IndiGo Airlines (6E, Delhi International) has ruled itself out of the running for Air India (AI, Delhi International) a week after the Indian government called for expressions of interest in a 76% stake in the airline as well as 100% of its Air India Express (IX, Delhi International) unit.

Indi's largest budget carrier, IndiGo had expressed an interest in acquiring Air India's longhaul operations as a means of accelerating its international growth.

“From day one, IndiGo has expressed its interest primarily in the acquisition of Air India ’s international operations and Air India Express. However, that option is not available under the Government’s current divestiture plans for Air India. Also, as we have communicated before, we do not believe that we have the capability to take on the task of acquiring and successfully turning around all of Air India’s airline operations,” Aditya Ghosh, IndiGo President and Whole Time Director, said in a disclosure to the Mumbai Stock Exchange.

IndiGo has already been linked to a potential order with Airbus (AIB, Toulouse Blagnac) of up to fifty A330neo including options.

In addition to the price of the actual purchase, any prospective buyer of Air India would also have to assume a commensurate portion of its USD8.9 billion worth of debt.

Government intends to retain a 24% stake in Air India initially although official sources have told India's Business Standard that New Delhi has engaged the Life Insurance Corporation of India (LIC) and other state-owned insurance firms over their interest in the stake.

The sale would likely take place once employee stock ownership plans (ESOPs) have been arranged for permanent members of staff. This equity will then be pooled resulting in government's shareholding falling below 20%.

"After creating the ESOP pool, we will reach out to the board of the financial institutions to discuss selling our residual shareholding," an official said. With financial institutions holding the stake, and with the Ministry of Civil Aviation having little oversight over the airline, the newly privatized management would then be able to run the carrier as a competitive entity.