New Delhi: Indian aviation entrepreneur G.R. Gopinath and US-based private equity investor Indigo Partners LLC have suspended talks to start an airline modelled on Ryanair, Europe’s largest budget airline, after the government allowed overseas carriers to invest in Indian airlines, said a person with knowledge of the development.
The suspension of the talks leaves both Gopinath and Indigo Partners free to discuss joint ventures with other potential partners unless they decide to resume negotiations.
Gopinath, founder of the erstwhile Air Deccan, India’s first low-cost airline, had been in “serious” discussions with Indigo Partners to start an ultra low-cost airline, said the person cited above, who spoke on condition of anonymity.
The person said Gopinath wanted to model the carrier on Dublin-based Ryanair, which charges passengers a fee even for checking in at the airport and has made newspaper headlines in the past with plans to charge passengers for use of toilets on its planes and reduce the number of loos to one per aircraft to make way for more seats.
Gopinath has had his business plan ready for the past few months and believed a Ryanair-like carrier would be good for growth of the Indian aviation market, according to the person.
Earlier this month, the Indian government decided to alllow foreign airlines to own a stake of up to 49% in Indian carriers, offering a potential lifeline to troubled operators struggling with years of accumulated losses and heavy debts. The decision prompted Gopinath to suspend talks with Indigo Partners.
In 2007, Gopinath sold Air Deccan to Vijay Mallya-controlled UB Group’s Kingfisher Airlines Ltd. Mallya has been most vocal backer of foreign airline investment in Indian carriers, as he battled for the survival of his cash-strapped airline.
A non-compete agreement with Kingfisher Airlines under which Gopinath agreed not to launch a new airline expires at the end of January.
“I was in talks with various people earlier. I have suspended everything. I will look at it afresh,” Gopinath said, confirming he had been in talks with potential investors, without providing details. “The climate has changed, the landscape has changed with this one (move) from the government....nobody believed it till it has happened. It’s been only one week, even the ink is not dry yet.”
Based in Phoenix, Arizona, with an office in Singapore, Indigo Partners is a private equity firm that pursues acquisitions and strategic investments in air transportation and related industries. The low-cost carriers in which Indigo Partners has made investments include Wizz Air, Avianova, Tiger Airways, Spirit Airlines and Mandala Airlines, according to the Centre for Asia Pacific Aviation, a consulting firm.
An Indigo Partners spokesperson declined to comment on the talks with Gopinath.
Gopinath has already applied for an airline license from the aviation ministry. The ministry has sought some clarifications before granting a license for the airline, said a ministry official who declined to be named. Gopinath said his new venture is likely to be called Deccan Air.
“Whether I should launch on my own or with foreign airline participation I will decide in the next few days,” Gopnath said, adding: “Whether I will sell stake before starting or after I have started the airline I will deliberate.”
Gopinath reckons foreign investment would be good for Indian aviation because it would help open up more routes, linking specifies cities like Mumbai and Varanasi, for instance, create more jobs and generate competition that would benefit consumers by lowering air fares.
Former executive director of Air India Jitender Bhargava, however, said the government’s decision has come a little late in the day, given that existing Indian carriers have become saddled with heavy debts.
It would be a “difficult proposition for existing airlines if a new airline is to come up taking advantage of FDI (foreign direct investment) norms,” Bhargava said.
The new airline “will have a distinctive advantage as (it) will start with a clean slate whereas existing players have huge debts on their balance sheets”, Bhargava said.
The government should first allow existing carriers to take advantage of the new policy and only then accept any new proposals for airline start-ups, he said.