Once bitten twice shy. When InterGlobe Aviation Ltd’s interest in Air India became public in June, its shares had fallen almost 8% in two days. Now that it has chosen prudence over bravado, its shareholders should be pleased.

InterGlobe runs IndiGo airlines, India’s largest.

Despite being the only airline that qualifies to bid for Air India alone, IndiGo is resisting the temptation. On Thursday night, it said that it had expressed interest only in acquiring Air India’s international operations and Air India Express and that option is not available currently.

In any case, it never made sense for IndiGo to go solo on Air India. Investors love IndiGo’s robust balance sheet and that would have changed if the airline would have taken on Air India solely. At the end of December, it had a net cash position of Rs5,665 crore, unlike other airlines which are laden with debt.

It would have lost this distinction if it had won the Air India bid alone. If there is competition in the bidding process, the purchase price will be well over Rs10,000 crore. Besides, the airline entity that has been carved out by the government for sale will have debt and liabilities of Rs33,392 crore, including net current liabilities of Rs8,816 crore. On a consolidated basis, this would have impacted IndiGo’s profits.

This column had pointed out that the government may not raise much from the sale, unless there is a bidding war.

But analysts at SBICAP Securities Ltd say that bidders are likely to ascribe a non-trivial value for the accumulated losses and unabsorbed depreciation in Air India’s books. This offers the potential benefit of reducing tax liability going forward, the present value of which is estimated at Rs5,000-5,500 crore, SBI’s analysts say.

To be sure, with the government wanting to retain a 24% stake, it was anyway doubtful whether IndiGo would have found the deal attractive in the first place.

In a conference call on 6 July to discuss the rational for interest in Air India, co-founder Rakesh Gangwal had said, “Our view of a joint venture or a joint ownership with the government is at best a very-very difficult proposition, and we would not go down that path."

Employee integration too would be another challenge. Also, the deal comes at a time when oil prices are on a firm footing, which may pose hurdles to a quicker turnaround of the national carrier, as fuel costs account for a big portion of overall costs for airlines.

As such, the road for Air India’s turnaround would have been rocky for IndiGo. Small wonder then, the shares touched a 52-week high on Friday, suggesting investors are relieved.

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