Air India, Airlines, Disinvestment, Indigo

IndiGo opts out of race to buy Air India

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IndiGo, the first airline to express interest in acquiring debt-laden Air India, has opted out, saying it was interested only in the state-owned carrier’s international operations and does not have capability to turn around all of its domestic business.

“From day one, IndiGo has expressed its interest primarily in the acquisition of Air India’s international operations and Air India Express. However, that option is not available under the government’s current divestiture plans for Air India,” Aditya Ghosh, president, said in a statement on Thursday. “As we have communicated before, we do not believe we have capability to take on the task of acquiring and successfully turning around all of Air India’s airline operations.”

IndiGo had publicly expressed interest in acquiring Air India’s international operating arm in July, after a ministerial panel approved divestment of the airline on June 28. The move surprised experts because it would have meant a change in its one-aircraft-type, low-cost model. To be sure, the carrier has acquired smaller ATRs to offer regional connections.

IndiGo co-promoter Rakesh Gangwal told analysts the airline was well placed to ferry longhaul international passengers in a low-cost model, fed by its domestic network. IndiGo’s proposed investment in Air India was a means to that end. Gangwal clarified that “irrespective of how the Air India story plays out,” it made “fundamental economic sense for IndiGo to enter the long-haul, international market.”

It was first reported in November that IndiGo had started working on an alternative plan to start international operations through 50 wide-bodied airplanes.

IndiGo’s decision comes less than a week after the government issued an Expression of Interest document on the sale of a 76% stake in Air India, Air India Express and AISATS as one entity.

Analysts said IndiGo’s decision is wise, although it is a big dampener for Air India. “This announcement is not good news.

From the government’s perspective, adjusting the sale to the requirements of every airline by breaking it into pieces may not have been doable,” said Jitender Bhargava, former executive director at Air India.

“Indigo needs to remain focused on executing their business plan which will see very aggressive expansion in domestic and international. Air India, though a very good opportunity, would have been too complex and risky for IndiGo,” said Kapil Kaul, CEO at Centre for Asia Pacific Aviation in India.

Government officials involved in the divestment said IndiGo’s withdrawal would not affect the plan to sell stake in Air India. “It does not mean anything as IndiGo are too big for their boots

Acquisition by them would have led to a monopolistic situation in the domestic market and also they operate a narrow-body fleet, which is not ideal for international operations. Also, they wanted only international operations, which is not doable,” said a senior government official who did not want to be identified. With IndiGo opting out, an unidentified international carrier, the Tata Group and Jet Airways are still in the race for Air India.

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