IndiGo, India’s biggest airline, expressed unsolicited interest in Air India Ltd., a day after the Union Cabinet approved a proposal to divest stake in the debt-laden national carrier.
In a letter to the government that was also sent to the stock exchanges, IndiGo expressed its interest in acquiring the international airline operations of Air India and Air India Express. The airline, in its letter, also said that it is “equally interested” in acquiring the entire airline operations of Air India and Air India Express.
Air India’s international operations is one of its strong points as it carries the most number of passengers in and out of India among all domestic airlines. “It is time for India to take back its fair share of international traffic”, read IndiGo’s letter.
This comes a day after after the Union Cabinet gave its in-principle approval for Air India divestment. A panel will be set up to finalise modalities and details of the stake sale and study the assets of Air India including hotels and issues like debt, Finance Minister Arun Jaitley said in a media briefing.
Government think-tank NITI Aayog recently proposed privatisation of the carrier, currently saddled with a debt of more than Rs 50,000 crore.
Besides IndiGo, the government has also received indications of interest from other domestic and foreign carriers, Minister of State for Aviation, Jayant Sinha, told BloombergQuint, without naming the parties involved. Reducing Air India's debt is one of the five options still being considered by the government along with strategic divestment, Sinha added.
The Tata Group may also be in talks to buy a stake in Air India, wire agency PTI reported on June 21 citing people it did not name.
What’s In It For IndiGo?
Air India’s mixed fleet would only add to IndiGo’s operational expenses and the national carrier’s work culture could also prove to be a hurdle for the country's most profitable scheduled airline company, Kanu Gohain, Former Director General of Civil Aviation told BloombergQuint over the phone. "Buying a small stake would make sense but a complete takeover would not be feasible," he added.
The national carrier has been unprofitable since it was merged with Indian Airlines in 2007. It saw its losses widen to more than Rs 7,500 crore in the financial year 2011-12 and stood at Rs 3,836.7 crore at the end of FY16, according to the civil aviation ministry’s response to a question in the Lok Sabha in March.
With the airline's losses mounting, the government had in 2012 approved a turnaround plan for the carrier. Under the plan the government was to infuse over Rs 30,000 crore by 2021 in Air India which was subject to achieving certain milestones.
Air India had sought Rs 3,901 crore as equity infusion from the government during financial year 2016-17 as part of the turnaround plan of which Rs 2,465 crore was released by the government as part of Budget 2016-17.
Till date, the government has pumped in Rs 24,745 crore under the turnaround plan, according to a written reply in the Lok Sabha.
The government-run carrier still has the second largest fleet of aircraft among all domestic airlines. Air India's own fleet stood at 118, according to its website, second only to IndiGo's 135 aircraft. It also flies the most number of passengers overseas among all other domestic airlines.
Air India has seen its local market share decline as low-cost rivals SpiceJet Ltd. and Interglobe Aviation ltd.'s IndiGo added capacity aggressively. Its market share has shrunk to under 13 percent in May from over 35 percent in 2006.
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