Home Business IndiGo sends offer letter for Air India; Tata to face competition

IndiGo sends offer letter for Air India; Tata to face competition

India’s biggest airline by market share has made a formal request, expressing its interest in buying the troubled national carrier. IndiGo Airlines has beaten the Tata Group in making the request to buy out Air India which is about to be put up for sale by the government. IndiGo, however, will most probably prefer to buy only the international operations of Air India and its low-cost airline Air India Express, making a move in its plan to expand overseas. IndiGo has maintained a lead in the domestic market for air travel, dominating the market with a 41% share.

On the other hand, Air India is the third largest player when it comes to domestic market with a small share percentage of 14%. However, it is India’s largest airline when it comes to the international skies with 17% of international skies in its portfolio. The latter is the main attraction for IndiGo while the former would be just a sweet addition to IndiGo revenues.

IndiGo has an expansion plan and has started adding international destinations to its network, currently with seven destinations in six countries. All of them are in Asia with three in the Middle East, one in south central Asia and two in southeast Asia. The company has the largest outstanding order for airplanes which is proof for its ambition to expand. It has 458 airplanes on order with 135 airplanes already in its hangers. IndiGo has the largest fleet for any airline in India.

Air India flies to 41 destinations in 28 countries across four continents and is the market leader in international skies. It has a fleet of 118 airplanes with 43 wide-body planes. The staff is well-trained and the pilots are well-experienced. The wide-body planes are well-equipped for long flights with a high capacity. Air India has a huge fleet and quite a few number of years of operations, both factors allowing Air India to float comfortably above many regulatory requirements for expansion. A buyer for Air India would enjoy benefits that come with the company, including permits for flying routes within India and abroad, parking in hangers at major airports around the world such as JFK in NYC and the Heathrow in London, prime departure slots at airports, and some prime real estate across India.

IndiGo has a signature aircraft type for all its routes ever since the company Interglobe Aviation started the air routes. Air India, on the other hand, has 8 different types of aircraft in its fleet. IndiGo had maintained that keeping a single type of aircraft has kept costs under control. IndiGo has modified an existing order to replace 20 aircraft from its existing A320Neo to the larger variant A321Neo. This suggests that IndiGo might be up for the challenge of 8 different types of aircraft in a hunger to expand. IndiGo had also placed an order of 50 ATR-72 aircraft in May for a proposed regional route, a model which Air India has eight of.

The only issue is the debt which Air India is under. Air India is under a debt of about Rs. 52,000 crore with about Rs. 28,000 crore in working capital debt and an interest of Rs. 4000 crore. The company has failed to turn profits in a decade owing to an intense competition from efficient and cheaper private airlines.

Within hours of the Cabinet’s approval for the privatization of Air India, IndiGo sent a letter to the civil aviation ministry with an offer to buy out the airline, a move made before the Tata Group, the company that founded Air India in 1932. If the Group wants its airline back, it certainly would have to bid against IndiGo and its ambition.

 

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