Unpacking Air India’s mega Airbus, Boeing order: The details and its significance

Global significance

The significance of the order goes far beyond Air India and India’s aviation sector. This was underscored by the lead taken by global leaders Prime Minister Narendra Modi, French President Emmanuel Macron, and US President Joe Biden in making the announcement. British Prime Minister Rishi Sunak also weighed in.

Biden said the order to Boeing will support “over one million jobs across 44 [US] states”, and the British government said the order to Airbus is worth “billions of pounds to the UK”. The Airbus deal means big business for engine maker Rolls-Royce, and will create jobs in the UK where parts of the aircraft are expected to be manufactured.

Major Western economies are in the midst of an economic slowdown, and are looking to spur economic activity and support employment. After irking the West by ramping up its purchase of Russian crude, it is good optics for India to be seen as creating jobs in Europe and the US through the AI order. The message seems to be that India and Indian companies are open to business with the world, irrespective of the region and geopolitics. The fact that the announcement has come in the year of India’s G20 presidency adds strategic value to the order.

The biggest aircraft orders

Air India and Indian aviation

Ever since Air India returned to the Tata Group a little more than a year ago, its new owners have been focused on sprucing up the product offering, while also planning an extensive expansion for the airline. A five-year roadmap — Vihaan.AI — was prepared with the aim of substantially growing the network and fleet and putting it on a “path to sustained growth, profitability, and market leadership”.

The twin orders are a key element in that strategy. Air India is also in the process of refurbishing its existing planes and trying to get a few grounded ones back in the air. In addition, it is leasing aircraft to expand its network and offering till the time the new planes join its fleet.

“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 a communication to staff following the announcement of the order.

In the domestic aviation segment, Air India currently has a market share of a little more than 9 per cent, a fraction of market leader IndiGo’s 55 per cent. The Tata Group wants AI to quickly gain market share and the mega order is part of the action plan.

The company is also working to consolidate and realign its airline business by merging AI with Vistara (a joint venture between the Tata Group and Singapore Airlines) to create a full-service carrier under the Air India brand, and is merging Air India Express and AIX Connect (formerly AirAsia India) to create a large low-cost carrier that could be a potential rival to IndiGo.

The order is also significant in terms of the international traffic from and to India, the fastest growing aviation market in the world. While AI is the leader among Indian airlines in international traffic and the only one operating trans-Atlantic flights, it has not been able to effectively compete against major network carriers that offer flights to Europe and the Americas via their home countries. The new wide-body fleet especially, is expected to boost Air India’s competitiveness in the long-haul flight segment and help it emerge as a formidable global network carrier.

However, an expansion of airport infrastructure is critical to meet that objective — only fleet expansion and refurbishment will not be enough. India will have to develop one or more of its airports as large hubs like Singapore or Dubai for Air India — or indeed, any Indian carrier — to become a truly global network carrier.

Splitting up the order

In orders of this size, airlines often split the order between the two major aircraft makers. This is done with a view to expedite deliveries, particularly when the airline is targeting rapid capacity expansion, as Air India wants to do. Had the entire order been placed with either Airbus or Boeing, delivery timelines would have been pushed back considerably.

It also makes sense to have a mix of the two manufacturers as a hedge against supply chain disruptions and the possible grounding of an aircraft type due to safety or technical concerns.

Another factor to consider is the existing fleets of the Air India group, particularly in the narrow-body segment that constitutes the bulk of the combined order. Air India’s entire narrow-body fleet comprises Airbus aircraft, while Air India Express operates only Boeing single-aisle planes.

Although there is no clarity yet on how the new planes will be deployed, there is a high likelihood that Air India, the full-service carrier, would continue to rely on the Airbus A320 family, while low-cost carrier Air India Express would continue with the Boeing 737 family. Such streamlining helps airlines keep costs and other technical overheads, which can balloon in case of mixed aircraft configurations, in check.

I thank my friend @EmmanuelMacron for joining me at the launch of an important partnership between @airindiain and @Airbus that will further strengthen the Indian aviation sector and create opportunities in both nations. This reflects the robust Indo-French Strategic Partnership.

— Narendra Modi (@narendramodi) February 14, 2023

Airbus vs Boeing in India

Over the years, Airbus has emerged as the undisputed leader in India’s domestic aviation space, with the lion’s share of narrow-body planes coming from its stable — specifically, the A320 family. With the exceptions of SpiceJet and new entrant Akasa Air, all major airlines in India — IndiGo, Air India, Vistara, Go First, AIX Connect — depend almost entirely on Airbus for narrow-body operations. Together, these five carriers account for almost 90 per cent of India’s domestic air travel market.

Boeing had started making inroads a few years ago with large orders for its 737 MAX aircraft from Jet Airways and SpiceJet. However, a combination of factors — the bankruptcy of Jet Airways, financial troubles at SpiceJet, and the grounding of 737 MAX planes globally for an extended period over safety issues — delivered a blow to Boeing’s ambitions in India.

Glad to speak with @POTUS @JoeBiden. Excellent discussion to review the ongoing and new initiatives to further deepen India-US Comprehensive and Global Partnership. We welcome the landmark @airindiain–@Boeing agreement which will help create new opportunities in both countries.

— Narendra Modi (@narendramodi) February 14, 2023

With the 737 MAXs now back in service globally and Boeing offering faster deliveries, the US-based manufacturer would be looking to give tough competition to Airbus in India.

Among wide-body aircraft, of which there aren’t too many in India, Boeing is the leader — both Air India and Vistara have all-Boeing wide-body fleets. In fact, the Air India order for 40 Airbus A350s is being seen as a win for Airbus, which has been pitching its wide-body products to Indian carriers for some years now, but had been unable to make inroads into the Boeing-dominated segment. The last Indian carrier to deploy Airbus wide-body planes was Jet Airways.