AIR INDIA'S MEGA ORDER

1. Context 

2. Key points

• This is the largest order placed by an airline in one go anywhere in the world, beating the 2011 order by American Airlines for a combined 460 aircraft.
• The biggest order by an Indian carrier before this was  IndiGo's 300 aircraft order in 2019.
• Going by the list price, the AI order value is estimated between $70 billion and $ 80 billion.
• However, manufacturers usually offer heavy discounts on such large orders, so the actual deal size is likely to be considerably smaller.

3. Details of the Air India order

• Seventy of the 470 aircraft are wide-body or twin-aisle planes for long-haul flights.
• Airbus has got the bigger order, but the Boeing order includes an option for a 70-plane top-up, taking the possible order size to 540 aircraft. It is not clear if there is a similar option with Airbus.

• In AI's wide-body aircraft order are 40 Airbus A350s (34 A350-1000s and six A350-900s), 20 Boeing Dreamliners (787-9) and 10 Boeing 777X (777-9).
• The Boeing widebody aircraft order includes the option for another 20 787-9s.
• AI's current fleet is estimated at 140 strong, with the majority being narrow-body planes.
• AI largely depends on Airbus planes for domestic operations, while its widebody fleet comprises Boeing aircraft.
• Air India Express operates only Boeing narrow-body planes.
• The erstwhile Indian Airlines and Air India had placed an order for a total of 111 single-aisle Airbus and twin-aisle Boeing planes more than 17 years ago.
  The two government-owned carriers of the time were later merged under the Air India brand.

4. Global Significance

• The significance of the order goes far beyond Air India and India's aviation sector.
• The order to Boeing will support over one million jobs across 44 states in the US and the order to Airbus is worth billions of pounds to the UK.
• The Airbus deal means big business for engine maker Rolls-Royce and will create jobs in the UK where parts of the aircraft are expected to be manufactured.
• Major Western economies are amid an economic slowdown and are looking to spur economic activity and support employment.
• After irking the West by ramping up its purchase of Russian crude, it is good optics for India to be seen as creating jobs in Europe and the US through the AI order.
• The message seems to be that India and Indian companies are open to business with the world, irrespective of the region and geopolitics.
• The fact that the announcement has come in the year of India's G-20 presidency adds strategic value to the order.

5. Air India and Indian aviation

• Ever since Air India returned to the Tata Group a little more than a year ago, its new owners have been focused on sprucing up the product offering, while also planning an extensive expansion for the airline.
• A five-year roadmap Vihaan. AI was prepared with the aim of substantially growing the network and fleet and putting it on a "path to sustained growth, profitability and market leadership."
• The twin orders are a key element in that strategy. Air India is also in the process of refurbishing its existing planes and trying to get a few grounded ones back in the air.
• In addition, it is leasing aircraft to expand its network and offering till the time the new planes join its fleet.
• The first aircraft to arrive will be 25 brand-new Boeing B737-800s and six Airbus A350-900s in the second half of 2023, with deliveries, really ramping up in 2025 and beyond.
• In the meantime, our capacity growth will continue to be supported by the previously announced leased-in of additional narrow-body and wide-body aircraft and the restoration to service of the remainder of our grounded fleet.
• In the domestic aviation segment, Air India currently has a market share of a little more than 9 per cent, a fraction of market leader IndioGO's 55 per cent.
• The Tata Group wants AI to quickly gain market share and the mega order is part of the action plan.

• While AI is the leader among Indian airlines in international traffic and the only one operating trans-Atlantic flights, it has not been able to effectively compete against major network carriers that offer flights to Europe and the Americas via their home countries.
• The new wide-body especially is expected to boost Air India's competitiveness in the long-haul flight segment and help it emerge as a formidable global network carrier.
• However, an expansion of airport infrastructure is critical to meet that objective only fleet expansion and refurbishment will not be enough.
• India will have to develop one or more of its airports as large hubs like Singapore or Dubai for Air India or indeed, any Indian carrier to become a truly global network carrier.

6. Splitting up the order

• In order of this size, airlines often split the order between the two major aircraft makers.
• This is done to expedite deliveries, particularly when the airline is targeting rapid capacity expansion, as Air India wants to do.
• Had the entire order been placed with either Airbus or Boeing delivery timelines would have been pushed back considerably.
• It also makes sense to have a mix of the two manufacturers as a hedge against supply chain disruptions and the possible grounding of an aircraft type due to safety or technical concerns.
• Another factor to consider is the existing fleets of the Air India group, particularly in the narrow-body segment that constitutes the bulk of the combined order.
• Air India's entire narrow-body fleet comprises Airbus aircraft, while Air India Express operates only Boeing single-aisle planes.
• Although there is no clarity yet on how the new planes will be deployed, there is a high likelihood that Air India, the full-service carrier, would continue to rely on the Airbus A320 family, while low-cost carrier Air India Express would continue with the Boeing 737 family.
• Such streamlining helps airlines keep costs and other technical overheads which can balloon in case of mixed aircraft configurations, in check.

7. Airbus vs Boeing in India

• Over the years, Airbus has emerged as the undisputed leader in India's domestic aviation space, with the lion's share of narrow-body planes coming from its stable specifically, the A320 family.
• With the exceptions of Spicejet and new entrants Akasa Air, all major airlines in India IndiGo, Air India, Vistara, Go First, and AIX Connect depend almost entirely on Airbus for narrow-body operations.
• Together these five carriers account for almost 90 per cent of India's domestic air travel market.
• Boeing started making inroads a few years ago with large orders for its 737 MAX aircraft from Jet Airways and SpiceJet.
• However, a combination of factors the bankruptcy of Jet Airways, financial troubles at SpiceJet and the grounding of 737 MAX planes globally for an extended period over safety issues delivered a blow to Boeing's ambitions in India.
• With the 737 MAXs now back in service globally and Boeing offer faster deliveries, the US-based manufacturer would be looking to give tough competition to Airbus in India.
• Among wide-body aircraft, of which there are not too many in India, Boeing is the leader both Air India and Vistara have all-Boeing wide-body fleets.
• Air India's order for 40 Airbus A 350s is being seen as a win for Airbus, which has been pitching its wide-body products to Indian carriers for some years now but had been unable to make inroads into the Boeing -dominated segment.
• The last Indian carrier to deploy Airbus wide-body planes was Jet Airways.

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