Airlines in India, which have accumulated huge debt in their books to fuel their expansion plans, will find it increasingly difficult to raise further funds through the debt route, say industry experts. Rather, they will look at raising money through equity.

According to data available on the BSE, the long-term debt to equity ratio for private carrier Jet Airways is 12.61 as on March 2009 and Kingfisher?s ratio is 4.95 as on March 2008. Low fare carrier SpiceJet too has a debt equity ratio of 19.30 as on March 2008. Debt equity ratio indicates how much a company has borrowed long-term as a percentage of its stock equity. The lower, the better.

An investment banker with a foreign bank said, ?Airlines are finding it difficult to get more debt since their profitability ratios (operating profit) are negative. Being a capital-intensive sector, return on assets is also not favourable due to declining yields. Hence, getting funds is an issue for airline operators.?

M Shivkumar, senior vice-president (finance) at Jet, said, ?We do not have any financial crunch currently. Our fund-raising plans via the qualified institutional placement route are on track. Market conditions are not favourable and hence we have not opted for further debt. We have our own sources of funding for new aircraft purchases.? However, previously, the airline deferred its plans to raise $400 million via rights issue due to volatile market conditions.

According to sources, the company is in talks with PE players to off-load a minority stake. The airline?s chairman, Naresh Goyal, in the company?s 17 th annual general meeting held in August, had said he is looking at offloading 5-10% stake in his company. Currently Goyal owns 80% in Jet.

For Kingfisher too, retiring debt is a priority. In November, Vijay Mallya, chairman, Kingfisher Airlines, at the World Economic Forum held in New Delhi, said his airlines is raising money and he would certainly use a large part of it to reduce debt.

The airline has short-term debt of around Rs 2,500 crore and a third of it is due for repayment this financial year. The carrier is learnt to be in advanced talks with private equity firms to raise $400 million, and would also be completing a $100 million rights share issue and a $100 million global depository receipts issue by the end of the current financial year.

SpiceJet too posted losses of Rs 101 crore for the September-ended quarter. US investor WL Ross & Co invested about $80 million (Rs 345 crore) in the carrier in July 2008. However, after that, there has been no news of equity being injected in the sector by PE players.