Aircraft Orders from India Set to Drive Global Jet Sales

India’s aviation market has been buzzing with activity ever since the impact of the Covid-19 pandemic waned. The entry of new players, new deals and recovering air traffic are harbingers of the dogfight waiting to take over the Indian skies. Now, it has been reported that Air India and Jet Airways—two major Indian carriers—are looking to place aircraft purchase orders worth more than $45 billion at list prices.

Air India is considering buying 300 narrow-body jets—which would be one of the largest orders in India’s commercial aviation history, say reports. “The order will provide a significant opportunity for Air India to revamp its fleet, and negotiate much better rates with the manufacturers,” says Rohit Tomar, Partner at aviation advisory Caladrius Aero. As the order is big, “it will be delivered over a long period. Maybe seven years from the time of order.”

Some in the industry say that the Air India order could to be a mix of both narrow-body and wide-body jets. On the other hand, Jet Airways, which is yet to decide on the type of aircraft, is in talks with Boeing and Embraer, other than Airbus. “We are in final negotiations with lessors and OEMs for aircraft, and we will announce our fleet plan once we have made a decision,” says a Jet Airways spokesperson. Jet is preparing for its re-launch later this year.

As per data compiled by BT, since 2011 the order book at major Indian scheduled carriers today stands at more than 1,100 aircraft, with deliveries currently underway. These fresh aircraft orders give credence to forecasts by leading aviation advisors that together with China and Southeast Asia, India would be driving passenger jet sales over the next several years.

The Business of Geopolitics

Such large orders facilitate volume discounts for carriers and help lock in slots at production lines; they also ensure the availability of the right aircraft for deployment. Aircraft orders are also a matter of national importance, as assembly lines at manufacturers like Airbus and Boeing support thousands of jobs. Therefore, the EU and the US are known to buttress sales pitches by these two firms with government-to-government lobbying.

Sustaining a production line for narrow-body or wide-body jets necessitates bulk purchases. For instance IndiGo’s $6-billion order for 100 Airbus narrow-body jets at the 2005 Paris Air Show not only helped provide a new lease of life to the European manufacturer’s A320 assembly line, but also marked the beginning of the end of Boeing’s leadership position in the Indian market. “Boeing may be looking at making an aggressive comeback,” says the CEO of an Indian carrier who declined to be named.

Aircraft makers are known to bitterly fight it out for orders. In December 2005, the then Manmohan Singh government gave separate approvals to Air India for the purchase of 68 Boeing aircraft; and to Indian Airlines to buy 43 aircraft from Airbus. The George W. Bush administration and European governments were said to have played a pivotal role in the split, say people familiar with the deals. The two state-owned carriers were merged in 2007. Air India, which was founded by the Tata group, returned to its fold in January this year.

Keep the Orders Coming

Air India is also reported to be scouting for a suitable aircraft to operate ultra-long-haul flights from India. On international routes, India has only about one-tenth of the wide-body fleet found in equivalent markets, which deprives home-grown carriers of a larger share of the profitable long-haul routes, currently dominated by foreign airlines, says Airbus’ India Market Forecast released in March.

“Expectation of a huge order for narrow-body jets also implies increased focus on the domestic market, apart from international markets, for which Air India is looking to buy wide-body jets. The key monitorable remains the delivery timelines, given both Boeing and Airbus have relatively healthy order backlogs,” says Karan Khanna, Analyst at Ambit Capital. “Also, existing domestic airlines including IndiGo, SpiceJet and Go First—apart from new entrants including Akasa and Jet 2.0—either have or are in talks to place a healthy order pipeline across these providers.”

However, in the high cash burn aviation industry, carriers need to watch out for absorption risks while planning fleet expansion. “Some airlines have placed voluminous orders only to find an asset and mission mismatch, or in some cases, [are] unable to line up financing at favourable terms. With this order, for India, the ratio of aircraft-on-order to aircraft-in-service will approximately be 1.7, and thus infrastructure will have to be planned accordingly,” says Satyendra Pandey, Managing Partner at aviation consultancy AT-TV.

In May, passenger traffic—both domestic and international—at airports touched 93 per cent of the pre-Covid-19 levels. According to an update of the International Air Transport Association, India is expected to overtake the UK by next year as the third-largest aviation market globally. The sky is the limit for the Indian aviation industry.

@manishpant22