Just a day after the Union Cabinet gave its nod for Air India’s disinvestment, private carrier IndiGo has expressed an interest to buy the international business of the airline. IndiGo is the largest airline in terms of market share and has projected profitability for nine consecutive years.
Civil Aviation Secretary Rajiv Nayan Choubey confirmed the private carrier, which owns more than a 40 percent 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 reviewed by Business Standard.
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 Cabinet on Wednesday announced the formation of a GoM headed by Finance Minister Arun Jaitley. 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.
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 stems from 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 learnt 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 widebodies, flies to 41 international destinations and has prime slots across major airports. “Air India has significant intrinsic value. Its fleet, brand, market share, airport slots and institutional knowledge has untapped potential,” said Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG. “It’s a one-time deal wherein the winner takes all and others may take years to catch up. The debt is, of course, a challenge but there are ways to address it. It’s been done earlier with other national carriers in the past,” Dubey added.
IndiGo sources said that the acquisition will take significant restructuring of the company’s existing structure but ruled out taking any debt or liability for the purpose. ” We will not take any significant debt or liability that will not be supported the restructured segment,” a senior company official said.
Air India is saddled with a debt of around Rs 46,500 crore. The previous United Progressive Alliance government’s turnaround plan of infusing Rs 30,000 crore showed little improvement in the financial metrics of the company. Air India reported a loss of Rs 3,643 crore in FY17 on a revenue of Rs 22,521 crore.
However, Kapil Kaul, chief executive officer, South Asia, of aviation consultancy firm CAPA, said IndiGo’s unrestricted cash position was in line with the company’s requirements but that was not enough to bid for Air India. “If a new entity is created for Air India’s bid, which potentially partners with a foreign airline and is legally and operationally separate from IndiGo, it will be a different case,” he said.
