An attendee holds a model of an IndiGo aircraft. (Photographer: Dhiraj Singh/Bloomberg) 

IndiGo's Interest to Buy Air India Bolsters Modi Sale Plan

(Bloomberg) -- IndiGo, India’s biggest airline, expressed interest to buy a stake in national carrier Air India Ltd., giving a boost to the government’s plan to sell the unprofitable company saddled with almost $8 billion of debt.

The budget carrier operated by InterGlobe Aviation Ltd. has written to the government that it’s keen to acquire the airline operations of Air India and its budget airline unit Air India Express Ltd., the company said in a filing Thursday. The expression of interest came a day after Prime Minister Narendra Modi’s administration gave a preliminary approval for the sale and ordered a ministerial panel to explore options.

“It’s time for India to take back its fair share of international traffic, and bring back this economic wealth to where it rightfully belongs,” IndiGo President Aditya Ghosh said in the letter, citing his company’s track record of creating a profitable airline with strong balance sheet.

While IndiGo’s intent may be good news for the government, Air India’s allure will depend on India’s ability to write off nearly half of the $8 billion debt that’s not backed by assets. Unprofitable for a decade, the decision to privatize the airline underscores Modi’s will to risk a potentially unpopular decision at a time when many of the nation’s state-run lenders have been seeking capital injection from taxpayer funds amid mounting bad loans.

A combination with Air India would help consolidate IndiGo’s position as the country’s biggest airline with a domestic market share of 54.2 percent and a total fleet of 283 planes, enhancing its overseas network, government data show.

Shares of IndiGo continued to slide for a second day. They tumbled as much as 5.2 percent to 1,172.15 rupees on Friday, the biggest intraday loss in five months. The two-day decline erased about $485 million in market value.

Finance Minister Arun Jaitley told reporters in New Delhi Wednesday that a group led by him will decide on the amount of stake to be sold and Air India’s debt. A government panel had earlier recommended privatizing the airline by possibly asking the buyer to absorb more than $3 billion of loans linked to aircraft purchases, a person with direct knowledge of the matter told Bloomberg earlier this month.

Air India, which is known for its Maharajah brand icon, traces its roots to Tata Airlines, founded in the 1930s by the then-patriarch of Tata Group, J.R.D. Tata. A member of the global Star Alliance, it now has a fleet of about 154 planes, according to government data.

In his letter to the government, Ghosh said India has allowed disproportionate access to some Middle Eastern and Southeast Asian airlines that have built massive hubs “at the expense of India.”

Tata Group

This isn’t the first time India is attempting to sell the airline. In 2000, the Tata Group had teamed up with Singapore Airlines Ltd. to bid for a stake when the then-government headed by Atal Bihari Vajpayee sought to sell as much as 60 percent of the carrier. Fierce political opposition scuttled the plan.

Subsequent governments have shied away from a sale even as its share in the local market plummeted to 12.9 percent from 35 percent a decade back, placing it joint-third along with SpiceJet Ltd. The company made an operating profit of about 1 billion rupees ($15.5 million) in the year through March 2016, aided by a drop in oil prices. It still posted a net loss of 38.4 billion rupees, according to the government.

IndiGo may face rival bidders too. Tata Sons Ltd., the conglomerate that had expressed interest in Air India back in 2000, may again be drawn to a potential sale, some local media have reported. N. Chandrasekaran, the chairman of the group, led informal talks with the government to buy 51 percent of the airline, again partnering with Singapore Airlines, ET Now television channel said this month.

The government panel, which will include the aviation minister, will decide on the unsustainable debt, hiving off certain assets to a shell company and privatizing three profitable units, government spokesman Frank Noronha said in a Twitter post Wednesday. Workers unions said they will oppose the move to sell the airline.

If the government is willing to write off the airline’s debt, it should do so for the current management as well, said J. B. Kadian, general secretary of the Air Corporation Employees Union, which represents about a third of the carrier’s 27,000 workers.

Niti Aayog, the government’s top policy planning body, has suggested options for the future of Air India earlier this year, including hiving off real estate assets before privatizing the carrier and writing off half of the debts accumulated by the airlines.