Logistics

IndiGo likely to pay over $900 m as premium for 150 Airbus NEO aircraft

Ashwini Phadnis Toulouse | Updated on May 29, 2011 Published on May 29, 2011

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The Delhi-based low-cost airline IndiGo could pay a premium of over $900 million for the 150 New Engine Option (NEO) Airbus aircraft it has ordered.

The European aircraft manufacturer charges a premium of $6.2 million for each NEO on A-319, A-320 and A-321 aircraft.

According to Airbus, the premium is charged as the NEO promises 15 per cent fuel burn savings among other benefits such as noise reduction and lower maintenance and operating costs.

The manufacturer believes that an airline opting for the NEO will be able to save in excess of $12 million per aircraft. Hence, it is charging about half of the saving potential for each NEO aircraft.

“If we charge nothing for NEO there is no incentive for us to improve our product. So this is a genuine desire to share the benefit. We think that 50:50 is a fair split,” Mr Alan Pardoe, Head, A-320 Marketing, told Business Line.

In January this year, IndiGo was the first airline globally to declare commitment for the NEO in a deal valued at $15 billion.

“Essentially we are selling aircraft on their ability to generate revenues. The aircraft has longer range and can carry more pay-load on some routes.

"So arguably it will generate more revenue. But at the same time it is going to cost an airline much less as it is going to pay 15 per cent less to fill the aircraft to fly the mission. The differential of lower cost and the small potential increment in revenue depending on the operation in our view is worth in excess of $12 million to the airline buying the plane. So we charge the airline roughly $6 million for NEO. The other $6 million is potential benefit or profit for the airline,” Mr Pardoe added.

IndiGo officials were not available for comment pointing out that the airline does not discuss pricing issues.

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Published on May 29, 2011
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