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IndiGo Mulls Options To Fund $15.6B Airbus Deal

12 January, 2011

Budget carrier IndiGo is considering all options including an initial public offering to finance a $15.6 billion plane order with Airbus, but has made no decision yet, the firm’s president said on Wednesday.

Taking advantage of booming demand from a burgeoning middle class in Asia’s third-largest economy, IndiGo on Tuesday agreed to buy 180 planes from Airbus in the largest jet order in commercial aviation history.

Owned by InterGlobe Enterprises and industry veteran Rakesh Gangwal, a former chief executive of U.S. Airways, IndiGo is the third-largest Indian domestic carrier by market share after less than five years flying.

“You can’t run a business without considering various financing options with this (IPO) being one of them but it’s too early for me to comment,” Aditya Ghosh told Reuters in an interview.

Shares in Airbus parent EADS rose as much as 6 percent in Wednesday trade, hitting their highest in three years.

“This historic contract should widen the gap between Airbus and its rival Boeing,” Natixis analysts wrote in a note.

The provisional order includes 30 classic A320s — Airbus’ best-selling model which carries 150 people on short and medium routes — and 150 upgraded versions of the same aircraft, which Airbus said will offer airlines fuel savings starting in 2016.

IndiGo will get the first delivery in 2015, after it procures all 100 planes from a previous order, Ghosh said.

IndiGo plans to start international flights to the Middle East, South-east Asia and South Asia around September of this year, once it completes five years of operation and achieves eligibility to fly overseas routes.

“There is a fundamental demand for air travel and more so for low-fare air travel,” Ghosh said. “If we take a longer term view, we definitely see passenger traffic and demand increasing.”

While passenger traffic in India grew 19 percent through November last year, the country only has 400 commercial airplanes. By comparison, China, with a comparable population, has 2,600 planes.

Many Indian carriers are growing their fleets as demand booms in India, where the economy is growing at nearly 9 percent. IndiGo’s main rival SpiceJet last in November agreed to buy 30 Nextgen turboprop aircraft from Canada’s Bombardier Inc for as much as $915 million.

Indian domestic airlines carried roughly 46.8 million passengers through November last year, compared to 230 million in China a year earlier.

“You need more planes coming into the country even at the current load factors and demand. That is just not happening,” Ghosh said.

India’s Civil Aviation Minister Praful Patel has repeatedly warned airlines to slash fares in November and December. Domestic air fares shot up late last year, with last-day fares almost doubling on supply constraints and higher holiday season demand.

“I actually think that fares should come down so that more people can travel,” Ghosh said.

“The question is really on the cost side. So we have to see how well we can control our cost so that despite the fact that fares will come down, we will still be able to run a profitable business.”


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IndiGo Mulls Options To Fund $15.6B Airbus Deal

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