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RPT-UPDATE 2-IndiGo says keen only on Air India's international, low-cost units
July 6, 2017 / 4:40 PM / 20 days ago

RPT-UPDATE 2-IndiGo says keen only on Air India's international, low-cost units

4 Min Read

(Repeats to add pix)

* IndiGo keen to start long-haul, low-cost flights

* Says wary of Air India deal if govt keeps a stake

By Aditi Shah

NEW DELHI, July 6 (Reuters) - India's biggest airline IndiGo said on Thursday it was keen to buy state-owned carrier Air India's international arm and low-cost division Air India Express rather than the whole business if India decides to sell its flag carrier.

"Air India's international operations would bring a very important element to our network," Rahul Bhatia, co-founder of IndiGo, said on a call with investors. "It would provide rapid entry into restricted and in some cases closed international markets."

IndiGo, owned by InterGlobe, last week expressed interest in buying a stake in state-owned Air India, after India's cabinet gave "in-principle" approval to privatise the carrier.

Shares in IndiGo fell as much as 5.6 percent the day after this announcement, with analysts citing concern about such an investment given Air India's heavy debt burden.

"We continue to like Indigo for its efficient cost structure and balance-sheet strength. However, potential acquisition of AI may create an overhang on the stock," Joseph George, analyst at brokerage firm IIFL, said in a note published last week.

Air India, once the country's biggest airline, has seen its domestic market share slump to 13 percent as private rivals such as IndiGo and SpiceJet have expanded.

Air India's businesses include domestic flights, repair and maintenance operations and hotels. But its most sought-after asset is landing slots on international routes. The possibility of the government writing off part or all of Air India's $8 billion in debt could increase its appeal.

Bhatia said that the company's operations would "require significant restructuring". He also said IndiGo would not be willing to take on any debt that could not be supported by a restructured Air India operation.

The carrier is also wary of doing a deal if the government holds on to any minority or majority stake in Air India.

Low-Cost, Long-Haul

IndiGo, which flies four of every 10 Indian domestic passengers, launched in 2006 and has expanded rapidly in India's booming aviation market, prioritising domestic routes.

In May, the carrier said it planned to start flying smaller planes to second-tier towns and cities this year, giving a boost to Prime Minister Narendra Modi's scheme to make it cheaper for people to fly within India.

IndiGo has a fleet of 131 Airbus A320 aircraft, and has placed a provisional order for 50 ATR 72-600 aircraft from European turboprop maker ATR for regional flights.

Even without any deal with Air India, IndiGo plans to enter the long-haul international market, Rakesh Gangwal, co-founder of IndiGo, said.

"It makes fundamental economic sense for us to enter the long-haul international market. India's market is significantly underserved in non-stop international destinations," he said, adding that IndiGo would do so with a low-cost model. (Reporting by Aditi Shah; Editing by Keith Weir, Euan Rocha and Jane Merriman)

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