Budget airline operator IndiGo today sought to allay investor fears about overstretching its balance sheet in its attempt to acquire the beleaguered national carrier Air India, while outlining the benefits that would accrue to it after the buyout of only the latter’s’ international operations.
IndiGo is not looking at acquiring all of Air India’s businesses, Rahul Bhatia, co-founder of IndiGo and Group Managing Director of its parent Interglobe Enterprises said in a conference call on Thursday. The airline is interested in buying only the international operations of Air India and its budget operations ‘Air India Express’, Rahul Bhatia added.
Earlier last week, IndiGo, India’s largest airline by market share, has expressed its interest in buying the troubled national carrier Air India which is about to be put on sale by the government, probably beating the Tata Group to a formal approach.
FE.com had reported than that given Air India’s leadership position in the international air travel market with a network of 41 destinations (including four on which the services are about to start) across four continents, it makes sense for IndiGo to look at acquiring its overseas operations. The move could fulfil IndiGo’s ambitions to grow its overseas services, which is so far restricted to only seven destinations — all in Asia.
IndiGo said today that Air India would give it access to closed international markets, and can significantly contribute to IndiGo’s international revenues. Further, IndiGo also said that if it were to acquire international operations of Air India, the airline would not continue to operate it the same way, in an ostensible reference to the ‘Maharaja’s’ high cost operating model. IndiGo said it will enter into the international market with its existing low-cost model.
It must be noted that IndiGo was the first company to make a formal unsolicited approach to the government for buying a stake in the troubled state-run behemoth. IndiGo made its move hours after the Union Cabinet gave an in-principle approval for disinvestment of debt-laden state-run carrier Air India, paving the way for privatisation of the national carrier which became sort of a mascot for brand India overseas but also turned into a taxpayer money guzzling machine ridden with inefficiencies and mismanagement.
Air India’s market share in domestic market has fallen to 14% in 10 years from 35% a decade ago, placing it third in the national ranking, behind Indigo, which commands about 40% of Indian skies, and Jet Airways, which has about 16% of the share. Air India also flies overseas, and commands 17% of the international traffic from and into India.
Air India, under intense competition from leaner, more efficient and often-cheaper private airlines, is reeling under a debt of over Rs 52,000 crore, with about Rs 28,000 crore in working capital debt, and about Rs 4,000 crore in interest burden alone. It has not turned profit in 10 years, since at least the year 2007.
Air India has guzzled up taxpayer money over and over again but to no effect. The carrier has received bailout packages worth about Rs 24,000 crore out of a total Rs 30,000 crore approved, but has failed to revive its fortunes amid private airlines continuously gaining market share.