now entering the picture, signaling confidence in Akasa’s potential in India’s competitive aviation market.
- Rakesh Jhunjhunwala’s Family Reinforcement: The strongest re-investment signal from Jhunjhunwala’s family is, of course, the continuing re-investment in Akasa. And they are now the airline’s largest shareholder having a large stake in it.
Investment Details and Timeline
Akasa had initially planned to wrap up the investment deal by October, but the discussions went delayed over discrepancies in projected revenue figures. Now the contours of the deal are all locked in, with funding to be between $130 and $140 million.
- Asset-Light Model: Like many low-cost carriers, Akasa operates on an asset-light model, where it purchases aircraft from manufacturers, sells them to lessors immediately, and then leases them back. This is the cash flow that the airline needs to operate.
- Aircraft Delivery Delays: The delay in Boeing 737 Max aircraft deliveries has, however, affected Akasa’s income from its sale-and-leaseback model, leading to a significant impact on its projected revenue in the short term.
The discount on the company’s valuation in this round was somewhat larger than Akasa’s previous valuation of $86 million in 2021; however, the participation by the consortium signals growing confidence in the airline’s future prospects.
Plans for the Fresh Capital
The money raised in this round of investment will primarily be used to fuel the expansion efforts of Akasa. A portion of the capital will be allocated for pre-delivery payments on aircraft, which will ensure a steady inflow of new planes for the airline. Since the gestation costs in its initial years are very high, this fresh infusion of capital is essential to keep Akasa’s growth momentum going.
- Fleet Expansion: Akasa Air would like to increase its fleet through an order of 76 Boeing 737 Max aircraft and another 150 put in place in January 2024.
- Sustainability Amid Losses: Despite the loss it incurred over ₹2,300 crores in its initial two years, Akasa managed to increase its fleet size to 25 aircraft while taking benefits of low aircraft rental values and availability of competent crew at a time when COVID 19 was wreaking havoc globally.
Critical Period for Akasa Air
Akasa’s operations have been both challenging and successful. The airline is still in its infancy, having started operations only in August 2021. The gestation costs of the aviation industry are very high, and the impact of delayed Boeing 737 Max aircraft deliveries has made it a very challenging environment. Instead, Akasa has survived by cutting favorable rental deals and relentlessly expanding its fleet.
- Revenue Barriers: The delivery of the aircraft has taken a hit and is threatening the revenues expected to be earned from sale and leaseback. It is an important part of the business model of Akasa.
- Growth Prospects: Despite all problems, growth prospects of Akasa look good with increasing its fleet size and strategic investment placed the airline to be at a competitive advantage to one of the significant contenders in Indian aviation.
Conclusion
The latest fund raise by Akasa Air by Premji Invest and Claypond Capital is a very big development in the growth of the airline. Continued support of the Jhunjhunwala family combined with new capital is more than enough for Akasa Air to take it big into a competitive market. Despite the challenge that is currently in place-whether it be delay in the delivery of aircraft, the airline is still poised to emerge as a major force in the aviation sector of India with a fleet that is ever increasing and promising future prospects.
Reflects the growing confidence of the investor and underpins potential transformation of the low-cost airline industry in India.
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