Air India to Sign a Big Sign and Order Nearly 500 Aircraft
The orders include as many as 400 narrow-body jets and 100 or more wide-bodies including Airbus A350s and Boeing 787s and 777s.
Air India is close to placing a historic order for as many as 500 jetliners worth tens of billions of dollars from Airbus and Boeing, said a report by Reuters citing sources. This comes months after the Tata Group conglomerate officially took over the airline from the Indian government following an Rs 18,000 crore ($180 billion) deal.
Tata Group recently also announced the merger of Air India with Vistara, its joint venture with Singapore Airlines, thereby creating a significant presence in the domestic and international markets.
Why is this deal so important?
The report citing anonymous industry sources claims that the order includes at least 400 narrow-body jets and 100 or more wide-bodies jets like several Airbus A350s and Boeing 787s and 777s. If the deal is inked, it would be among some of the biggest purchases by a single airline in terms of volume, surpassing the combined order of over 460 Airbus and Boeing jets from American Airlines placed over a decade ago.
However, despite significant expected discounts, it could still cost the company over $100 billion dollars, at list prices. This comes as the plane giants have faced an increase in demand following the ease of COVID-19 pandemic restrictions amid mounting industrial and environmental pressures.
These would also allow Airbus to utilise production slots for their A350s which had been initiated for Russia’s Aeroflot and have been vacant since the Russian invasion of Ukraine and subsequent western sanctions on Moscow.
The merger of Air India with Vistara as well as the Singapore Airlines joint venture gives the conglomerate access to over 200 additional aircraft, making it India’s largest international carrier and the second largest in the domestic market.
If the deal is inked, the purchase could take at least a decade to be delivered, in addition to the Vistara deal. The potential procurement seems to be an indication of the Tata group’s expansion to take over a significant share of traffic flows to and from India which is currently dominated by foreign airlines like Emirates. In the domestic market, Indigo is one of the other biggest players.
In the larger context, if the purchase of the additional 500 jets is finalised, it would significantly contribute to the Indian economy with the country being one of the largest airline markets in the world as more Indians look for affordable and convenient travel options. Furthermore, it would significantly contribute to Indian Prime Minister Narendra Modi’s aim of expanding the economy to $5 trillion.
Tata’s investment into the debt-laden flag carrier so far
Earlier this year, Tata bought the debt-laden flag carrier from the Indian government after nearly seven decades since it was founded by the conglomerate’s JRD Tata in 1932 and later nationalised. The group, at the time of the takeover, had paid Rs 2,700 crore ($27 billion) in cash and had also taken over Rs 15,300 crore ($153 billion) of the airline’s debt.
With the Air India takeover, Tata gained access to valuable flying rights and landing slots, particularly in the United States and Europe. The group had also announced that it would spend more than $400 million to refurbish the interiors of its entire wide-body fleet in a bid to attract more flyers. This also included the introduction of a premium economy cabin, it said, adding that the first aircraft with the improvements will be rolled out in mid-2024.
Has the Tata-owned airline made any purchases yet?
So far, there have been multiple reports of a landmark purchase on the horizon by Tata-owned Air India, but the company as well as the aeroplane giants have refused to comment on the same.
Aside from the airline’s CEO, Campbell Wilson, in November, there have been no official indications of deals. Wilson had said, “we are in deep discussion with Boeing, Airbus and engine manufacturers for a historical order of the latest generation aircraft that will power Air India’s medium- and long-term growth.”
He added, “At the risk of gross understatement, the investment will be substantial.”
On Sunday, another report by the Economic Times, citing anonymous sources, said that the Air India is close to signing a deal with Boeing Co. to buy up to 150, 737 Max planes.
It added that the company is likely to place an order for at least 50 jets while they may later procure as many as 150.
What are some of the hurdles to this potential purchase?
Once known for its lavishly decorated planes and stellar service in the 1950s, very few opt for the airline now either on domestic or international routes. It is largely perceived as another government department synonymous with being an unreliable and shabbily managed airline with mounting debt.
Nationalised in 1953, its reputation declined in the mid-2000s amid financial woes.
The airline had a net debt of Rs 60,000 crore ($600 billion) at the time of purchase and former chief of Tata Sons, Ratan Tata had said, “While admittedly it will take considerable effort to rebuild Air India, it will hopefully provide a very strong market opportunity to the Tata Group’s presence in the aviation industry.”
The Reuters report, citing experts, said there are several hurdles in Tata group’s ambitious revival of Air India including “frail domestic infrastructure, pilot shortages and the threat of tough competition with established Gulf and other carriers.”
Additionally, the airline might also struggle to procure the medium-haul Airbus A321neos that were reportedly being ordered for the Air India-Vistara tie-up, as the European planemaker sold out for at least the next five years or more.