New Delhi
India’s plan to sell a stake in the national carrier just got a fillip a day after the government decided to sell Air India Ltd, with the nation’s biggest airline expressing an interest to buy the state airline.
IndiGo is keen to buy the flag carrier, Civil Aviation Minister Ashok Gajapathi Raju said in comments relayed by an aide Thursday.
Shares of the budget airline, which declined to comment citing a silent period before earnings, dropped as much as 3.8 per cent in Mumbai on Thursday, the biggest intraday loss in more than a month. A local television channel reported SpiceJet Ltd, IndiGo’s smaller rival, was also interested, which the government denied. SpiceJet shares fell on the report before rebounding.
“Given IndiGo’s unprecedented expansion plans and the fierce competitive environment in a structurally challenged industry, bidding for Air India will be a strategic mistake,” Kapil Kaul, South Asia CEO at CAPA Centre for Aviation, said in an email. “However, if a new entity is created for Air India’s bid which potentially partners with a foreign airline and is legally and operationally separate from IndiGo, it will be a different case.”
A group led by India’s finance minister will decide on the amount of stake to be sold and Air India’s debt, Finance Minister Arun Jaitley told reporters in New Delhi Wednesday. A government panel had recommended privatising 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.
Debt write-off
While any interest from IndiGo 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 privatise the airline underscores Prime Minister Narendra 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.
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 per cent of the carrier. Fierce political opposition scuttled the plan.
