The country’s largest airline IndiGo, run by InterGlobe Enterprises Ltd, has expressed interest in acquiring a stake in Air India.
IndiGo has given unsolicited Expression of Interest (EOI) to buy a stake in the indebted national carrier, Civil Aviation Minister Ashok Gajapathi Raju told reporters on Thursday. Following the minister’s announcement, InterGlobe stock fell as much as 3.8 percent.
This comes a day after after the Union Cabinet gave its in-principle approval for Air India divestment. A panel will be set up to finalise modalities and details of the stake sale and study the assets of Air India including hotels and issues like debt, Finance Minister Arun Jaitley said in a media briefing.
Government think-tank NITI Aayog recently proposed privatisation of the carrier, currently saddled with a debt of more than Rs 50,000 crore.
Aditya Ghosh, president at InterGlobe told BloombergQuint in a text message, “The Hon’ble minister has already given a statement. We are in our silent period and so cannot make any comments.”
The mixed fleet would only add to operational expenses and Air India's work culture could also prove to be a hurdle for the country's most profitable scheduled airline company, Kanu Gohain, Former Director General of Civil Aviation told BloombergQuint over the phone. "Buying a small stake would make sense, but a complete takeover would not be feasible," he added.
The stock of InterGlobe Aviation fell as much as 3.8 percent after the minister’s statement before paring some losses. It is currently trading at 2.1 percent on the BSE.
The Tata Group may also be in talks to buy a stake in Air India, wire agency PTI reported on 21 June, citing people it did not name.
Air India has been unprofitable since it was merged with Indian Airlines in 2007. It saw its losses widen to more than Rs 7,500 crore in the financial year 2011-12 and stood at Rs 3,836.7 crore at the end of FY16, according to the civil aviation ministry’s response to a question in the Lok Sabha in March.
With the airline's losses mounting, the government had in 2012 approved a turnaround plan for the carrier. Under the plan the government was to infuse over Rs 30,000 crore by 2021 in Air India which was subject to achieving certain milestones.
Air India had sought Rs 3,901 crore as equity infusion from the government during financial year 2016-17 as part of the turnaround plan of which Rs 2,465 crore was released by the government as part of Budget 2016-17.
Till date, the government has pumped in Rs 24,745 crore under the turnaround plan, according to a written reply in the Lok Sabha.
The government-run carrier still has the second largest fleet of aircraft among all domestic airlines. Air India's own fleet stood at 118, according to its website, second only to IndiGo's 135 aircraft. It also flies the most number of passengers overseas among all other domestic airlines.
Air India has seen its local market share decline as low-cost rivals SpiceJet Ltd and IndiGo added capacity aggressively. Its market share has shrunk to under 13 percent in May, from over 35 percent in 2006.
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