IndiGo Air, after signing an MoU with Industrial and Commercial Bank of China-ICBC for $2.6 billion funding, has inked an agreement for 250 Airbus NEO aircrafts
It is almost a month since the Chinese President Xi Jinping visited India, to a warm personal welcome by Prime Minister Narendra Modi, when the much anticipated Chinese plans to invest $100 billion came down to a marginal $20 billion over the next five years. But the actual progress in this matter has been slow as a result of which the Indian Embassy, it is reported in the press, are following up the issues with various Chinese authorities.
Simultaneous, it appears that the Department of Industrial Policy and Promotion (DIPP) have also found that some of the experiences have Chinese firms like Huawei and Longnjan Road have not been found to be satisfactory. DIPP is now co-ordinating with various industries and associations to identify the obstacles the Chinese firms have faced so as to correct the situation.
It may be recalled that President Xi Jinping had shown interest in setting up industrial parks in both Maharashtra and Gujarat besides offering to assist India in high speed trains and related infrastructure activities. They had promised to open up other sectors like meat imports so as to reduce the trade deficit, which is over $36 billion.
The major event that took place relates to the memorandum of understanding (MOU) signed by IndiGo Air with the Industrial and Commercial Bank of China (ICBC) for $2.6 billion to finance the purchase of some 30 aircraft. Under the terms of MoU signed, ICBC will provide "financing for the planes through either a sale and leaseback financial or commercial lending". Full details of this MOU have not been made public, yet.
According to reports, IndiGo has singed a MoU with Airbus for 250 new engine option (NEO) family of aircrafts. Financial details and delivery of the order were not immediately available. The aircraft has a list price of $102 million per aircraft and Airbus charged a premium of $6.2 million for each NEO on A-319, A-320 and A-321 planes.
In the meantime, for the 6th year running, IndiGo Air has reported profit of Rs317 crore for the period ending 31 March 2014, which is much lower than Rs787 crore in the previous year, mainly due to increased airport costs and high fuel prices.
Due to the intervention by the Civil Aviation Ministry, some states have started to reduce the tax on air turbine fuel (ATF). This is like to be reflected in the next year's results!
At the moment, IndiGo Air has a fleet of 81 aircraft. This MOU will enable it to obtain 30 more A 320s and will enable the company to have a greater share of the market. The other domestic airlines, such as Jet Airways and Spice Jet are not making profits and the industry is heavily burdened with carried over loss for the last several years (estimated to be over $10 billion) and the combined debt of over $ 16 billion. Several new companies have already begun their domestic operations, such as Air Asia, Air Costa, and Vistara may take to the sky soon.
So, having established itself as the largest successfully operating domestic carrier, and making profits, IndiGo Air is likely to come out with its IPO at the end of this year, or most likely in the first quarter of 2015. It appears from press reports that some of the bankers have been already selected for this purpose, but the details have not been made public.
The Indian domestic market is very competitive and it is likely to be for the best to survive which can meet the exacting needs of the traveller. So far, IndiGo air has done well and with the enlarged fleet, they would be able to do better in due course, covering wider territory.
Finally, as Star Alliance is now open to add another airline from India, would IndiGo Air fit the bill? This remains to be seen early next year.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.