MUMBAI – Gurgaon-based low-cost airline IndiGo has ordered 180 Airbus A320s from European aircraft manufacturer Airbus for a valuation of $15.6 billion (Rs 70,000 crore), indicating that the aviation industry is beginning to fly out of turbulence.
“With this order, IndiGo has given a kick-start to aviation coming out from a downcycle,” said Kiran Rao , Executive Vice-President, Marketing and Contracts, and President India, Airbus.
The deliveries are expected to begin from 2016 and continue till 2025. IndiGo currently has a fleet of 34 Airbus A320s. It flies to 24 destinations and has 221 daily flights.
The national carrier, Air India, had earlier placed an order for 111 Boeing and Airbus aircraft for $11 billion in 2005. The aviation market in India has been growing at 15% and is poised to expand by 20% in the near future, surpassing booming markets such as China and Brazil.
“This aircraft will allow IndiGo to continue to offer low fares,” said Rahul Bhatia, Group Managing Director, InterGlobe Enterprises, the promoter company of the airline. IndiGo, known to surprise the industry with big aircraft orders, had ordered 100 Airbus aircraft at the 2005 Paris Air Show.
The budget airline has become the launch customer for A320neo (a new generation version of the A320 available to airlines from 2016). Of the 180 aircraft, 150 will be A320neos.
Some aviation experts feel IndiGo’s order size is just a smart move by the airline to bargain for a better price from the manufacturer, make quick money on the sale and lease back. “Not all the 180 aircraft will be deployed by the airline. It will be more of a strategic step to managing costs and fleet optimisation,” said Mark Martin, an Indian aviation expert and Head of operations control centre at the Boeing 767 Middle East Operations.
According to Airbus, IndiGo will use 100 of the 180 aircraft for fleet replacement while the remaining 80 will be used to add capacity.
Airbus versus Boeing
The Indian market has seen fierce competition between two big aircraft manufacturers, Everett, Seattle-based Boeing and Airbus, based in Toulouse, France. Boeing’s market share has slumped in the Indian market with this deal and Airbus now controls 73% of the Indian pie. “As Airbus offers more fuel-efficient aircraft, in a country like India where fuel costs are high, airlines value the fuel cost savings,” Rao said.
“We expect another wave of orders for Airbus aircraft from Indian carriers this year and the next. We expect the number of Airbus A330s to double from the current 25. The number of A320s is also likely to double quickly from 150 now,” Rao added. Industry observers will be interested in the engine make chosen by IndiGo, as it is having trouble with the current engine V2500 manufactured by IAE, a joint venture between Pratt & Whitney and Rolls-Royce.
No other carrier has so far announced plans to expand the way IndiGo has done. In its turnaround business plan, which is in approval stage, national carrier Air India talks of doubling its fleet size from 115 aircraft to 248 by 2014. Kalanithi Maran-promoted SpiceJet announced a big order but that was for 30 Bombardier Q400 aircraft (of which 15 are firm orders) for regional services at about $900 million.
Jet Airways , despite its talk of deploying capacity, has not placed any fresh orders yet as it is to take delivery of the Boeing 787 Dreamliner, which is getting delayed. Air India too has to receive its 27 Dreamliners on order.
IndiGo flew 8,43,460 passengers till November 2010 and overtook national carrier Air India to emerge as India’s third-largest airline by market share. The airline has cornered 17.3% market share.
IndiGo posted a net profit of Rs 550 crore for financial year 2010 with a profit margin of 25% on revenues of Rs 2,664.5 crore. The unlisted airline is also in the process of selling shares in an initial public offer and has appointed JM Financial as the arranger.