Air India has attracted the attention of a couple of high profile investors. Middle East airline Etihad and local behemoth IndiGo have both shown interest in investing in the struggling carrier, as the Indian government looks to privatize the airline with a 100% stake sale.
Etihad and IndiGo could make a play for Air India
Middle East airline Etihad is poised to make a play for struggling national carrier Air India. The Economic Times of India reports that the Abu Dhabi based airline has expressed an interest in a stake in the carrier, although no firm bid has been made yet.
However, Etihad is not without its rival, as apparently IndiGo, India’s largest airline by fleet size, is also interested in a stake. A senior unnamed government official told the Economic Times,
“Representatives from these companies have met government officials and, unofficially, shown interest in the national carrier. The Tata Group, however, has not shown any interest yet.”
100% of the airline is up for sale, as well as 100% of its regional arm and a 50% stake in its ground handling business. Expressions of Interest documents are expected to be released this month.
Who would suit Air India best?
Both carriers have their pros and cons when it comes to an Air India takeover. For Etihad, its previous forays into investing in struggling carriers have not gone all that well. Stakes in Alitalia, Air Berlin and indeed Jet Airways have all left the airline out of luck and out of pocket. It was thought Etihad was attempting to rein in its costs, so to see it eyeing another stake in a failing airline is something of a surprise.
Etihad, like all the Middle East airlines, is keen to get a foot in the door to the lucrative Indian marketplace, and this could be the investment to do it. However, Etihad has a major hurdle to overcome, in that under current FDI rules, foreign airlines can only own 49% of Indian carriers. That means Etihad would need to find an Indian partner to take the other 51% of the stake.
According to CH-Aviation, IndiGo outnumbers Air India on available seats each week by over a million seats. IndiGo currently offers some 1,856,652 seats per week, while Air India has 583,836. With an investment in Air India, IndiGo could massively strengthen its leading market position, and would bring important local market knowledge to the table.
However, it’s important to note the very different business models of the two airlines. Air India is full service, which will be difficult to integrate with IndiGo’s low-cost strategy. However, on the upside, IndiGo would get access to a number of valuable international slots, which could see it realizing its long haul expansion plans much sooner than anticipated.
For either airline, an investment in Air India could be a great move. The government is expected to settle a large proportion of AI’s debts prior to sale, and will include 100% of the airline, as well as Air India Express and 50% of the ground handling company Air India Singapore Airport Terminal Services in the deal.
Who else is interested?
It was widely speculated that Tata Sons, the huge Indian conglomerate with two airlines already under its belt, would be keen to make a play for Air India. Tata Sons actually founded Air India 87 years ago, and ran it until the government took a 49% stake in 1948.
If Tata were to take back Air India, it would hold a powerful trio of airlines – Vistara, Air Asia and Air India. This trifecta of carriers would give Tata a solid footing from which to take on even the most powerful players in the local market. Back in November, Tata Group chairman N Chandrasekaran told the Times of India,
“I will ask the team to evaluate it … Ideally, it should be a Vistara decision, not a Tata Sons decision. I am not going to run a third airline unless we merge. There are issues. I will never say yes or no. I don’t know.”
Aside from the two airlines and Tata Sons, Air India has attracted a lukewarm response from other prospective investors. An official told the Economic Times,
“There are these two companies and a couple of private equity investors who have shown some interest. An airline as big as Air India is unlikely to receive any more interest.”
The government plans to issue the expression of interest for Air India later this month. Who do you think is the right buyer for the Indian flag carrier?