EXPLAINED: What does Air India's historic aircraft deal mean for India?

Air India Ltd. placed the largest aircraft order in aviation history, opting to purchase 540 aircraft from Boeing and Airbus on Monday (February 13), allowing the Tata Group airline to expand its operations both domestically and internationally, reported the Mint. Air India is estimated to spend a whopping $82 billion on the acquisition of shortand long-haul aircraft, while the real cost would be less as bulk purchases are eligible for discounts and incentives.

Out of the total 540 aircraft, 470 are firm orders, while the remaining 70 are options with Boeing that Air India may subsequently exercise. 250 Airbus and 220 Boeing aircraft make up the 470 aircraft, with the first lot arriving later this year. The previous single-largest jet purchase, according to Bloomberg, was made by American Airlines in 2011 for 460 planes.

“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 lease-in of additional narrow-body and wide-body aircraft and the restoration-to-service of the remainder of our grounded fleet," Air India CEO Campbell Wilson said in an email to employees, reported Mint.

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Around 450 single-aisle aircraft from the Airbus 320 family and Boeing 737 MAX are included in the total order; these aircraft will be used for local and short-haul international operations. The remaining 90 aircraft, all dual-aisle planes, will travel to Europe and the Americas.

Why is the Air India order for 470 new aircraft such a hugedeal?

The historic Air India purchase of 470 jets, valued between $80-100 billion, has caused the world to sit up and take notice because of its scale and the ramifications it has for Air India, the aviation industry, and some of the biggest global economies.

This is the biggest bulk order for aircraft; American Airlines' purchase of 460 aircraft in 2011 is nowthe second-highest. The deal, which took more than a year to work out, marks India's debut as one of the major aircraft-buying countries.

Indian PM Narendra Modi addressing a virtual meetingon agreement between Air India and Airbus. Photo credits: Twitter

Air India has ordered 40 wide-bodied A350 planes and 210 narrow-bodied A320 neo-family planes from Airbus, reported Hindu BusinessLine.The Boeing order entails10 wide-bodied B777X planes, 20 wide-body B787 planes, and 190 narrow-body B737MAX planes.Indigo is reportedly considering similar plans to buy 500 aircraft, said the Hindu BusinessLine.

How is this order beneficial for Air India?

After the Tatas' takeover in early 2022, the former national airline of India, which had been making significant losses, has been working to improve its performance. By merging with Vistara recently, it became the nation's largest airline operating on foreign routes and the second-largest domestic airline afterIndigo. Prior to the most recent order, the Tata group operated 218 aircraft, flying to 52 domestic and 38 overseas destinations.

With this deal, Air India's fleet size will more than double, and it will surpass Indigo's fleet of 300 aircraft to become the largest airline operating domestic routes as well. The kind of aircraft thatAir India has ordered indicates that it aims to significantly expand its footprint on international routes as well as fly to both major and minor locations within the domestic market.

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How Air India finances this transaction will be interesting to observe. When the Tata family assumed control of the airline, they had paid off around 15 per centof the struggling airline's 61,562 crore debt. The Tatas, however, claim to have already refinanced the debt they inherited, as per a Hindu BusinessLinereport.

What does the deal really mean for India's aviation sector?

The Maharajah will re-ascend the throne to rule supremely over India's skies, and the aviation industry in India will undergo a shakeout. The agreement aims to turn India into a major international air travel hub by significantly increasing the number of internationalair carriers operating from India. This will require a revampof Indian airports too.

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The chairman of the Tata group suggests that some aircraft parts may be manufactured in India which will stimulate local manufacturing and provide new job opportunities.

Is this deal in tandem with the present passenger traffic?

Aviation traffic has undoubtedly increased during the previous 12 months. Between April and December 2022, domestic aviation traffic increased by 63 per centyear over year, according to ICRA, with 986 lakh passengers. Since the pandemiclows, the passenger load factor has also increased and now stands at 91 per cent.

India Brand Equity Foundation (IBEF) predicts that India will move up one spot in the next 10 years, moving from seventh to third in terms of civil aviation. By 2024, India is expected to surpass the UK to acquire the third-largest position in the domestic aviation industry. The population and rising buying power of India would undoubtedly lead to an increase in domestic aviation travel.

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