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Abu Dhabi, UAEMonday 10 December 2018

IndiGo rules out Air India purchase in setback to Modi plan

Indian government proposes to sell 76 per cent of the carrier and 100 per cent of Air India Express, the overseas budget unit, to same buyer

India has had the world's fastest growing domestic aviation market for the past three years, according to Iata. Getty
India has had the world's fastest growing domestic aviation market for the past three years, according to Iata. Getty

IndiGo, the only airline to have publicly shown interest in buying parts of Air India, said it is no longer keen on the state asset, dealing a blow to Prime Minister Narendra Modi’s most high-profile privatisation plan.

India’s biggest airline, operated by InterGlobe Aviation, said it does not have the wherewithal to acquire Air India in its entirety and make it profitable. While the budget carrier had its eyes set on the international operations of Air India, the government decided against piecemeal sales to different buyers.

“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,” IndiGo president Aditya Ghosh said in a statement sent by text message late Thursday. IndiGo shares fell as much as 2.4 per cent in early Mumbai trading before reversing the losses.

IndiGo was counting on Air India’s international operation, which has lucrative landing and parking slots at airports from Heathrow to New York, to expand and become a low-cost, long-haul airline in a relatively shorter time. However, India said last week it will sell a 76 per cent stake in Air India as a whole, and the buyer would have to take on about two-thirds of its $7.8 billion debt.

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“IndiGo’s decision is very wise and in the interest of their shareholders,” said Kapil Kaul, the South Asia chief of CAPA Centre for Aviation. “Acquiring Air India was a very risky proposition for IndiGo.”

IndiGo has said it will still pursue its ambitions, with or without Air India. Billionaire owners Rahul Bhatia and Rakesh Gangwal had said earlier that they would not buy Air India if that involves a partnership with the government. The state airline has been unprofitable since its 2007 merger with domestic operator Indian Airlines.

The government proposes to sell 76 per cent of the carrier and 100 per cent of Air India Express, the overseas budget unit -- all to the same buyer. It also plans to sell half of the ground-handling subsidiary separately. Singapore Airlines. and India’s Tata Group, which run a joint venture called Vistara, have said they are open to a deal for Air India have not elaborated.

Modi may find it challenging to sell a majority stake in the money-losing, 85-year-old company. At least one attempt almost two decades ago failed in the face of fierce political opposition. The company made an operating profit of about 3 billion rupees ($46 million) in the year through March 2017, primarily due to a favorable slump in oil prices. It still posted a net loss of 57.7 billion rupees, junior aviation minister Jayant Sinha told lawmakers on February 8.

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.