Manu Balachandran is a writer for Forbes India, based in Bengaluru. At Forbes India, Manu writes on automobiles, aviation, pharmaceuticals, banking, infrastructure, economy and long profiles among many others. He also moderates many of Forbes India's CEO and CXO events and hosts Capital Ideas, a podcast on the most riveting success stories from the business world. He has previously worked with Quartz, The Economic Times and Business Standard in Mumbai and New Delhi. Manu has a master's degree in journalism from Cardiff University and a degree in economics from the Loyola College. When not chasing stories, he is most likely obsessing over Formula 1 (Read: Lewis Hamilton), historical events and people, or planning long weekend drives from Bengaluru
These new aircraft will modernise the airline's fleet and onboard product, and dramatically expand its global network
Image: Courtesy Airbus
Air India has signed what can now safely be referred to as the mother of all aviation deals, at least in India.
On February 14, the country’s oldest airline, now firmly under the ownership of the Tata group, announced that it is purchasing 470 aircraft from airline manufacturers Airbus and Boeing. The combined value of the deals is estimated at some $80 billion. The deals were announced during interactions between the Tata leadership along with Prime Minister Narendra Modi and French President Emmanuel Macron and US President Joe Biden separately.
The US expects that the sale will support over one million American jobs across 44 states while France reckons that the contract is a milestone in the friendly relations between the countries.
The order comprises 40 Airbus A350s, 20 Boeing 787s, and 10 Boeing 777-9s widebody aircraft, as well as 210 Airbus A320/321 Neos and 190 Boeing 737 MAX single-aisle aircraft. The A350 aircraft will be powered by Rolls-Royce engines and the B777/787s by engines from GE Aerospace. All single-aisle aircraft will be powered by engines from FM International.
The first of the new aircraft will enter service in late-2023, with the bulk to arrive from mid-2025 onwards. In the meantime, Air India has started taking delivery of 11 leased B777 and 25 A320 aircraft as part of what the airline’s CEO Campbell Wilson calls his plan to restore Air India to its former glory.
"Air India is on a large transformation journey across safety, customer service, technology, engineering, network and human resources,” N Chandrasekaran, chairman of Air India and Tata Sons, said in a statement. “Modern, efficient fleet is a fundamental component of this transformation. This order is an important step in realising Air India's ambition, articulated in its Vihaan.Al transformation programme, to offer a world-class proposition serving global travellers with an Indian heart.
The Boeing orders, based on the planes’ list prices, are pegged around $45.9 billion, including options for 70 more aircraft, while Airbus’s valuations are unknown. It is, however, likely that the airline has negotiated discounts from both manufacturers. Air India’s deal of 470 aircraft with options for another 70 means that its tally has surpassed a 2019 order by IndiGo for 300 planes, and that by American Airlines for 460 planes in 2011.
“The order puts Air India on an extremely strong footing, as it prepares to take on the Gulf and European carriers head-on in the international market,” says Vinamra Longani, head of operations at Sarin & Co, a law firm specialising in aircraft leasing and finances. “Air India is showing signs of improvement in its service standards and operation, and with the new A350s coming in later this year with brand new cabin products, competition will soon intensify on multiple international routes.”
Of the total order, 400 aircraft are single-aisle aircraft which means that the aircraft would likely be used for domestic or short-haul international operations. Some will also be used for operations at the new low-cost arm comprising Air India Express and AirAsia India. The others are dual-aisle planes that will be used for long-haul operations.
“The order clearly indicates a fleet renewal which will help with costs, capabilities and customer experience,” says Satyendra Pandey, managing partner of aviation services firm AT-TV. “It is expected that while the narrowbodies will service the domestic sector, the Airbus-wide bodies are to largely serve the ultra-long-haul segments. This is interesting as currently the entire long-haul and ultra-long haul fleet comprise Boeing aircraft.”
Since the takeover by the Tata group, the airline has gone on an offensive under a new management team led by Wilson, a former CEO of Scoot, the low-cost arm of Singapore Airlines. The group has also announced that by 2024, it will merge full-service carrier Vistara to form a combined entity that will operate the country’s largest full-service carrier with a market share of some 20 percent.
“These new aircraft will modernise the airline's fleet and onboard product, and dramatically expand its global network,” added Chandrasekharan. “The growth enabled by this order will also provide unparalleled career opportunities for Indian aviation professionals and catalyse accelerated development of the Indian aviation ecosystem."
The Tata group is currently looking to build a market share of 30 percent in the domestic aviation space through its three entities, including Air India, Vistara and Air Asia India. “Leaving aside the different airlines and different brands that sit under the Tata portfolio, what I see from an Air India perspective is the need for a full service and low-cost proposition,” Wilson had told Forbes India in October 2022. “So, our ambition is to build a world-class full-service carrier and a world-class low-cost carrier under the Air India Group and operate them synergistically.”
“In the domestic market, Air India’s two-pronged strategy of having a full-service carrier and a low-cost airline will ensure it can operate the product most suited to a particular city,” adds Longani. “As markets operated by the low-cost arm mature, they can then be transferred to the full-service arm.”
India’s domestic market is currently dominated by IndiGo, which has been expanding at breakneck speed. The airline currently boasts a fleet of over 300 aircraft, the highest in the country. It operates the Airbus A320 CEO and NEO, the A321 NEO, and the ATR 72-600 aircraft. IndiGo has a domestic market share of 56.2 percent, ferrying over 65 lakh passengers a month and operates over 1,600 daily flights, and connects 76 domestic destinations and 26 international ones.
In all, the Tata group currently owns four airlines in India with 100 percent stake in Air India, AirAsia India and Air India Express in addition to a 51 percent stake in Vistara. India’s domestic aviation market is currently led by low-cost carriers that control as much as 80 percent of the market. The Tata group’s total fleet size stands at 219, including Air India’s 113 aircraft, AirAsia India’s 28 aircraft, Vistara’s 54, and Air India Express’ 24 jets.
“We’ve been clear that it’s a five-year programme,” Wilson had told Forbes India. “The first six months are about addressing the accumulated grievances and issues that have historically been holding the airline back, addressing them at war scale, and then moving on to an 18-month programme of investing in systems, people, aircraft, training, internal products to make a clear statement of intent. Then the subsequent couple of years is the climb phase, which is where we do all those million and one little things that are necessary to go from very good to world-class.”
Air India returned to the Tata group after 70 years when the government chose the Mumbai-headquartered salt-to-steel conglomerate as part of its disinvestment plan.
JRD Tata, former chairman of the Tata group, had founded Air India in 1932 and the government took over the airline in 1953 as part of a nationalisation plan. The government purchased a majority stake in the carrier from Tata Sons though its founder JRD Tata continued as chairman till 1977. The company was renamed Air India International Limited, and the domestic services were transferred to Indian Airlines as part of a restructuring.
Over the years, the airline has come to symbolise everything wrong with governmental interference in the running of day-to-day operations of a company. Much of that is largely due to an ill-timed move by the Indian government in 2007 when it merged Air India—then flying internationally—with domestic carrier Indian Airlines, creating a bigger entity, the National Aviation Company of India Ltd. Both Air India and Indian Airlines were making losses at that time, bleeding Rs541 crore and Rs240 crore, respectively, in 2007.
The merged company had more than 30,000 employees—256 per plane—in 2007, twice the global norm. That meant the company was spending almost one-fifth of its revenue on employee pay and benefits, while other airlines traditionally spent only about one-tenth. Besides, the 2008 global economic collapse threw operational expenses out of gear as oil prices skyrocketed. As more private airlines took to flying on routes that once belonged to Air India, business plummeted. That meant, over time, the airline racked up debt, which stood at Rs60,000 crore by August 2021, and was steadily losing money on operations.
Since coming to power in 2014, the Modi government had made multiple attempts to sell the airline to private companies, before managing to complete the process in October last year. As part of its bid, the Tata group’s wholly owned subsidiary Talace Pvt Ltd put an enterprise value (EV) bid at Rs18,000 crore with debt to be retained at Rs15,300 crore and a cash component of Rs2,700 crore. Tata’s bid was higher than the Ajay Singh-led consortia’s EV bid at Rs15,100 crore. The Tatas took 100 percent control of Air India, the low-cost carrier AI Express, and Air India’s 50 percent stake in ground handling firm AI-SATS.
Since then, the airline has been trying to improve its poor reputation with improved on-time performances and improved in-flight experiences. The airline has also been offering voluntary retirement scheme for its employees as part of its plan to streamline operations and bring young talent into the organisation. With India emerging as the world’s third-largest aviation market, the Tata group is clear about its intention to tap into the massive opportunity as millions of Indians look to take to skies in the years to come.
The latest order is also the first in nearly two decades for Air India after an order for 111 aircraft—68 from Boeing and 43 from Airbus—in 2005 worth $10.8 billion. “The order aims to both modernise and expand the airline’s fleet with the objective of creating a larger and premium full-service carrier that will cater to the growing travel demand in the region,” Airbus said in a statement.
However, even as orders are placed, effective utilisation remains key if Air India needs to find itself back to its glory. “In airline planning, there is an adage ‘order the aircraft, spec the aircraft & deploy the aircraft’,” adds Pandey. “It is the deployment that translates into cash flow and eventual profits, so with the order in place now the focus has to be on specifications which include engine selection, maintenance contracts, cabin configurations, layouts, and range specifications, and then deployment of the assets where the right aircraft is deployed for the right routes.”