Status Update

Jul 6, 2017

Good evening, ladies and gentlemen, and welcome to the conference call on Indigo's future plans regarding Long Haul International Flying. My name is Zed, and I'll be your coordinator. At this time, the participants are in a listen only mode. A question and answer session will follow today's discussion. As a reminder, today's conference call is being recorded. I would now like to turn the call over to your moderator, Mr. Ankur Goyal, Associate Vice President of Treasury and Investor Relations for Indigo. Thank you and over to you, sir. Thank you. We see that there's still a number of people who are waiting to join into the call. So please allow me to wait for a couple of minutes more so that most of them are able to dial in. Sorry about that. So good evening, everyone, and thank you for joining us for this discussion on Indiguo's potential future plans and strategy on long haul international flying. Participating on this call are our 2 founders, Mr. Rahul Bhatia and Mr. Akhil Gangwar. Before we begin, please note that today's discussion contains statements regarding certain elements of our business plan, strategy and financials, which will be considered forward looking. Our actual plans and results may be materially different from these forward looking statements. The information provided on this call is as of today's date, and we undertake no obligation to update the information subsequently. A transcript of today's call will be archived on our website. We will upload the prepared remarks within an hour, and the Q and As will be uploaded within a week after Chorus Call has translated the Q and A. With this, let me hand over the call to Mr. Rao Bhatia. Thank you, Ankur. Good day to all of you and thank you for joining us. Let me speak to the recent flurry of news regarding Indigo's interest in Air India. There has been a lot of press coverage and commentary on Indigo's interest in acquiring the airline operations of Air India. Regrettably, most of the reporting and commentary has missed the mark, largely because we at Indigo were constrained and not able to provide more clarity to to the investor community and the press about our plans. We should have done a better job at this. We are close to announcing our quarterly results at the end of this month and being mindful of the quiet period as well as the materiality of the issues. We could not on an individual basis reach out to the investor community as well as the press to share our thoughts regarding Air India. Now with all the misunderstanding that is floating out there, we felt it best to publicly elaborate and spell out our vision and potential plans regarding long haul international flying through this conference call. India is the 3rd largest aviation market and the 2nd largest country in terms of population. It is going through significant economic growth and prosperity is on the rise. The country continues to be dramatically underserved in the domestic aviation space and that is why we are witnessing domestic traffic growth of 15% to 20% every year. On the international side, we believe that India represents one of the largest untapped international air transportation market opportunities that is out there, and the country certainly lacks its fair share of long haul international flights. In reality, India's international air transportation hubs reside outside India. Air India is a massive organization. They employ more than 20,000 people and operate various subsidiaries ranging from maintenance to charter operations, to ground handling, to hotel operations and so on. It has lost INR 1,000 of crores of rupees over the last 5 years, carries a debt load of more than INR 50,000 crores and continues to be a significant financial challenge for the government. 1st and foremost, Indigo is not looking at acquiring all of Air India's businesses and subsidiaries. In our view, that would be a herculean task, which would at best be a very challenging proposition and adverse and impossible task, unless an organization is willing to fund large losses for a very long time. What we are looking at within Air so what are we looking at within Air India? Quite simply, we are interested in the airline operations of Air India and more specifically, we are focused narrowly on Air India's international operations and Air India Express. This is what we have communicated in our 1 on 1 discussions with government officials. Let me digress for a moment and address a few news reports stating that Indigo may be rethinking the scope of what it is looking at with respect to Air India. Quite to the contrary, our thinking is clear on this issue and it has not changed. When we were asked by the stock exchanges to comment on reports that IndiGo had expressed interest in Air India, we decided to disclose the letter that we have submitted to the government. Now it also became important that we share some details with our employees. Consequently, concurrent with the filing with the stock exchanges, we sent an e mail to all our employees about what was transpiring and elaborated to them that our interest was primarily in Air India's international operations. So from day 1, it is mainly about international operations. Now some of you may be wondering if such a carve out of Air India's international operations is even possible and practical, to which we would like to point out that this is not a new concept. A few decades ago, United Airlines acquired Pan Am's specific operations. Based on the success of that transaction, United then followed up by acquiring Pan Am's London routes in 1990. Today, United Airlines is one of the largest international carriers and it is questionable if that would have happened, but for those acquisitions. United was able to do this sorry, United was able to do with those international routes and route authorities what Pan Am was unable to principally unable to do principally because United had a large domestic fleet network. As a matter of fact, American Airlines followed that same model by acquiring PWA's London routes. So there is a roadmap out there that has worked very successfully. Today, Indigo serves 7 international destinations and Air India's international operations would bring a very important element to our network. It will provide rapid entry into restricted and in some cases, close international markets. So instead of being a small international player, Indigo would have a path to becoming a major player in the international market. Importantly, we believe that Indigo has the ingredients to significantly grow and unleash the true growth and earnings potential of Air India's international operations, and Rakesh will speak to that issue in a few minutes. Understandably, an acquisition of Air India's international operations would require significant restructuring and management oversight, a task that we are quite comfortable taking on. However, we simply do not have the ability or for that matter, the desire to take on debts or liabilities that could not be supported by a standalone restructured international operation of Air India. On the other hand, if the government of India decides to stem all of Air India's airline operations and I emphasize in quotes, airline operations to a single entity and not carve out the international operations, we would be still be interested in exploring that option. As the largest domestic carrier, it would not be prudent, if not irresponsible, on our part if we did not look at and explore all the opportunities that may or may not exist from the government's divestiture plans for Air India. However, acquiring all of the airline operations of Air India brings with it a lot of other issues and many more challenges and complexities. We would evaluate that option and assess if it is economically feasible for us to go down that path. At the end of the day, this exercise is not about becoming bigger for the sake of being bigger. It is all about profitable growth and that is a bedrock principle at Indigo born out of our performance over the last 10 years. Thank you. And let me now turn the call over to Rakesh. Thank you, Rahul. This is an interesting call with financial analysts and investors since we are only sharing our thoughts and vision and not numbers. It's like going to a corporate board meeting in a swimsuit. So in broad strokes, let me spend a few minutes on some interesting analytical work that has been going on at Indigo regarding long haul international flying. Today, a large number of Indian citizens and visitors to India arrive or depart on connecting international flights due to the lack of non stop flights into and out of India. Historically, most of these connections were over European hubs such as London, Paris and Frankfurt and over Southeast Asian hubs like Singapore and Bangkok. And of late, a vast amount of international traffic from and to India flows over the Middle Eastern hub cities of Dubai, Abu Dhabi and Doha. These small Middle Eastern cities near India have built huge airline hubs even though they lack the essential and fundamental ingredient of a hub, which is the presence of large local traffic. The massive hubs that these airlines have built have significantly benefited from the traffic that India provides to their operations. Now over the last 10 years, Indigo has established a significant domestic presence and now has a little over 40% of the domestic market share. In doing so, we have also been able to build meaningful operations at all the large metropolitan cities of India. And in the years to come, we expect to keep up our pace of rapid growth in the domestic market. In fact, during fiscal year 2018, between the A320s and the ATRs, we expect to add almost 50 aircraft, a remarkable number and we have built the internal capability and muscle to be able to execute on that plan. On the other hand, our internal work shows that Indigo is a natural player to take advantage of the significant and lucrative international market opportunity that India offers. Specifically, because of our large domestic network, we are well positioned to capture this massive and growing international traffic. It is about time that Indigo enters the long haul international markets and takes advantage of this opportunity. And just to state the obvious, we would not attempt to enter the international long haul market, but for the fact that we have this large domestic feed network. So irrespective of how the Air India story plays out and based on all our internal work, we are generally of the view that it makes fundamental economic sense for us to enter the long haul international market. Now our original plan was to begin this discussion and share our thinking with all of you during our upcoming quarterly analyst call at the end of this month. However, that got preempted due to the government's in principle decision to divest itself of Air India. So in summary, our long haul operating plans are being guided by the following principles. First, the Indian market is significantly underserved in non stop international destinations. 2nd, a large and lucrative opportunity exists uniquely for Indigo to take advantage of this market segment. 3rd, success is not dependent on developing these international markets. In fact, we would take passengers from connecting international hubs and also from high cost non stop operators and fly them on our non stop low cost flights. The market thesis is no more complicated than that and the issue for us is to figure out how best to go about doing this profitably. Let me take a few minutes and share our perspective and for obvious competitive reasons, we will only share some very high level thoughts on this issue. If we enter this space, we will do so with a low cost model. Just like the low cost model disrupted the short haul full service legacy carriers starting a few decades ago, we believe that international long haul markets are ready for the right type of low cost operations. In fact, there are quite a few examples of low cost long haul operations that are starting to take hold across the global aviation space, airlines such as Norwegian and Wow Air. At the other end of the spectrum, Lufthansa, British Airways, Air France, Singapore Airlines, etcetera are all trying their best to build their own long haul low cost operations and time will tell if a legacy carrier can successfully launch a true low cost operation. I do wish to emphasize 2 fundamental ingredients for success that makes Indigo's potential plans very different from that of other long haul low cost operations in the market. First, our massive domestic feed network is a big plus. 2nd, passengers will mostly come from foreign airlines that are today connecting over their hubs or flying at high fares on non stop flights. Just for a moment, think about the value proposition to the passengers that Indigo would offer. On average, the passengers will arrive at their destination 3 to 5 hours earlier and for a lower fare and without all the hassles of connecting over hubs, going through multiple security checks, worrying about their connections, losing bags in transit and so on. Interestingly, last week while we were expressing our serious interest in Air India's international operations, Ryanair expressed serious interest in Alitalia, which is also going through major financial stress. Now with tongue in cheek, let me just say our compliments to Ryanair for understanding the fundamentals of the airline business. Jokes aside and in all seriousness, Ryanair is a smart and formidable airline and it is certainly comforting to see that we are on the right track with respect to our thinking and strategy. Yes, the long haul business as we know it is changing just like the short haul full service segment changed over the last few decades. In our view, this change and transformation will be a worldwide phenomena with many such operations sprouting up globally and will ever so slowly encroach into the current format of full service long haul flights. This will be quite unlike what happened in the short haul low cost segment where it first took hold in North America. This then gave confidence to European startups and then to Asia and Southeast Asia startups to launch similar services. One of the principal reasons for this is that the smarter low cost carriers have perfected their art and over the last 10 years, aircraft technology has changed allowing for this potential transformation in long haul low cost flying. Our journey of building an international low cost operation will be gradual, a journey that we would take thoughtfully and deliberately. To be clear, whether we do some limited transaction with Air India or launch our own long haul international operations or a combination of both, the business case would need to be EPS accretive for us to put on that path. To underscore that point, with respect to Air India, let me just say that we are not looking at replicating the unfortunate scenario that unfolded when the Brazilian low cost carrier goal merged with Vareg. In closing, let me suggest that we reflect for a moment on what has transpired at Indigo in the last 10 years. The company has placed $50,000,000,000 in form aircraft orders at list prices, built an impressive domestic network representing more than 40% of the market with reliable on time and a hassle free travel experience, has been profitable for the last 9 years in the brutally competitive Indian market and distributed almost $900,000,000 over the last 5 years. We now have critical mass and let's now see what the next 10 years bring. Hopefully, we have been able to paint a clearer picture of our plans and thought process regarding long haul international operations with or without Air India. With that, let me turn it over to Ankur. Thank you, Rakesh. To answer as many questions as possible, I would like to request that each participant limit themselves to one question and one brief follow-up question if needed. And with that, we are ready for the Q and A. Thank you. Ladies and gentlemen, we will now begin with the question and answer The first question is from the line of Chitrangda Kapoor from Samiksha Capital. Please go ahead. Actually, this is Bhavin Shah from Sumixi Capital. You mentioned that you are interested in basically doing low cost long distance. Obviously Air India's current fleet is not designed for that. So if you were to take over Air India, how would you do that and what sort of investments would it require? And also their fleet is very complex, all different types of aircraft. It doesn't seem to fit into your existing strategy. Could you comment talk about that? So this is Rakesh. There are a lot of questions in that broad question you've asked. Let me just kind of pick on a few of them. First of all, if we were to acquire the international operations of Air India, for sure, we will not continue to operate it the same way because then we are just repeating the same exercise and nothing changes, so we would not expect a different result. And by definition, it would require us to redo whatever was going on before. And there are many things Air India does very well. There are certain things we can improve upon. But having said that, there are a lot of other issues that at this stage are at best going to be hypothetical for a lot of reasons, but principally to one, while we may have expressed our interest to buy the international operations, it does not necessarily mean that the government of India would be interested in carving out or hiding out the international operations. It's kind of difficult to sort out. So first we have to see what exactly the government would like to do. But by expressing our interest, we have tried to give a roadmap to the government. And from a policy perspective, which is different than how we would look at it at Indigo, but from a policy perspective at the government, we would like to believe that the government would long term be very interested in having a homegrown so called make in India very large international operation. So time will tell how this plays out. But getting back to some of the specifics of the fleet and how the airplane is configured, where they fly, you have to assume there will be fundamental structural changes. And without any doubt, there will be an investment that will be required to do that. We look at this thing simply. It's just a business. So in any investment, there is a cost to acquire, there is a cost to retransition, refocus it, we would offset it against the incremental revenues we expect to gain. And if the revenues are more than the cost by a significant margin, game is on and we would be very interested in looking at it. But today, it's almost next to impossible for us to elaborate anymore as to how this cost will play out. I hope I've kind of answered most of the issues you raised. Yes, okay. Thanks. Thank you. The next question is from the line of Sonal Gupta from UBS Securities. Please go ahead. Hi, good evening. Thanks for taking my time. Sorry to interrupt Mr. Gupta, but there seems to be a lot of disturbance on the line. Hello? There seems to be a lot of disturbance from the line of Mr. Sonal Gupta. So shall we take the question or do we move to our next question? Can we go to the next question and by then Mr. Gupta can figure out how to sort out his cracker. Thank you. We'll move to the next question from the line of Binay Singh from Morgan Stanley. Please go ahead. Hi, team. Thanks for this opportunity. And I have sort of 2, 3 questions. First is that if you were to do this on your own, how long will it take for you to offer customers in India the similar network that Air India offers? And added to that, are there any structural sort of bottlenecks to doing that, if Indigo was to do it on its own in terms of flight availability and all? And the last question, which is slightly related, and Rakesh can take that. How familiar is this Air India issue to you, Rakesh, because you've dealt with United, you've worked with Air France, where you sort of dealt with Unions and all and then with U. S. Airways. So when you look at the issues of Air India, is it like familiar ground for you? Let me just take it sequentially. In terms of time, how long would it take us to replicate or do something similar to what Air India does? I think it will be a long, long time. Air India has been able to acquire these route authorities through bilateral negotiations over a 70 year period. And back then access to many, many larger airports was much easier than what it is now. Aviation was at its infancy. Most of these large airports like Heathrow, Kennedy, etcetera are largely slot constrained. So not for a moment do we believe that we will be able to replicate a network like Air India and network like United in the near future. That is simply not going to happen. And that's answer kind of what I'm talking about deals with both the issues of how quickly we will get there and what are the structural constraints. And I would not say these are structure, but these are the realities of not getting root authorities. But on the other hand, I mean, it's not like we are just absolutely bell mail interested in putting long haul flying for the sake of long haul flying. Each flight is going to by itself be what I call an opportunity that has to be assessed and opportunities will come. In this business, things change. Just look at the aviation market in the United States, where after decades decades of flying over the last 10 years, carriers like Delta, United and American Airlines were able to merge some of the smaller carriers and became very massive behemoths. So we are patient. And while we are going to be patient on the international side, the domestic market itself provides massive opportunities for us. And it will be many, many years before the domestic growth slows down. Coming back to the issue of my familiarity with Air India, yes, I understand Air India, but this is not about familiarity with Air India. This is what I would call the Indigo team and it has nothing to do with me. The Indigo team's ability to understand the fundamentals of markets. And if we get that right, we see Air India's international operations as so called a canvas, a new sheet of paper. The biggest asset sitting in there is these negotiated group structures. Another big asset, which you may find it strange, but it is a big asset, is many, many of their employees, they know a lot of good things about the business. The question is how do we take the 2, the employees, the management skills, the frontline employees skills and the root authorities bring in the culture of Indigo and bring in the different leadership and management skills that Indigo would provide and between the 3, combine it to make it a success. So it's really familiarity of Air India, I would say, maybe a negative rather than a positive, and we will see how this plays out. Great, great. Thanks a lot for that. Thank you. The next question is from the line of Prashant Kotari from Pictet. Please go ahead. Yes, hello. I just wanted to understand why is it that the government has chosen to mention And then if this deal happens, are you happy with the And then if this deal happens, are you happy with the minority stake? Or would you want to have like a majority control or full stake of this? Prashant, this is Rahul. So to answer your first question, I think it's best answered by the government. We submitted an expression of interest, an in principle decision to divest itself from Air India. Why they elected to bring it to the press is best answered by the government. On your second question on participation, we would look at acquiring all of Air India's international operations and Air India of of divesting itself from all of the airline operations of Air India, we'll certainly give it a very close look. And let me just add a little bit more to what Rahul said and a little bit to the flavor of your question about partnership with the government. And our view is 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. The government has owned and managed Air India for more than 50 years and they're looking to divest of itself right now. So one would even kind of wonder if truly at the end of the day when the thinking is all done, whether the government would itself be interested in wanting a partnership. But from our perspective, as a so called corporate entity, which has public shareholders and takes on this responsibility very seriously, we would not go down a path where there would be a joint venture or even a minority or a majority stake, which the government owned because we simply don't know how to do it. It may be a good model, but we cannot bring value to that proposition. Okay, that's helpful. Thank you. Thank you. Next question is from the line of Ashutosh Somani from JM Financial. Please go ahead. Yes. Thanks for organizing the call. Very insightful commentary. Just had a very specific question on the working capital management of Air India. If you can, how different is it from an airlines like Indigo? And whether it's a low hanging fruit, which can be turned around? And are there any technical aspects that you would want to just highlight regarding the working capital management of Air India? I was hoping nobody would ask that question. But now that you have asked it, let me kind of approach it differently. If we just focused on the international operations, the working capital issue becomes very different. There are future ticket sales that Air India has made and assuming whether it's Indigore, whoever buys a carved out international operation, we would have to take the liabilities associated with the airplanes. We would have to take the lease obligations and we would have to take whatever relevant number of employees are associated with that and that's easy to understand. We would also obviously take the cash that Air India has generated through the sale of future tickets because that becomes an obligation of the acquirer. We have to fulfill those obligations. So it kind of falls into that working capital concept. But having said that, we may still in the front end need to be able to augment it with some additional working capital. But my goodness, it's going to be nowhere near what goes on today at Air India. I mean, you just have to look at Indigo with 40% market share. We have not taken any debt to fund our working capital. And you have to assume other than a short term blip, that model does not change. But again, it all depends on who's selling what and who's buying what. And these are hypotheticals, but conceptually, we would very quickly transition into a mode where working capital requirements are funded through internal funds. Absolutely. Thanks so much. Thank you. Next question is from the line of Ross Tevassen from Jupiter Asset Management. Please go ahead. First of all, Rakesh and Rahul, thank you very much for the call today. I think what you're doing is clearly a massive potentially a massive transformational step. And to date, you haven't been either of you, as far as I'm aware, doing roadshows to meet investors. But clearly, you're both very important to the strategic decisions that are being made on the board at Indigo. So can you commit to, in future, having greater visibility with investors coming on the road to explain Indigo's strategy as you go down this path, which I think a lot of people are going to continue to have many questions on? So let me first address the former question. Maybe we are being cavalier here or maybe we are being simplistic. But this transaction, if it happens on the international side, we don't see it as a very massive challenge. It's a pretty simple 1, 2, 3 and you get there. Just execute on it. It's an existing network, existing airplanes and how do we go about fixing it and we would have answers to all those before day 1, before the so called transaction closes. And importantly, any transaction, I doubt it's going to close before a year. It's going to take quite a long time for all the right reasons. The government is going to thoughtfully think through this thing and look at all the pros and cons of it. And if I could just kind of digress for a moment, I mean, it's not because the government is going to be slow, but if you were the government, you probably are looking at 4 objectives that you have to solve. 1 is address the employee issue, They need to address this massive ongoing losses going on. They need to also maximize the values that it receives from the sale of assets. Very importantly, something that is not going on today in the public discourse is what happens post divestiture. And this is where governments are very good in policy making. They can sort out the short term things, but they always take a long term view. And that is what whether we like politics or not, but that's the beauty of politics. Let me just elaborate the one element that I'm very surprised is not out there in the public domain. So first, if a foreign airline was to get hold of these important international assets of Air India, It's just a question of time where all they will do is maximize these assets, these slots, landing rights, parking facilities at the international locations to the economic interests of the air the foreign airline and not so much for India. 2nd, if for a chance, the international assets of Air India actually gets acquired by a state owned entity, it potentially could play out as a Shakespearean tragedy. World politics is unpredictable. I mean, look no further than the state boycott that is going in the Middle East. And for us, the idea that a foreign nation would control a large part of India's international and domestic air transport network is very difficult to wrap one's head around. And the consequences and implications literally of outsourcing Air India's transportation should raise serious policy issues. So all this is going to take a year, who knows, year and a half, but we thought we would come upfront right now because there's just too many different tangential discussions going on in the press, largely because of our fault. We did not clarify and we learned something, we have clarified. Going forward, yes, to the extent we do something monumental. I mean, as founders and as true believers in the rights of shareholders, we will communicate, with them. We will talk with them. You will find us out there. So you can assure we will do the right things on those matters. Okay. So is it the case that you may well come on the road to meet investors over the next year? Yes. Some of them, yes, some of them. And I don't want to promise something on a call which Rahul and I won't come through. But we will Yes. So just a final thing for me. I think that would be very well received because for people to have real clarity over the strategic direction of the company. Hearing it directly from yourselves and being able to explore the issues of yourselves, I think would be something that investors would really appreciate. All right. Well taken. The next question is from the line of Anshooman Dev from ICICI Securities. Please go ahead. Yes. Hi. Thanks for the opportunity. Low cost model and excellent aircraft management has been the kind of 2 key pillars of Indigo. Now while we while you clarified that international operations will remain LCC essentially, Now aircraft management will be challenging if we take on Air India. Now does the confidence of being able to deliver a similar aircraft management stem from cost tailwinds which are available currently? In other words, I wanted to know would we have ventured in a similar way had cost remained high or the situation is less benign than what is it is currently? Thank you. Let me kind of approach it differently. If you kind of rewind the tape and go back 10 years, out of nowhere comes Indigo Cliffs as a firm aircraft order for 100 aircraft. In the history of aviation, nothing like that had been done, not even by United Airlines, American British Airways, nobody goes out and places 100 forum aircraft orders. Now since then, a lot has changed. And people really said, is this a joke? For the 1st few years, people said, hey, maybe they'll put some airplanes. Over time, history has proven that these guys are able to execute on their thinking. And since then, we have added another airplane order for 180 followed up by another 250 aircraft order and then just recently this order of 50 ATRs. So we went down this path and now we're just adding on the international element. We don't want to get too much into how this cost structure is going to play out because a lot of people would like to know what our thinking is. Clearly, it is not going to be the Air India model. It is not going to be the British Airways model. It is not going to be the United Airlines model. It will be an Indigo model. And when the time comes, you will hear us do some of it. Some of it we won't talk to. The only thing we can tell you is that structurally we cannot create a cost advantage, a meaningful cost advantage, it does not make sense to do it. This airline business is very tough to begin with. And if your cost is at parity with the other guy, other things come into play, which is your club rooms, your frequent flyer programs, the comfort of the blanket and how well the flight attendant smiles. And that becomes a very difficult game. And we really don't we have very little interest to playing with that game. Create a structural cost advantage and then find ways to generate revenue. So while I've not quite answered your question, but I'm just giving you the philosophy with which we are looking at this business. I appreciate it. Thank you. Thank you. The next question is from the line of Anand Gupta from Eastspring Investments. Please go ahead. Yes, thanks. My question is a follow-up on cost structures. I assume it's all about being least cost quartile in airline, the way Indigo is the lowest cost ex fuel per seat in the domestic market. Can you share with us your perception how does Air India International Ops rank with their peer set? My assumption is they I mean, they haven't been able to keep it in a very efficient way both on the asset side and on the people side and on the turnaround time. And few of these things could be structural, which could be the employee productivity and the asset productivity. So I'm just trying to think that globally has there been any example where someone has acquired another player which has perhaps doubled the saris, double the cost per seat kilometer and turned it around? It's a puzzle in my mind. I'm just trying to I know it's difficult for you to talk specifics, but I'm just trying to request if there's a case study or is there any thoughts you can give how it's possible to optimize the cost if they rank poorly on our cost comparison on international ops? Okay. So best way to look at it is, let's walk away from international, come back to domestic. Air India has pretty high domestic cost structure and a lot of reasons behind it. It's a legacy airline. It is not unique to Air India and I don't want to bad mouth Air India. I mean, certainly, this phenomena happened in North America, in Europe. In North America, pretty much all the airlines have gone through multiple bankruptcies. And through those multiple bankruptcies, they were able to bring their cost structure down. And in India and Europe, those types of bankruptcy laws don't exist. But now having said that, let's come back to specifically India Air India. And let me not talk about international because it gets into a lot of competitive issues. Let's just look at domestic. Go back 10 years, your same question would be as relevant, which is Air India has a certain cost structure. What makes you believe that you will have a lower cost structure than them because you're locked into turnaround times, you're locked into airport congestion, you have got the same airplane assets. And as you can see, our cost structure is fundamentally different than that of Air India or for that matter the other airlines that operate in India. And you just have to assume that for us to go down this path, we expect to be able to understand with clarity, crystal clarity that we can bring the cost structure down dramatically. And if we cannot do that, we're not writing any checks to buy anything. It's got nothing to do with Air India. It's just a business proposition. And that's the way we look at it. And by the way, Aaron, having said that, I do feel pretty comfortable that we will be able to bring down the cost dramatically. I was at United Airlines when United acquired Pan Am's specific operations and then 5 years later followed up with Pan Amps London operations. And there are a lot of wonderful things one can do, whether you have size, scale, management abilities to do things. Just one question, is people layoff and a new set of people a must do in these kind of turnaround cases where one aspires to lower the cost per seat? I don't necessarily subscribe to that. The idea that you can make Air India International successful is only by laying off the international employees of Air India is dead wrong. That is just the wrong way to go about building something. Having said that, we would obviously make changes to however the Air India employee structure is organized and it is very early to even think about it. For us, it is very important we retain the culture that exists at Indigo. And personally, I really believe deep down, if I was a pilot at Air India, flight attendant or a frontline employee, I would like to grow the business profitably. Nobody likes to wake up every morning to kind of go out and play in a losing team. Everybody likes to come and play in a winning team. And the question is, if we can bring that chemistry, that kind of a thought process, I feel largely, that you will find employees I mean their employees are no different than our employees. It's just how we train them, how we educate them, what our expectations are. I would not fault this problem on the employee side, not talking about the frontline employee side of Air India. Yes, the press can sometimes talk about it, but I totally discard that motion. Thanks. Thank you. The next question is from the line of Deepakam Mundra from JPMorgan. Please go ahead. Sorry to interrupt, but there seems to be static on the line from where you're connected, sir. So maybe request you to maybe disconnect and reconnect from another number. Okay, fine. We'll move to the next question from the line of Srinath Krishnan from Sundaram Mutual Fund. Please go ahead. Magal Gopal here. My first question is on if I look at the balance sheet of Air India and the way they funded the fleet, it looks like partly owned and partly leased, particularly international route. Correct me if I'm wrong. And we have always been a light balance sheet model followed a light balance sheet model. So is there a possibility that as part of the proposal, we'll be seeing changes in the way these assets funded? Today, we do not know actually the specific details. We have a first of all, I agree with you that a vast majority of not vast, on the international side, I think it's fifty-fifty. It's about half of it is owned and about half of it is on a sale leaseback. On both of those, we don't have visibility today. To the extent they own some of it, what is the debt and what's the interest rate on those? And to the extent they do the fair leasebacks, we don't even know what the lease rates are, what the maintenance reserve requirements are. So all these in a due diligence process, if we get to that stage, we would look at and we would make our internal decisions and then we'll go from there. The idea is in the airline business going forward, asset light is a good idea. But having said that, there is another aspect to this business and we'll talk about it in the upcoming Rohit and Aditya Ghosh will talk about it in the call later on this morning. When you're a startup mode, asset light is absolutely fundamentally important because it is survival. Because you're a start up, you just want to be sure you never run out of cash. But once an airline becomes very large like us, you need to start looking at ways to figure out if there are other optimal structures, other ways to look at it. And great examples are companies like Southwest Airlines, Ryanair, and these are just great admirable airlines. So what they have done is remarkable. And what is interesting is those folks on the aircraft side are not asset light. They own a large number of airplanes. So we're looking at that model trying to understand how and when and what we should do. But having said that, we don't want to get asset heavy on issues like maintenance, issues like ground staff, issues like, for instance, having catering organizations and those become very asset heavy. Having said that, there's another complication going on right now within the Indian system. There is a new tax regime that has been put out there effective July 1, the new GST. And I think long term, it's a very, very good thing that country has done. But interestingly, and for reasons we don't understand, if you own an aircraft, if you buy an import it, there is a penalty on it. You pay about 5% on it. But if you are leasing an airplane, even from a foreign entity, you get credits to offset those kinds of costs. So we're not quite sure what all that means and what the motivation of the government would be and we need to understand it. So that may also play a role going forward. Having said that, other than airplanes, we are firm believers on asset light. The airplane is an asset, which if you own allows you to withstand situations going forward, but there's a cash crunch because you can raise money against it. And if there's a war, if there's some crisis, airlines need to be able to raise a lot of cash. So just wait till the end of the month, Rohit is going to walk you through in great detail on this matter. The second question is on working capital loan, which is there in the Adientes balance sheet at this point. And if I understand from a common source, there are some non core assets also or even subsidiaries, which they have highlighted. Will our proposal be that you take this working capital loan away and even the non core assets and we will whatever we are picking up from the Air India operations, we will not take working capital loan or we will take some portion of the working capital loan along with some non core assets and we will later monetize and manage our balance sheets. Let me be very, very clear on this thing, very clear. We are not interested in taking assets, which we have to monetize later. We don't know how to do those things. We don't want to build the expertise on it. If we just focus on the international operations, we can all figure out what may be a legitimate so called working capital associated with it and deal with that situation. But the idea that we are going to take on debts and liabilities that are not related to the international operation, It just kind of is a very foreign alien concept in any transaction. And I think the government will be smart enough in understanding how to go about doing it. Okay. Thanks for taking the question, Nishu. Please go ahead. Thank you. The next question is from Deepika Mandra from JPMorgan. Please go ahead. Hi, sir. So you've commented on the international operations, but just on the domestic operations, if the government were to decide that they need to package it and sell it because presumably nobody will probably pick for their domestic business. Do you see any synergy, especially given they're a full service carrier on a Boeing fleet here on the Airbus fleet? I mean, do you see any synergies with them on the domestic rules? No, we don't see synergies there. But if the government needs to take out the domestic end of the business, we would again go back and look at how much liabilities come with it. And clearly, we would have to sort out the whole we would not go full service. Let me be very, very clear. Full service for us as Indigo just doesn't work. We are not a full service carrier. That is not what India is looking for the vast majority of the product. I'm not saying there is no marketplace for full service. There is a limited market for it, but it is a very small narrow market and we don't address that. So if we were to kind of find ourselves and right now we have a little difficulty thinking through it, but if we were to get to a point where we are taking some or all of the domestic operations, it's all new game and we would have to think very, very hard as to why we are doing it, because we would have to unwind this whole service issues, we'd have to unwind the maintenance issues and it doesn't excite us. Let me put it that way. It's just the nature of the beast and time will tell how this plays out. But keep in mind, there could be like you said, I think interestingly and I'm just speaking on the fly. You raised a very interesting question if there are no other buyers for domestic. Maybe the government can approach it differently. Maybe what they can do is take all of the domestic operations because there are a lot of employees there and they have good slots, gates, hangars. They could put it into 4 baskets, 3 baskets and carve out certain types of flying and go out and tell the smaller airlines that this is more manageable, would you like to buy one of these baskets and we may participate in something like that. But again, these are very hypothetical things. There is a road map. I think the government is on the right track in terms of some massive losses, significant liabilities. And in India, the bankruptcy laws do not allow what happened in North America and the government has to figure out a way to solve it. So I think, Ankur, we are running out of time. Maybe we have time for one last question. Is that right? That's right. So operator, if we can just have one last question, please? Certainly, sir. Ladies and gentlemen, we will take our last question now from the line of Gautam Roy from Motilal Oswal Asset Management. Please go ahead. Hi, sir. While I can see the logic of your page, just wondering what is in it for Air India to let go of the lucrative part of the business, if it is lucrative at all? Also, how do you think the entire huge debt could be handled? Because that could be a big constraint to this overall divestment going through. So I think you qualified it well. We don't know if it is profitable, the international operation. And all we know is based on all the analysis we do and based on all the traffic projections and the fact that the vast amount of traffic is connecting over the Middle East or over Europe or over Southeast Asia, there's a massive lost opportunity out there. It needs to be capitalized. And that is what we are focused on. And if we were to acquire the international operations, it will come with some hair on it. It will have, as somebody said earlier, it has a mix of different types of airplanes. We have to sort all those things out. And we feel very comfortable that for the right price and the right liabilities, there is a path out there to make something absolutely incredible and massive, something that India would be very proud of. It will take time, but we feel very comfortable we can do it. I know the last question about how to handle the tetanol and that is beyond the pay grade of the people on this call. We just don't even know how we go about solving that debt problem. We are only looking at primarily the international And as Rahul said, to the extent the government wants to sell the whole thing, and I'm talking about airline operations, we would obviously at least explore and see if there are other opportunities or for that matter shape the government's thinking as to this maybe there may be other ways to kind of solve the conundrum that the Government of India faces with respect to the ongoing losses of Air India. Sure. Thanks. Thank you. Ladies and gentlemen, I now hand the conference over to Mr. Goyal for closing comments. Over to you, sir. Thank you all for joining us on this call. Because of lack of time, we could not take all the questions, but we look forward to speaking with you again on a quarterly earnings call. Thank you. Thank you very much. Ladies and gentlemen, on behalf of Indigo, that concludes today's conference call. Thank you all for joining us and you may now disconnect your lines.