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Rakesh Jhunjhunwala death: What will happen to Akasa Air now?

Rakesh Jhunjhunwala death: What will happen to Akasa Air now?

The marquee investor had put his $35 million in low-cost carrier Akasa Air for an over 40 per cent stake.

"We cannot thank Mr. Jhunjhunwala enough for being an early believer in us," Akasa CEO Vinay Dube said. "We cannot thank Mr. Jhunjhunwala enough for being an early believer in us," Akasa CEO Vinay Dube said.

Just a week earlier, Rakesh Jhunjhunwala – often fondly referred to as "India's Warren Buffett" – was celebrating the launch of the maiden flight of the country's newest airline Akasa Air on the Mumbai-Ahmedabad sector.

Although wheelchair-bound, Jhunjhunwala in his inimitable style had quipped that even before launching the airline had forced competitors to take notice of the product. In a short address at the event, he told the Akasa management and staff that as the low-cost carrier expanded operation, they need to be frugal without compromising on either passenger comfort or the quality of the product.

Following his sudden demise on Sunday morning, Jhunjhunwala’s words would be resonating in the minds of Akasa CEO Vinay Dube and others on his team. For it is not every day that marquee investors like to risk their money on a low yield high investment business like aviation.

“We cannot thank Mr. Jhunjhunwala enough for being an early believer in us and putting his trust and faith in us to build a world-class airline… Akasa Air will honour Mr. Jhunjhunwala’s legacy, values and belief in us by striving to run a great airline,” said Dube in a statement.

Jhunjhunawala had invested $35 million in the LCC for an over 40 per cent stake. It was not only one of his last major investments but something very close to his heart. Passengers on the carrier’s first flight remember how a usually restrained Jhunjhunwala freely mixed with them for conversations and selfies.

“While his charisma, advice and fund pulling abilities will be missed, he has ensured that the company is professionally run and will survive and prosper in his absence,” observed the head of retail research at HDFC Securities, Deepak Jasani. “This venture denotes his confidence and faith about the growth potential of the industry given the demography of India and rising aspirations of its bulging middle class.”

Akasa’s stress test to start now

Other market observers chose to be cautious and said that Jhunjhunwala’s passing away may put a temporary pause on Akasa’s ambitions.

“He [Jhunjhunwala] was critical in providing financial capital to the company. The management could potentially explore the option of finding another investor, though it remains to be seen who would be willing to invest such large amounts of money in the airline with the path to profitability yet to be established,” a senior research analyst tracking aviation told Business Today requesting anonymity.

“Alternately Akasa can also evaluate potential tie-ups with global airlines wanting to invest in India’s aviation sector,” he added.

A senior executive with an Indian carrier, again declining to be named, told Business Today, “Jhunjhunwala was critical to Akasa as he was not only an investor in the company but also could arrange cheap financing for them from both Indian banks and foreign institutional investors. His enormous clout in the market also made him intimidating to a behemoth like IndiGo.”

“With him gone, Akasa will be under tremendous stress and may turn out to be a different animal than what was originally envisaged. Also, IndiGo may be a lot more ruthless in dealing with it on sectors where it launches operations,” said the senior airline executive.

Meanwhile, IndiGo in a statement said, “Mr. Jhunjhunwala was a towering figure in India’s financial world, and we also commend his recent contribution to Indian aviation with the launch of Akasa Air.”

However, in his lifetime Jhunjhunwala was seldom known to make losing bets. So, any speculation on the LCC’s fate may yet prove to be unfounded in the long term.

Also read: Rakesh Jhunjhunwala’s one-liners prove he wasn't only the master of markets

Also read: From Rs 5,000 to over $5 bn: How Rakesh Jhunjhunwala became a rockstar investor