IndiGo's Aditya Ghosh: New planes to serve underutilised aviation market - Livemint

IndiGo president Aditya Ghosh says we are not in the business of leasing planes to other airlines. Photo: Bloomberg

Mumbai: IndiGo, India’s largest airline by market share, has placed an order for 250 Airbus A320neo planes. Aditya Ghosh , president and executive director at IndiGo, run by InterGlobe Aviation Ltd , said the value of the order is approximately $25 billion. In a phone conversation, Ghosh said the order has been placed keeping in mind the expected increase in demand and under-penetration in the Indian market. Edited excerpts:

Can you detail your latest order for aircraft?

We have placed firm orders for 250 Airbus A320neo planes. The list price of these planes would come to around $25.2 billion. Over and above these 250 planes, we have purchase rights for 100 more planes. This additional 100 planes’ list price would value around $8-10 billion. IndiGo has previously placed orders for 280 Airbus aircraft (100 A320ceo and 180 A320neo). The agreement will become Airbus’ single largest order by number of aircraft. And this is a hat-trick for IndiGo. When we placed order for 100 planes in 2005, it was the largest. Same was the case when we placed orders for 180 (planes) in 2011.

What was the discount?

I cannot disclose those details.

Why so many planes?

Firstly, India is a massive aviation market but highly under-penetrated. There are less than 400 planes for a country that has a population of more than one billion. We feel that if we plan properly, there are truly exciting times ahead in terms of demand. So, when we placed orders for 100 planes back in 2005, people thought that is a lot of planes when India is lacking space to park those many planes. These 430 planes will help us to plan a long-term and sustainable future for our company.

What are you going to do with these planes?

Primarily, this would be used for our own operations. Of course, some will be used for replacement, but largely, these planes would be used to penetrate under-utilised Indian civil aviation market. Also, our co-founders Rakesh Gangwal and Rahul Bhatia will have the flexibility to allocate these planes for our domestic and international operations.

How will you fund these acquisitions?

That will be done like in the past. There will be a mix of sale and leaseback of planes. Funding would be taken care by external commercial borrowings, bank debt and sale and leaseback. (Sale and leaseback is an arrangement in which an owner sells an asset to a leasing firm and, at the same time, leases it back on a long-term basis to retain exclusive possession and use. This releases capital which would otherwise be tied up in a fixed asset). We have also recently signed a memorandum of understanding with ICBC (ICBC Financial Leasing Co. Ltd .) where ICBC will provide IndiGo financial solutions for the introduction of A320 and other families of aircraft to the fleet in the form of sale and leaseback or financial lease or commercial lending. The number of aircraft would be over 30 and the value of the deal would reach to the amount of $2.6 billion. From the latest order, planes will start coming only from 2018. We are four years away to discuss the plan of funding.

Will you be selling your aircraft slots to other airlines?

No. For last eight years, we have utilised all aircraft for our own needs. In fact, we have leased 12 planes from Tiger Airways to enhance our fleet. We need more planes for our own operations. We are not in the business of leasing planes to other airlines.

There were several reports and rumours that IndiGo would opt for airplanes other than A320s. Is that true?

No. We are focused on single aircraft model, profitable growth and creating best organisation to work with.

How is the demand scenario considering this large order?

India has too few planes considering its large population. China has inducted 220 to 250 new planes into the fleet of airlines last year while India has less than 400 planes (across) all scheduled airlines put together.

Will this new plane order affect your profitability?

Hopefully, we will continue to run profitable operations. We are trying to focus ourselves in creating new market and running profitable operations with right technology, right organisation and right building blocks.

Is it a defensive ploy to block fuel efficient planes to rivals?

A320neo planes are expected to consume 15% lesser jet fuel. They are efficient and will bring our cost structure down. We are launch customers of Airbus A320neo. We will get our first A320neo next October. We are focused on creating long-term and sustainable business. There were many markets IndiGo had started operations and many airlines followed thereby generating traffic and creating a new market.

How much do international revenues contribute and will the new orders change the ratio?

It is very difficult to predict that at this point of time. At present, international revenues contribute about 10%

Any update on proposed IPO?

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