Moneycontrol
Last Updated : Apr 06, 2018 12:57 PM IST | Source: Moneycontrol.com

IndiGo's exit from Air India sale: 'Expected', say some. 'Good for AI,' say others

IndiGo is interested in just the international segment, says incapable of turning around all of Air India’s airline operations

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Is IndiGo's exit a reflection of the industry sentiment towards the Air India divestment? Yes, says a senior executive from an international airline.

"The pullout was not surprising, it's sensible," he told Moneycontrol. The airline he works for, despite being one of the biggest names in global aviation, didn't consider participating in the divestment of India's national flyer.

At the same time, others have called it a "wheat separated from the chaff moment" in the Air India divestment process.

"Many have been scavenging for bits and pieces. But the government has been clear that it wants to sell Air India to someone who will make something out of the national airline as a whole," says Mark Martin, Founder & CEO of Martin Consulting LLC, an aviation advisory and consulting firm.

The announcement

IndiGo, in an announcement on Thursday night, said  it has opted out of the race for Air India.
 “From day one, IndiGo has expressed its interest primarily in the acquisition of Air India’s international operations and Air India Express,"  said Aditya Ghosh, President and Whole Time Director.

"However, that option is not available under the government’s current divestiture plans for Air India. Also, as we have communicated before, we do not believe that we have the capability to take on the task of acquiring and successfully turning around all of Air India’s airline operations,” he added.

The country's largest airline by domestic share was hoping that the government demerges the domestic operations of Air India, enabling IndiGo to bid for just the international business of the national airline.

But the Government has decided to sell Air India, Air India Express and the ground handling unit, AISATS, together.

While the exit of IndiGo, the only domestic airline that was financially capable to take over Air India, will dampen spirits in the Government, the market is expected to give a more cheerful response.

"Interest (in Air India) has been minimal till now. The huge debt on the books is  a big damper," said the  senior official quoted above. "IndiGo's pullout is not surprising, it's a sensible decision," he added.

The preliminary information memorandum (PIM) released by the Ministry of Civil Aviation on March 28, noted that Air India's buyer will have to take on debts of  Rs 33,392 crore. Many in the industry considered the amount higher than expected.

But if any domestic airline was capable to take on the debt, it was IndiGo.  Reports had even emerged saying the airline could team up with Qatar Airways to team for the Air India bid.

IndiGo has a market capitalisation of Rs 54,943 crore and is the most profitable flyer in the industry. It's net profits in the December quarter soared by 56 percent to Rs 762 crore.

"But the company has its own operations to handle. It has ambitious expansion plans. Should it take the risk of shutting down its operations and do the bravery of buying Air India and turning it around," asked Martin.

IndiGo plans to add 40 more aircraft to its fleet this year. This includes 25 Airbus A320neos and 15 ATRs. The airline has over 150 aircraft in its fleet at present.

Only for serious players

IndiGo's exit can't mar the opportunity that Air India offers, says Martin.

Apart from the airline's 115-aircraft fleet and nearly 17 per cent market share of the overseas service out of India, Air India has valuable bilaterals that will allow its new owner to start new operations.

According to the PIM released by the Civil Aviation Ministry, Air India 3,739 slots in the domestic market, and 2,543 slots internationally.

Slots are landing and take-off rights that an airport gives an airline.

"Air India is like a monster that can wipe out some of the biggest names in the aviation," says Martin.
First Published on Apr 6, 2018 11:41 am
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