By- Ramesh Vaidyanathan & Mansi Singh
Air India, India’s oldest airline and now a part of the venerable Tata Group, made aviation history recently with the biggest aircraft order ever – of 470 aircraft, i.e., 250 from Airbus and 220 from Boeing. The previous single largest jet order was a 460-aircraft deal by American Airlines in 2011. The deal worth over $100 billion has much significance for the aviation sector in India and elsewhere.
Reboot of Air India
Air India had not ordered a new aircraft since 2006, even as every other airline in the country added fleet. After this deal, the fleet size of Air India will increase many-fold and is expected to surpass Indigo’s fleet of 300 plus aircraft. The type of aircraft purchased indicates that Air India plans to expand its presence in international routes as also cater to large and smaller cities in India. Also, the induction of modern and fuel-efficient aircraft to the fleet will help the airline reduce operating costs and regain market share.
What does this mean for the Indian aviation market?
India is the world’s third largest, and the fastest growing aviation market. Airbus and Boeing forecast that India will need over 2000 new aircraft in the next two decades. This massive Air India order is a clear indication that India is tipped to become a travel hub for international passengers and Air India is hoping to capture a major share of the traffic. The deal will also provide unparalleled career opportunities to Indian aviation professionals.
Strengthening Star Alliance
The mega deal will help Air India take on Middle Eastern carriers that have become the preferred choice for flyers on international long-haul routes. None of the major Middle Eastern airlines such as Etihad, Emirates or Qatar Airways belong to the Star Alliance, the group of 26 airlines that includes Air India. Adding fleet will enable Air India (and in turn Star Alliance) to offer global connectivity directly from India and sideline the Middle Eastern hubs.
Significance for Western economies
In the words of US President, Joe Biden, the Air India order to Boeing would lead to one million American jobs in over 44 states. UK Prime Minister, Rishi Sunak, also hailed Air India’s historic order saying it would create jobs and boost exports from Britain. The Airbus aircrafts are powered by Rolls Royce and a significant portion of the manufacturing process for the new aircraft is expected to take place in the UK. Echoing similar sentiments, French President Emmanuel Macron also hailed the Air India-Airbus deal.
Opportunity for lessors
While there are no official statements from Air India, lessors are already queuing up to do business with Air India as per a Reuters report. It is possible that the majority of the Air India fleet will be financed through a sale and lease back model. In a sale and lease back model, an airline acquires the aircraft at an attractive price, sells the aircraft to the lessor at a profit, and leases it back for its own use.
It is safe to conclude that the future of Indian aviation looks brighter than ever and this mega aircraft deal will help strengthen ties between nations, benefit the Star Alliance network, create jobs and boost economies. It will also help meet the surging demand of the Indian middle class for increased air travel. While the ‘Maharaja’ can take pride in this historic achievement, government of India will have to ensure that airports and other aviation infrastructure are well equipped to handle the increased aviation demand.