New Delhi: Air India’s order for 470 planes — one of the largest orders placed by an airline in global aviation history — may be a “genuine turning point” in the highly underpenetrated Indian aviation sector, with almost every other carrier in the country expected to follow suit, according to experts.
Air India, owned by the Tata Group, announced Tuesday evening that it would buy 250 jets from European manufacturer Airbus, as well as 220 from US-based Boeing, for a total of 70 wide-body and 400 narrow-body aircraft. While the company did not announce the deal value, it is estimated to be around $80 billion or over Rs 6.60 lakh crore.
“An order of this magnitude could simply not have been contemplated under public ownership. It therefore stands testament to how the divestment of Air India has strategically and positively reset the aviation industry in India, positioning it to realise its potential,” consulting and advisory firm CAPA India said in a research note.
The research note, seen by ThePrint, was released by CAPA this month amid reports that Air India was likely to place an order for 500 new planes. The note added while the order would be a critically important milestone, turning around Air India would be a three-to-five-year mission.
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‘Not an earth shattering development’
Speaking to The Print, Mark Martin, founder and CEO of Martin Consulting, said that while the deal is signigicant in terms of total fleet size, it’s not an “earth-shattering” one when considering the sector overall.
This is because, after Kingfisher Airlines and Jet Airways collapsed, “the aircraft fleet in India had shrunk by about 250 aircraft in the last 10 years,” he said. “So, this deal really just replenishes what we had lost.” Air India’s estimated fleet size is currently about 200 aircraft, he added.
Martin further said that going forward, India needs to add at least 500 more aircraft, which will enable service providers to better manage the growing demand in the sector. “Year on year, the sector is growing. So we need to induct more aircraft every year to manage that growth. Now we are finally coming to a stage where at least we are making an effort, but we have a long way to go. 470 aircraft will not be inducted over the next year — they will take at least three-four years to come in,” he said.
In a letter to employees, seen by ThePrint, Air India CEO Campbell Wilson said that the order comprises 40 Airbus A350s, 20 Boeing 787s and 10 Boeing 777-9 wide-body aircraft, as well as 210 Airbus A320/321 Neos and 190 Boeing 737 MAX single-aisle aircraft. The A350 aircraft will be powered by Rolls-Royce engines, and the B777/787s by engines from GE Aerospace. All single-aisle aircraft would be powered by engines from CFM International, he said.
Wilson added that the first batch of aircraft to arrive would be 25 brand-new Boeing B737-800s and six Airbus A350-900s in the second half of 2023, with deliveries really ramping up in 2025 and beyond.
“In the mean time, our capacity growth will continue to be supported by the previously announced lease-in of additional narrow-body and wide-body aircraft and the restoration to service of the remainder of our grounded fleet,” he said.
Meanwhile, Air India in a statement Tuesday said the first batch of the new aircraft would enter service in late 2023, with the bulk to arrive from mid-2025 onwards. In the interim, Air India has already started taking delivery of 11 leased B777 and 25 A320 aircraft to accelerate its fleet and network expansion.
“As of today, the market remains highly underpenetrated. The total commercial Indian fleet of around 700 aircraft is smaller than some of the world’s largest individual airlines. Given the immense potential that exists, it stands to reason that there is a need to induct more aircraft,” the note by CAPA said.
While it termed the move a “genuine turning point in Indian aviation”, it added that to a large extent, the order is making up for the growth deficit that Air India has experienced for the past decade and more. “After taking into account the replacement cycle for incumbent aircraft, and the tremendous growth potential of the market, Air India will undoubtedly have to commit to more orders, sooner rather than later.” it said.
Martin added that other airlines such as Indigo and Go First too need to increase their fleet to manage growth.
According to CAPA’s estimates, with the Air India order of 470 planes, Indian carriers currently have just under 1,300 aircraft on order, of which IndiGo accounts for 500. It expects every Indian carrier to place orders for a further 1,000-1,200 aircraft in the next 24 months. “Almost every carrier in India is expected to order more aircraft in the next couple of years, for fleet replacement as well as growth, given that the order book for most incumbent carriers could be considered conservative relative to the growth potential of the market over the next decade and beyond.”
In the past few months, there have been numerous cases of aircraft deliveries being delayed where the airframe was ready, but engines were not available due to supply chain issues. The incidence of such cases is expected to ease by the end of FY2024, it added.
“However, even once supply-side challenges are resolved, aircraft and engine OEMs face a very significant backlog of orders that could take years to address. Airbus and Boeing combined had 12,669 unfulfilled orders as at 31-Dec-2022. Delivery slots are very hard to come by for at least the next couple of years, while for narrow bodies, the situation is reportedly tight until 2029,” it said.
In order to secure timely delivery slots to support their growth plans, Indian carriers such as Akasa and Go First will need to place scale bets by entering into new orders with a sense of urgency. SpiceJet will need to actualise its current order and prepare for further expansion, it said. “And even Air India will need to place another large order relatively soon.”
In his letter, Wilson had said that Air India also has the option to take additional aircraft at already-negotiated production slots and/or prices. “The firm part of the order alone is not just the largest order ever made by an Indian airline, it is one of the largest single aircraft orders by any airline, anywhere, ever, and testifies to India’s unique combination of extraordinary scale and growth opportunity,” he said.
(Edited by Geethalakshmi Ramanathan)
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