What IndiGo's mega aircraft deal means for India's aviation industry

It was literally India’s moment at the Le Bourget airport, the site of the famed Paris Air Show. Of more than 1,000 aircraft ordered at the event, 970 were bought by Indian carriers IndiGo and Air India. Coming within five months of the national flag carrier Air India announcing its order for 470 aircraft (the purchase agreement for which was signed at the same air show), IndiGo also finalised an order for 500 aircraft from the Airbus 320neo family. As a result, the Gurugram-based low-cost carrier (LCC) not only surpassed the Air India order, but also established a new record for the single largest purchase agreement in commercial aviation. Reacting to the announcement, British Prime Minister Rishi Sunak said, “This contract is a major win for our aerospace sector. Airbus’s deal with IndiGo will be worth billions to the UK and support thousands of jobs across the country—helping to grow the economy.”

The new deal takes the total number of Airbus aircraft on order by IndiGo to 1,330 in the past 12 years. According to experts, the delivery of the new 500 aircraft, however, will start only after 2026. In an oblique reference to the carrier’s future growth strategy, CEO Pieter Elbers said, “The additional 500 [aircraft]… will help IndiGo move forward, to make sure that we live up to our promise and continue to build our unparalleled network, both domestic (India) and international.”

Not to be left behind, the country’s newest scheduled carrier, Akasa Air, also ordered four additional Boeing 737-8 MAX jets to support its international foray.

Global Ambitions

The record orders by IndiGo and Air India also spurred a discussion in the national and international press about who had struck a better deal. However, with both orders having been placed independently, the linkages or motivations behind them are speculative at best, say industry experts. “The IndiGo order in its current form is comparable to the 400 narrowbody aircraft ordered by Air India, against a total order of 470,” says Satyendra Pandey, Managing Partner at aviation services firm AT-TV.

While IndiGo has ordered 500 A320/321/321 XLR, Air India’s mix consists of 140 A320s and 70 A321s plus 190 Boeing 737 MAX 8/10. The Boeing order includes the option for an additional 50 737 MAXs. “The IndiGo order aligns with its fleet type and thus enables the airline to leverage economies of scale and deliver on competitive costs. Air India’s order, on the other hand, is catering to a mix by virtue of their business model that has both full- and low-cost airlines and, thus, has a mix of narrow and widebodies,” says Pandey.

For its part, IndiGo will be leveraging the deal to develop new routes from Tier II and III cities within the country as well as expand internationally. With its fleet of over 300 aircraft, the carrier currently operates more than 1,800 daily flights connecting 78 domestic destinations. It is also looking to enhance international flights to 32 destinations, including countries of the Commonwealth of Independent States (CIS), Africa and south and southeast Asia. “International routes are opportunities that have to be cultivated. Initially, you would want to have 90 per cent of your routes profitable so that you don’t burn cash. But once you are in a fair cash situation, you need to experiment with new routes and develop them within three years. IndiGo has finally reached that stage,” observes an aviation expert, requesting anonymity. “We can expect Indian carriers’ market share in the international market to go [up] from the current 40 per cent to about 50 per cent by 2030. We could also see the emergence of either Delhi or Mumbai as a regional hub in the same time period,” says Jagannarayan Padmanabhan, Senior Director at CRISIL Market Intelligence.

Orders a Mega Multiplier

Calling the mega orders placed by IndiGo and Air India a testament to India’s unprecedented growth potential, Jyotiraditya Scindia, Union Minister of Civil Aviation, feels these would help fast-track the growth of the country’s aviation ecosystem. “Coming very close on the heels of the Air India order, this largest recorded order by a carrier [IndiGo] with a global aircraft manufacturer sets another landmark. What is also important to understand are its direct and indirect economic multiplier effects,” Scindia said in a media briefing. Endorsing the minister’s view, experts see the strong pipeline for new aircraft as providing a fillip to the entire value chain of Indian aviation. “In particular, this will be a significant confidence booster for both government and private sector airport developers who are planning to infuse close to Rs 75,000 crore over the next 8-10 years,” says Padmanabhan.

AT-TV’s Pandey believes these orders will help jump-start India’s much-delayed entry into the high revenue maintenance, repair and overhaul (MRO) and aircraft leasing segments in a significant manner, provided there is follow-up action in the areas of policy and taxation. “For leasing, while initiatives have been taken, large gaps remain. Already a lot of discussion is seen around the Cape Town Convention and Protocol but it is also pertinent to note that it took an airline bankruptcy (Go First) and consequent challenges faced by lessors to bring this to the forefront. Similarly, taxation on MRO has been rationalised but challenges remain.” With the country well on its path to becoming the world’s third-largest aviation market by 2030, the direct and follow-on multiplier effects of a growing aviation economy may anywhere be from two to five times in the years to come. 

@manishpant22