Air India privatisation: IndiGo walks out of race for domestic operations

This is a setback for disinvestment process of Air India as no other Indian airline has capability to fund the process

IndiGo, India’s largest airline, has pulled out of the race for Air India, dealing a blow to the government’s disinvestment plans. IndiGo was the only airline that had officially expressed an interest to buy the state-owned carrier.

IndiGo said it was pulling out as it was not interested in taking over Air India’s domestic operations. Last year, IndiGo had made it clear it was primarily interested in Air India’s international business and its low-cost subsidiary Air India Express, which operates in West Asia. “Quite simply, we are interested in the airline operations of Air India. And more specifically, we are focused narrowly on Air India’s international operations and Air India Express,” IndiGo founder Rahul Bhatia had said.

However, the government did not demerge Air India’s business and instead decided to sell the integrated airline along with Air India Express and its ground-handling joint venture AISATS.

“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,” said Aditya Ghosh, president and whole-time director, IndiGo. “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.”

The move, analysts say, is a setback for the disinvestment process as no other Indian airline has the capability to fund the process. In a research report SBI Caps pegged Air India’s value at around $2.5 billion (approximately Rs 162 billion). “While most Indian carriers are eligible to bid, arranging funds could be a challenge. Airlines with strong balance sheets, like IndiGo, or those with strong sponsor support, like Vistara, are better placed,” SBI caps had said.

Some, however, welcomed the move. “It is in interest of their shareholders. IndiGo needs to remain focused on executing its business plan which will see very aggressive expansion in domestic and international operations,” said Kapil Kaul, CEO South Asia, at aviation consulting firm CAPA. “Air India, though a very good opportunity, would have been too complex and very risky for IndiGo.” IndiGo’s decision was announced after market hours.