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Spicejet eyes over $10 billion deal with Airbus amid Boeing woes

Bloomberg Mumbai | Updated on September 25, 2019 Published on September 25, 2019

SpiceJet is the only Indian carrier having a Boeing MAX aircraft in its fleet   -  Getty Images/RooM RF

SpiceJet has 13 Max jets already in its fleet and has committed to buy as many as 205 of the single-aisle workhorses

SpiceJet Ltd is weighing an order for at least 100 Airbus SE planes as Boeing Co. grapples with the fallout over its grounded 737 Max.

The budget carrier, a major global customer for the Max, may buy a sizeable number of Airbus A321LR and XLR jets to accommodate a planned expansion, SpiceJet Chairman Ajay Singh said Tuesday. No decision has been made, he said, and the airline would consider a competing mid-range jet-liner if Boeing decides to build one.

"Airbus has pushed us hard since the day we started flying Boeing aircraft, and of course with the current problems, they have pushed us harder. They have made us a commercial offer and we are evaluating it," Singh said in an interview at Bloomberg’s headquarters in New York.

The discussions with Airbus threaten Boeing with a high-profile defection at a time when the US plane-maker is enmeshed in one of the biggest crises in its 103-year history. SpiceJet has 13 Max jets already in its fleet and has committed to buy as many as 205 of the single-aisle workhorses as it expands capacity to handle the nations fast-growing demand for air travel.

While Singh did not specify the exact size of a potential transaction, he said any aircraft order that SpiceJet places would at least be 100 aircraft.

An order of that scale could exceed $10 billion based on 2018 sticker prices. Though official prices for the LR and XLR are not public, the two jets are longer variants of the A321 family of planes, the cheapest of which start at $118 million each.

SpiceJet shares rose as much as 3.1 per cent to Rs 134.45, their highest level in almost two weeks. The broader Sensex index was down more than 1 per cent.

The Max has been grounded worldwide since March after a pair of crashes killed 346 people. More than six months later, the timing of the return to service remains unclear as regulators worldwide conduct independent assessments of the jets airworthiness.

Pain Point

Boeing has told SpiceJet that it expects the United States (US) regulators to re-certify the plane in early November, Singh said. While Indian regulators plan to conduct their own checks, Singh said he hopes SpiceJet will begin flying its Max planes again in January.

“We look forward to the Max aircraft coming back because thats where the biggest pain point for SpiceJet is currently. The carrier is in conversations with Boeing about compensation for the costs incurred from the grounding,” he said.

SpiceJet has taken a number of older 737s while the Max remains on the ground, but those jets are more expensive and less efficient to operate, Singh said. While the airlines fleet consists of Boeing and Bombardier Inc.planes, Singh said SpiceJet would consider flying Airbus models as well, particularly if the Max issues continue to distract Boeing.

Read: India will take a conservative view on allowing Boeing 737 MAX planes to fly again, says DGCA

You need to keep evaluating, and we are evaluating the Airbus options, he said. Its not the easiest thing in the world to do, of course -- our entire infrastructure is geared for a Boeing fleet -- but if this takes too long, we may not have too much of a choice.

NMA Decision

The Max grounding is delaying Boeing’s decision on whether to build a mid-range jet-liner called the new mid-market airplane, or NMA, which analysts have dubbed the 797. The manufacturer has diverted engineers and the NMAs program manager to the 737 program and reiterated that it wont make any decisions on the midrange plane until the Max is flying again.

SpiceJet is not the only potential NMA buyer that is pushing Boeing to make a decision. Delta Air Lines Inc Chief Executive Officer (CEO) Ed Bastian said, earlier that the carrier has a significant need for a jet like the NMA, which would be tailored for flights of about 5,000 nautical miles.

While Singh said he understands Boeing’s decision to focus on the Max, he said SpiceJet needs to know within 12 months whether the plane-maker is going to move ahead with the NMA.

Right now, the NMA seems to be mostly on paper, he said. We need for them to make a decision quickly, because clearly there is a market for that aircraft, and that space will be taken up by Airbus unless Boeing announces something soon.

SpiceJet, launched in 2005, has scripted a remarkable comeback since it was briefly forced to ground all flights five years ago after running out of cash. Singh, a co-founder of the airline, played the role of white knight by pumping in funds, cutting loss-making routes and renegotiating contracts with vendors.

The carrier will boost its capacity of flights and seats 60 per cent this year and could expand another 50 per cent next year, he said.

India had the worlds fastest-growing aviation market last year as a slew of budget carriers including SpiceJet offered cheap fares to entice an emerging middle class flying for the first time.

While provincial taxes in India make jet fuel one of the costliest in the world, airlines cant afford to ignore the market of 1.3 billion people, where air-travel penetration is significantly lower than in markets such as the US.

Published on September 25, 2019
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