IndiGo says it has no interest in domestic operations of Air India

In a big jolt to government’s plan to disinvest Air India, India’s largest airline IndiGo has pulled out of the process. IndiGo was the only airline, which had officially expressed interest to buy the state-owned carrier.

The reason the airline stated was that it was not interested to take over Air India’s domestic operations. Initially, in May the airline had made it clear that it was primarily interested in Air India’s international business and its low-cost subsidiary Air India Express, which operates in West Asia. 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 at 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,” he added.

The move, analysts say, is a setback for the disinvestment process of Air India 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. “While most Indian carriers are eligible to bid arranging fund could be a challenge. Airlines with strong balance sheet like IndiGo or those with strong sponsor support like Vistara are better placed,” SBI caps had said.

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

Last year, in an analyst call, IndiGo founder Rahul Bhatia had made it clear that the company was interested only in the international business of Air India. “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,” he had said.