IndiGo, the country’s largest domestic airline by market share, wants to use its low-cost model to serve long-haul air traffic market to and from India.
And hence, the airline’s decision to express interest in state-owned carrier Air India, which the government now wants to sell.
Over a call with analysts on Thursday, IndiGo promoters Rahul Bhatia and Rakesh Gangwal wanted to clear the “misunderstanding among analysts and the media” in their expression of interest in Air India.
“We’re interested mostly in Air India’s international operations and Air India Express (a low-cost subsidiary on short-haul international routes).” Acquiring Air India’s international operations, which come with preferential slots, airport parking and hangar facilities and Star Alliance membership, will ensure that IndiGo can be a force to reckon with the international market.
“Air India would need significant restructuring and management oversight, a task we can do,” Bhatia said.
“But we can’t take on all the liabilities and debt that Air India has.”
Air India’s books are currently saddled with accrued debt of Rs. 52,000 crore, if the government chooses not to sell the international operations separately and the whole airline – international and domestic operations – in one piece, IndiGo’s management said they will still consider the proposal. “But we need to see if this can be economically feasible. Our business case for the acquisition is that it should be EPS-accretive.”
Going by the management’s discussions on Thursday, IndiGo wants to crack the low-cost long-haul market that would provide passengers with non-stop flights to international destinations from India.
IndiGo also wants sole control over operations, saying it will not be interested in a joint venture with the government even if it gets majority stake.
At the same time, the management tried to make a case for not selling India’s flag carrier to a foreign airline or a foreign state-owned entity, saying Air India would then be subject to world political issues with a foreign government controlling a large part of India’s airline traffic.
If the government is unable to find buyers for the airline’s domestic operations, it could split slots, gates and hangars into different buckets which will suit its competitors. “In such a case, we may participate in something like this,” Bhatia added.
While the government has expressed its intention to privatise Air India, it has not yet indicated what shape this plan may take.