Will IndiGo promoters be different?

What next for Indigo? Will Bhatia and Gangwal’s relationship end or are they ready to part ways? The future can play out in one of two or three possible ways.

The recipe for IndiGo’s success was the Bhatia-Gangwal partnership. It may not have raised its peaks, with only one of the two boosting it. If Bhatia brings decades of insight into the Indian aviation industry, Gangwal follows global best practice. IndiGo’s stock price had fallen nearly 20 per cent on the day the news of the fight between Bhatia and Gangwal became public. The news of the end of the feud saw the stock close 2016.15, up nearly 2 percent on Friday. Together, the co-promoters hold 74.4 per cent stake in the airline.

Exempted from the removed clause, both are now free to explore the option of exiting the airline partially or fully. The question of when and who will exercise the option will keep market watchers on alert.

What are the chances of a sell-off? Either exit, and it is more likely to be Gangwal, would be allowed to have only one principal owner, making it possible for the airline to run more smoothly.

However, a more likely scenario is that one of the two partners will dilute its ownership and wait to exit at a higher valuation. Kovid-related travel restrictions pushed IndiGo into debt. The airline has reported losses for nine consecutive quarters. Its total debt (including capitalized operating lease liability) has been extinguished 32,335.3 crores. Despite the difficulties related to COVID, the airline remains attractive to potential investors. The main reason for this is IndiGo’s market leadership. It controls more than 57 percent of the air travel market. How long this advantage will last will depend on how much competition Tata-owned Air India and Vistara will compete with. IndiGo’s fleet of over 250 fuel-efficient aircraft gives it low cost advantage and global reach; It can operate flights to destinations up to six hours away from India. Like on the outskirts of Europe.

The proceeds from the sold IndiGo shares may be used for acquisition of partial or wholly owned airlines abroad. Global airlines are bleeding. The International Air Transport Association (IATA) estimates that the global airline industry will lose $11.6 billion this year. IATA estimates that airlines have received government aid totaling $123 billion. Out of which they will have to pay $67 billion. Airlines’ net debt will increase from $430 billion by the end of 2019 to $550 billion by the end of 2020. With fewer international flights being operated, repayment of such heavy debt would prolong the airline’s recovery, and send them scouting for investors. , Aviation property will be up to ask at a huge discount.

Crisis-hit airlines will prioritize funding from private investors over bailouts from governments that come with stricter conditions. Take the case of the German airline Lufthansa. The German government has given it 6 billion euros. One of the conditions Lufthansa has agreed to in exchange for money is to limit its management’s remuneration, including a ban on bonus payments, until at least 75 percent of the recapitalization received from the government is redeemed. To do. The airline has agreed to refrain from acquiring more than 10 per cent stake in competitors or other operators in the same business until that time. In fact, this is the main reason why Lufthansa could not bid for the privatized sale of Air India by the Indian government.