Japan Airlines - Orient Aviation

MAIN STORYAirlines chasing cash to finance growth couldbe in luck. Global equity firms are increasinglytargeting the aviation industry in the Asia-Pacific with billions of investment dollars.TOM BALLANTYNE reports on the effectsof their new found interest.THE REAL DEALThe dollar signs are flashingaround the Asia-Pacific asglobal equity investors take anincreasing interest in its carriers,adding further changesto a regional landscape already undergoinga significant shift thanks to consolidationmoves and ownership changes.Leading the charge is flamboyant 63-year-old David Bonderman’s Texas PacificGroup (TPG), part of an internationalconsortium of investors making a US$8.7billion bid for Qantas Airways.Bonderman, who already has a stake inSingapore low-cost carrier (LCC), TigerAirways, through another aviation investmentvehicle, Indigo Partners, has alsosignalled his interest in the booming Indianairline sector.TPG moved late last year to invest $30million in Indian LCC, SpiceJet, althoughnegotiations have now been put on holdtemporarily so Texas Pacific managementcan focus on completing the Qantas deal.There is increasing speculation that otherairlines in the region will become targets forequity buy-outs by similar consortia, set upin such a way as to ensure majority ownershipand management remains in local hands.In the Qantas deal the consortium– known as Airline Partners Australia(APA) – is being led by three Australianfirms, Allco Equity Partners (35%), AllcoFinance Group (11%), and Macquarie Bank(less than 15%). Offshore investors includeTPG (less than 15%), Canadian privateequity investor Onex Partners (9%) andother foreign investment funds (less than15%). Offshore investors will hold less than40% with no single international investorholding more than 15%. Qantas is currentlyabout 46% foreign owned.Elsewhere, Garuda Indonesia is wellMajority ownershipof Qantas will stayin local handsahead with talks to enlist an internationalshareholder as a strategic partner. This willmost likely be a foreign airline althoughpresident Emirsyah Satar told OrientAviation he does not rule out an equityinvestor with aviation industry experience(see page 20).Some analysts also believe that the‘[Asia] is going to be a globalmarket dominated by thesame [10] global playerswho dominate the markets inAmerica and Europe’David BondermanManaging partnerTexas Pacific Groupregion’s leading LCC, AirAsia,is being groomed as an attractivetarget for equity investment, followingits huge order for up to 100A320 jets and the launch of a newlow-cost, long-haul brand, AirAsiaX, in January (see page 18).The theory is that while thecarrier is not extending itself toofar financially, nevertheless it isdriving up its potential value forinvestors.Generally, investors are eyeingthe region with increasing favour,as Bonderman himself has highlighted.Speaking at a conferencein Hong Kong in November, hereferred to an “explosion” in equityinvestment deals across the boardin the Asia-Pacific and predictedthe region would join the U.S. andEurope as buy-out boom markets.He forecast the Asia-Pacific marketwould be dominated by just 10global firms, with TPG among them.“It’s going to be a global market dominatedby the same global players who dominate themarkets in America and Europe,” said TPG’smanaging partner.Bonderman’s TPG already manages $30billion of equity capital and companies withcombined revenue of about $65 billion. Inthe last 12 months his firms have allocated30% of their total investment capital to theregion, more than double the amount of theprevious four years.Other major global private equity firmssuch as Kohlberg Kravis Roberts, the CarlyleGroup, Bain Capital and CVC CapitalPartners are pursuing similar strategies.Indeed, in the nine months to October,private equity firms committed $28.9 billionbuying into, or buying, Asian companies12 ORIENT AVIATION February 2007