IndiGo keen to buy Air India’s international business

30 Jun 2017


Just a day after the Union cabinet approved divestment of national carrier Air India, private carrier IndiGo – India's largest airline in terms of market share - has expressed an interest to buy the international business of the airline.

Civil aviation secretary Rajiv Nayan Choubey confirmed the budget carrier owned by InterGlobe Aviation Ltd, which has shown profitability for nine consecutive years with more than a 40-per cent market share, was keen to take over the international business of the state-owned airline.

In a letter to civil aviation minister Ashok Gajapathi Raju, IndiGo president Aditya Ghosh said the airline's strong balance sheet, profitability, and a robust domestic network made it an ideal candidate to acquire the international business of Air India.

''As the Indian government embarks on the journey of privatising Air India and given IndiGo's track record of having created a consistently profitable airline with a strong balance sheet, we express interest to acquire the international operation of the airline,'' Ghosh wrote in the letter which has been unveiled in a filing to the bourses.

The expression of interest in an airline that has not made a profit in a decade came a day after Prime Minister Narendra Modi's administration gave a preliminary approval for the sale and ordered a ministerial panel to explore options.

"It's time for India to take back its fair share of international traffic, and bring back this economic wealth to where it rightfully belongs," Ghosh said in the letter.

 Asked whether the government would demerge Air India's international business, minister of state for aviation Jayant Sinha said a group of ministers (GoM) would take a call on that. ''A process has been initiated, whether to demerge Air India's international business or its other subsidiaries or to sell it as one entity will be decided by the alternative mechanism that has been set up,'' Sinha said.

The union cabinet on Wednesday announced the formation of a group of ministers headed by finance minister Arun Jaitley on AI's privatisiation. Among many options, the group will deliberate on how to tackle Air India's unsustainable portion of debt, amount of disinvestment, the eligibility criteria of the bidders, hiving off assets to a shell company, and disinvestment of Air India's profit making subsidiaries.

While IndiGo's intent may be good news for the government, Air India's allure will depend on the government's ability to write off nearly half of the $8-billion debt that's not backed by assets.

Shares of IndiGo dropped 2.2 per cent in Mumbai on Thursday, the biggest decline in more than a month. A local television channel reported SpiceJet Ltd, IndiGo's smaller rival, was also interested, which the government denied. SpiceJet shares fell 0.2 per cent.

IndiGo has told the government it is open to buying the entire operation of the national carrier if demerging the international business is not possible.

 ''Alternatively, we are equally interested in acquiring all of the operations of Air India and Air India Express,'' Ghosh wrote.

IndiGo's unsolicited offer is part of the airline's objective of expanding its international network. In fact, the airline had announced three new international destinations in its FY17 earnings call too, underscoring its expansion target.

Recently, Tata Sons chairman N Chandrasekaran is also reported to have had a discussion with the government on the possibility of the group buying a stake in Air India, perhaps through a joint venture with Singapore Airlines. 

Air India, with its fleet of 140 planes including 33 wide bodies, flies to 41 international destinations and has prime slots across major airports.

Air India is saddled with a debt of around Rs 46,500 crore. The previous United Progressive Alliance government's turnaround plan of infusing Rs30,000 crore brought little improvement in the financials of the company. Air India reported a loss of Rs3,643 crore in FY17 on a revenue of Rs22,521 crore.

Business History Videos

History of hovercraft Part 3...

Today I shall talk a bit more about the military plans for ...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of hovercraft Part 2...

In this episode of our history of hovercraft, we shall exam...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of Hovercraft Part 1...

If you’ve been a James Bond movie fan, you may recall seein...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of Trams in India | ...

The video I am presenting to you is based on a script writt...

By Aniket Gupta | Presenter: Sheetal Gaikwad

view more