Why is the Air India order for 470 new aircraft such a big deal?
The landmark Air India order for 470 planes worth between $80-100 billion has made the world sit up because of its sheer size and the implications it has for Air India, aviation industry and some of the largest global economies. This happens to be the largest bulk order for aircraft, the second highest was by American Airlines for 460 planes in 2011.
The deal which took over a year to be chiselled out marks the entry of India as one of the major aircraft purchasing nations. Air India has ordered 40 wide-bodied A350 planes and 210 narrow-bodied A320 neo family planes from Airbus. The Boeing order includes 10 wide-bodied B777X planes, 20 wide-body B787 planes and 190 narrow-body B737MAX planes. Indigo is reported to be weighing similar plans of purchasing 500 aircraft.
How will the order help Air India?
The erstwhile national carrier of India, which had been running large losses, has been trying to turn around its operations after the Tatas gained control in early 2022. It had recently merged itself with Vistara, after which it had emerged as the country’s largest airlines operating in the international routes and the second largest in the domestic market after Indigo. The Tata group owned 218 planes and was flying to 52 domestic and 38 international destinations prior to the recent order.
After this deal, the fleet size of Air India will increase over two-fold and it will now overtake Indigo’s fleet of 300 aircraft to emerge as the largest airline in domestic routes too. The kind of planes which Air India has ordered shows that it plans to increase its presence in international routes dramatically as well as ply to large and smaller cities in the domestic market.
It will be interesting to see how Air India funds this deal. When the Tatas took over the company, they had absorbed around ₹15,300 crore of the total debt of ₹61,562 crore belonging to the bleeding air carrier. But the Tatas have stated that they have already refinanced the debt taken over by them. While details are awaited, the Tatas could either approach the equity market or the domestic or overseas bond market to part-finance the large order.
What does the order mean for India’s aviation sector, including airports?
There will be a shakeout in India’s aviation sector, with the Maharajah once more ascending the throne to reign supreme over India’s skies. With a large jump in international air carriers from India, the deal promises to make India an international hub for air travel. Domestic airport infrastructure will also have to be ramped up.
With the Tata group chairman stating that manufacturing of some of the aircraft parts could be done in India, it will give a boost to domestic manufacturing and create employment opportunities too.
Does passenger traffic justify so many new planes being ordered?
Air traffic is certainly surging over the past year. According to ICRA, domestic air traffic grew 63 per cent year-on-year between April and December 2022, with 986 lakh travellers. Passenger load factor has also improved since the pandemic lows and stands at 91.
According to IBEF, India is poised to improve its position from the 7th largest in civil aviation to the third largest in the next 10 years. In domestic aviation market, India is set to overtake the UK to become the third largest by 2024. Given India’s demography and increasing purchasing power, domestic air traffic will certainly move higher. According to David Schulte of Boeing, domestic air traffic in India is projected to double by the end of this decade.
The Tatas are however not looking at the domestic market alone and seem to be eyeing the international pie as well.
Why were the French President Emmanuel Macron and US President Joe Biden on a joint announcement call with Prime Minister Modi?
US President Joe Biden and French President Emmanuel Macron have welcomed this deal which will result in large exports for their manufacturers, provide visibility in order flows given that the order is likely to span many years and create employment for their citizens. The US President has stated that the deal will support one million American jobs across 44 States.
At a time when the US economy is slowing and Europe in on the brink of recession, deals such as this show that India can fill the gap left by China, by providing demand for the products of these companies.