Air India ‘important’ to meet long-haul goals, says IndiGo

IndiGo, the only carrier that has made a pitch to purchase Air India, sought to allay investor concerns about the budget operator buying the unprofitable national carrier, saying a deal would help speed up its plans for low-cost, long-distance flights.

Spelling out the rationale for their interest in the highly indebted airline in a conference call with analysts on Thursday, billionaire owners Rahul Bhatia and Rakesh Gangwal said IndiGo would gain access to workers and overseas routes through the purchase, which otherwise would take a long time to replicate.

“Air India’s international operations would bring a very important element to our network,” IndiGo’s co-founder Bhatia said. “It will provide a rapid entry into restricted, and in some cases, closed international markets.”

Bhatia and fellow co-founder Gangwal held the call to justify IndiGo’s interest after the company’s announcement to bid for Air India wiped out more than $500 million in market value for IndiGo, the nation’s biggest and most profitable airline.

Surviving on a taxpayer bailout, Air India hasn’t made a profit for about a decade and has piled up debt of about 500 billion rupees ($7.7 billion).

A combination with Air India would help consolidate IndiGo’s position as the country’s biggest airline with a domestic market share of 54.2% and a total fleet of 283 registered planes.

“For a successful bid, IndiGo will have to buy out either the international or the entire airline operations of Air India, without a partnership with the government,’’ Gangwal and Bhatia told analysts.

“Even without a deal, IndiGo will look to start long-haul operations as it makes fundamental economic sense,” said Gangwal, a former chief executive officer of US Airways.

Bhatia, a former travel agent, and Gangwal teamed up to start IndiGo, which has become India’s biggest airline in just a decade, luring customers with on-time performance, new aircraft, cheap fares and a tight grip on costs.

“Buying into inefficient businesses has a history of success,’’ Gangwal said. “It is questionable if United Airlines would have become one of the world’s largest airlines today if it hadn’t acquired Pan Am’s Pacific operations and London routes a few decades back.

“American Airlines followed the same model in buying Trans World Airline’s London routes, providing a proven roadmap for such an approach,’’ he said.

“IndiGo is a natural player to take advantage of the significant and lucrative international market opportunity that India offers,” Gangwal said.

“It is about time that IndiGo enters the long-haul international market.”

An Indian ministerial panel gave preliminary approval on June 28 to sell the national flag carrier, reviving earlier attempts to dispose of the state asset that has strained public finances for decades.

Though Prime Minister Narendra Modi’s administration has given its consent, it has yet to decide on the contours of the sale — especially the fate of the debt.

A committee 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 last month.