Explained | Why has Air India ordered aircraft in bulk?

The story so far: On February 14, Air India, now a Tata Sons-owned airline, announced having signed letters of intent with aerospace majors, Airbus and Boeing, to order a mix of new single-aisle and widebody aircraft. The airline is to acquire 210 A320 and A321 NEOs (140 A320s and 70 A321s) and 40 Airbus A350s (34 A350-1000s and 6 A350-900s) from Airbus (250 aircraft) and 190 Boeing 737 MAX (737-8 and 737-10s), 20 Boeing 787-9s and 10 Boeing 777-9 jets from Boeing (220 planes) — 470 aircraft in all — at an estimated $112 billion, going by list prices, according to one aviation expert. Some business reports cite it as approximately $80b-$85 billion. The deal — with aircraft delivery from late 2023 to almost 2032 — is expected to transform India’s aviation landscape.

What are the other details about the order?

Based on a social media post by a Tata/Air India official (which was later removed), the airline can order an additional 370 more aircraft, making it 840 aircraft in total. Boeing has confirmed to The Hindu that its agreement includes options for 50 more 737 MAXs and 20 787-9s (which would mean an option for 300 planes from Airbus). When finalised, this will be Boeing’s largest order in South Asia. The Air India deal, overall, would be among the largest in commercial aviation history. A Wall Street Journal report valued an Emirates deal for 150 777Xs at the 2013 Dubai air show (since modified), at $76 billion.

Air India has an estimated 7,875 slots and code share agreements, with a significant share of its revenue from international operations. Non-stop flights from India to the U.S. are a high point, and with a repository of bilateral rights, flights can expand, especially to Europe, Asia, Africa and South America from the airline’s emerging hubs in Delhi, Mumbai and Bengaluru. 

What about the engine deals?

Air India has ordered 68 Trent XWB-97 engines, with 20 more options (A350-1000), and 12 Trent XWB-84 engines (A350-900), making it the world’s largest operator of the Trent XWB-97. The Trents can function on a 50% Sustainable Aviation Fuel (SAF) blend.

The airline has also ordered 40 GEnx-1B and 20 GE9Xs (for the 787s and 777Xs) and has a CFM order for over 800 LEAP engines (the largest such in the world) for the A320 and 737 fleet (400 jets). Once again, the GE and CFM engines can use all approved SAF blends.

Is the order an ‘overkill’? What’s the outlook for the region? 

An All India Association of Industries report labels India as the third largest domestic aviation market in the world, which is expected to grow into the third largest air passenger (international and domestic) market by 2024, based on International Air Transport Association (IATA) forecasts. An IATA paper, based on 2017 data, ‘The importance of air transport to India’, estimated the air transport market in India to “grow by 262% over the next 20 years, resulting in an additional 370.3 million passenger journeys by 2037”.

On the day of the Air India deal, on February 14, Boeing released its ‘2022 Commercial Market Outlook (CMO) for India’, where it spelt out a long-term passenger growth rate of nearly 7% annually through 2041. It said India’s domestic passenger traffic had recovered to 98% of pre-COVID-19 levels, even as international networks are expanding. Thus, India’s air growth had moved from recovery to growth. Further, growth for the domestic market was expected to double by the end of the decade in focus. As a result, Indian airlines will add 7% more supply in the first half of 2023, compared to 2019. Based on robust domestic traffic, 90% of new aircraft deliveries would be for single-aisle aircraft over the next 20 years. Of the estimated 2,210 new planes that India would need (excluding freight planes) over the next two decades, 1,983 would be single-aisle jets, with 227 units, or 10% of new jets, for widebody jets.

In a look at the domestic market, it pointed out that a modal shift from train to air travel could boost aircraft demand. While “daily train traffic is 2,30,00,000 passengers, daily aviation traffic is 3,60,000 passengers”. It said a little over a 1% shift would double the aviation market. Another point it made was that Indian carriers (as 6.8% in South Asia) are driving air traffic global growth rates (in terms of regions) through 2041 compared to 5.3% in South East Asia, 5.2% in Africa, 4.9% in China and 4.4% in Latin America. Citing Dave Schulte, Boeing’s Commercial Marketing Managing Director for Asia Pacific, the report says, Indian carriers will “outpace global growth at nearly 7%, and more than 80% of new airplane deliveries” in this market “will be for growth”, while “20% of new planes will be for replacement of aging jets”.

The forecast for the India cargo market is for 80 planes by 2041. 

What about other forecasts?

A statement by Christian Scherer, Airbus Chief Commercial Officer and Head of International, has highlighted India’s economy as “expanding the fastest among the G-20 nations” over the next decade and a “burgeoning middle class spending more on air travel”, leading to “fast growing traffic including on the long-range markets in the United States, Europe and Asia-Pacific….”

This would fit the performance range of the airline’s large aircraft fleet order: the 2 A350 types have a range of 15,372 km and 16,112 km, respectively, for the 787-9 it is 14,010 km, and the 777X, 13,500 km. 

Another report by the Centre for Aviation (CAPA), ‘India: The next growth engine of global aviation’, published on February 8, 2023, has said there is much promise with India’s traffic recovery among the strongest in the world, the Indian airline market [almost] 100% privately-operated and with development of airport infrastructure continuing. According to CAPA’s assessment, Indian carriers would be expected to place orders soon for around 1,500-1,700 aircraft over the next two years or so (24-plus) months. It added that with the Air India order of 70 widebodies, this would “mark the beginning of a much-needed focus on long haul operations”.

It also sounded a note of caution, that is, while ordering planes was easy, the challenge lay in addressing critical issues such as crew shortage, preparing the aviation ecosystem to absorb these orders and, more specifically, having a well-prepared institutional framework.