India takes on China for dominance of Asian skies
The Paris Air Show, which opened on Monday after a four-year break due to the Covid-19 pandemic, began with a bang, thanks to a historic plane order for France’s Airbus Industries.
India’s low-cost carrier, IndiGo, which reported a profit of 26.54 billion rupees ($323 million) for the financial year ending March 31, 2023, announced the biggest plane deal in the history of civil aviation. The company placed an order for 500 narrowbody A320 jets, which is the largest ever by number of aircraft. The deal is worth an estimated $55 billion before any bulk-order discounts. With the agreement, IndiGo has overtaken Air India’s provisional purchase of 470 jets from Airbus and its rival Boeing, which was announced in February.
On Tuesday, Air India signed purchase agreements to acquire 470 aircraft from Airbus and Boeing, which is estimated to cost $70 billion in line with its planned fleet expansion program announced earlier this year. The purchase agreements were signed on the sidelines of the Paris Air Show, which started on Monday. "This landmark step further positions Air India for long-term growth and success that, we have every hope, will come together to represent the best of modern aviation to the world," said Natarajan Chandrasekaran, Chairman of Tata Sons and Air India.
Air India and IndiGo, India’s largest private carriers, have chalked up an elaborate plan for a sharp expansion in regional travel demand. Asia’s second-largest economy is seeking to overtake continental leader, China, in domestic travel in the coming years.
IndiGo’s record order followed months of negotiations. “This is just the beginning, there’s more going forward. With the growth of India (and) the growth of the Indian aviation market ... this is the right time for us to place this order,” IndiGo CEO, Pieter Elbers, said at a news conference in Paris on Monday. “It is difficult to overstate the significance of IndiGo’s new historic order for 500 Airbus A320 family aircraft,” he stated while adding that “this order strongly reaffirms IndiGo’s belief in the growth of India, in the A320 family and in our strategic partnership with Airbus.”
The aircraft are likely to be delivered to IndiGo between 2030 and 2035.
Shares of InterGlobe Aviation, IndiGo's parent company, rose around 3% on Tuesday to hit a fresh 52-week high of 2,500 rupees ($30.45) on BSE Sensex, the country’s 30-scrip benchmark index. However, concerns abound regarding the ambitions of Indian carriers that are trying to keep pace with the world’s fastest-growing aviation market. The carriers’ frenetic order books – the second-largest, with over a 6% share of the industry backlog and only behind the US – could boomerang, according to some analysts, who have expressed concern over the hectic expansion plans.
Analysts’ concerns stem from a persistent disruption in supply chain mechanisms owing to the aftershocks of the pandemic shutdowns. They also cite examples of several private Indian carriers such as Kingfisher Airlines, Jet Airways, Air Deccan, Air Sahara, East-West Airlines and Damania Airways, which went belly up in the three decades since the Indian government liberalized the civil aviation sector.
Airbus CEO Guillaume Faury weighed in on the expansion plan commenting that narrowbody jet production rates would be no more than 75 aircraft a month. IndiGo is also reportedly holding separate talks with Boeing for another 25 widebody planes. The Indian low-cost carrier is considering either Airbus A330 Neos or Boeing 787 jets, according to sources.
The civil aviation sector is betting big on exponential growth opportunities. Data shows that less than 5% of India’s 1.4 billion people have ever taken a flight, but air traffic is growing at a breakneck pace on the back of rising disposable incomes. Air India and IndiGo’s expansion plans are matched by Irish low-cost carrier, Ryanair, and Saudi start-up, Riyadh Air, both of which have also recently placed large aircraft orders.
On Tuesday, India’s Minister for Civil Aviation, Jyotiraditya Scindia, hailed the deal between IndiGo and Airbus boasting to Indian ANI news agency that “India has set another landmark with this largest-ever recorded order by a carrier with any aircraft manufacturer in the world.”
Scindia exuded further optimism for job creation from the sector that was hit hard by the pandemic. “Every dollar invested in civil aviation yields $3.1 in terms of new growth, as well as the employment multiplier. Every direct job in civil aviation results in 6.1 indirect jobs in the sector. And therefore, there are tremendous dividends that accrue from the ever-expanding civil aviation sector,” he explained.
