IndiGo IPO Expected To Raise $465 Million

by Neelam Mathews

                                                                 October 23, 2015, 10:34 AM

                IndiGo operates a uniform fleet of 97 Airbus A320s. (credit-neelam mathews)

 Helped by low fuel prices and an improving economic outlook, InterGlobe Enterprises, the current majority owner of Indian budget airline IndiGo, plans to raise up to $465 million in an initial public offering from October 27 to 29. InterGlobe expects the IPO to rank as the biggest airline public issue in India since the country’s first budget airline, Air Deccan, made its debut in the market in 2006. Domestic budget carriers in India now hold a 65 percent market share.

The company plans to use the funds for retirement of certain outstanding lease liabilities and consequent acquisition of aircraft, purchase of ground support equipment for airline operations and for “general corporate purposes.”

“Ground handling is underestimated by many but is a big differentiator between good and bad service as far as passenger experience goes,” Vishok Mansingh, director of fleet planning consultancy CAV Aviation Services, toldAIN. As present equipment reaches the end of its life, IndiGo proposes to deploy around $5.3 million through March 2018 toward purchase of ground support equipment such as ramp coaches, tractors, ground power units and pushbacks. With emission norms in India moving toward world standards, companies are procuring tow tractors while phasing out the archaic agriculture tractors. IndiGo’s patented passenger ramp, for instance, “is a good concept that speeds boarding and reduces turnaround time,” said Mansingh.

Carrying the largest order book of any Indian carrier, IndiGo holds orders for 430 aircraft and expects to incrementally increase its operating fleet to 111, 134 and 154 aircraft, by the end of March 2016, 2017 and 2018, respectively, said the airline’s CEO, Aditya Ghosh. IndiGo serves as the launch customer for the Airbus A320Neo.

“We will, within two and a half years, have two-thirds of our fleet with Neos and in five to six years, have an all-Neo fleet,” he added. “This gives us a structural fundamental advantage…We have created a track record of profitability for seven years with no residual risk nor aging fleet,” The airline finished 2014 with the lowest cost per available seat kilometer excluding fuel—2.87 U.S. cents—of any Indian carrier. 

“The market sentiment is upbeat,” a banker associated with the IndiGo IPO, told AIN, adding he expects a second round of funding to come. “IndiGo’s IPO will structurally re-rate the sector and create investor interest in other airlines. However, balance sheet strength, quality of cash flows and ability to deliver sustain profitability will be key,” added Kapil Kaul, CEO of aviation research and consultancy firm Center for Aviation India