Chandrasekaran: we are committed to building a world-class airline
What’s on order?
The last time Air India had bought new aircraft was over 16 years ago. In 2005, Air India, under government ownership, had ordered 111 planes – 68 from Boeing and 43 from Airbus. A cautionary footnote – the deal, even then seen as pathbreaking, had also come under a cloud due to alleged corruption and failed to meet the challenges from the emerging private players, though of course the current situation is different in that Air India is now privately owned.
The current order consists of 210 A320neo family aircraft, 40 A350s, 190 737 MAX, 20 787-9 and 10 777-9 aircraft with deliveries expected from late 2023. “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,” Air India CEO Campbell Wilson, who joined the airline in June 2022, said in an email to employees. “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 also has the option to buy an additional 370 planes from aircraft manufacturers Boeing and Airbus.
The total value of the deal – including both Airbus and Boeing is estimated to be worth $80 billion or about ₹6.5 lakh crore. Of course, aviation insiders say there would have been significant discounts over the list price. Air India will buy 220 Boeing planes for $34 billion, while it has the option of buying 70 more aircraft — taking the total deal value of the deal to $45.9 billion. The order is Boeing’s third biggest sale of all time in dollar value and second of all time in quantity.
Engine-makers, widely perceived as crucial players in the aircraft purchase process, also had a field day. While the A350 aircraft will be powered by British Rolls-Royce engines, and the B777/787s by engines from American GE Aerospace, the entire fleet of 400 narrowbody aircraft will be powered by engines from French-American CFM International.
Chandrasekaran stressed that the group is committed to making Air India a world-class airline. “The wide-body A350 aircraft will be used to fly all ultra-long distances across the world,” he said. “The order with Airbus also includes 210 narrow-body A320neo family jets. The conglomerate also has a significant option to increase the fleet order once the airline grows.”
As a step towards the future, Tatas are modernising the fleet. There are currently about 125-odd operational planes, and many of the older aircraft have been retired. Air India has also launched a five-year plan to modernise its ageing fleet. In addition to the orders, it has also secured a number of options and purchase rights. “These give us the option, but not the obligation, to take additional aircraft at already-negotiated production slots and/or prices so that we can nimbly accommodate further growth and manage risk,” according to Wilson.
He explained that the deal was split between Airbus and Boeing for various reasons. Saying different aircraft would be optimised for different missions, he also points to strategic alignment and risk mitigation as a reason – especially on going with different engine manufacturers – “…in case there is a problem with one, causing us not to be able to deploy aircraft”.
Wilson: India is poised to become a centre for international aviation
The significance of deal on the Indian aviation market can hardly be underestimated. “The time is right for India to become an international hub,” Airbus CEO Guillaume Faury said at the virtual event to announce the order. India’s aviation market is expected to grow significantly with domestic carriers likely to place orders for 1,500-1,700 aircraft over the next 2 years, according to estimates from the Centre for Asia Pacific Aviation India (CAPA India). Over 1,100 aircraft orders are already on the books.
Besides the Air India order, Indigo still has about 500 planes on order (it ordered 300 planes from Airbus in 2019, till then the biggest Indian aircraft order), while Go First has 72 planes on order. Vistara, now part of the Air India family and to be merged into Air India, is expecting 17 more Boeing planes, while India’s newest airline in the skies, Akasa Air has placed an order for 56 aircraft.
New Zealand born Wilson said India is poised to become a centre for international aviation. “So, there is no reason that Air India, and Indian aviation generally can’t have a very significant international footprint in every continent.” He also points out that Air India can be a hub global interconnector, provided “the whole ecosystem is working in sync – airport, airline, policy”.
Opportunity for Tatas to be global aviation player
Air India certainly has the potential to be a leading global airline. It is unlikely to be a fast process though, and the Tatas need the right leadership and consistency in seeing this through, especially since they have little of the debt baggage the airline was saddled with earlier. As Manish Tewari of the Congress pointed out in The New Indian Express: “The government squared up Rs61,131 crore of Air India’s debt and other liabilities upfront before transferring it to Tata Sons for a measly cash payment of Rs2,700 crore. Tata Sons took Rs15,300 crore of Air India’s remaining debt, which it promptly refinanced by bringing in new lenders. For all intents and purposes the government virtually gifted Air India to the Tatas.”
That said, Tatas seem to have a plan in place. They had already announced a three-phase plan spread over five years “to fix the basics, build platforms for the future and then grow,” Wilson said.
It is apparent from the mega order that Air India has plans to grow at least at the pace our market is growing, if not faster, Jitender Bhargava, former executive director, Air India, and author of The Descent of Air India. said recently in reaction to the news of the purchase, describing it as a “paradigm shift in market dynamics”.
Bhargava points out that with its limited long-haul aircraft fleet, Air India currently operates 47 weekly non-stop flights to five destinations in the USA, the largest global aviation market, almost entirely from Mumbai and Delhi. The absence of direct flights from other major cities is helping foreign airlines to exploit our market, he wrote in a column recently. “Once more long-haul A350s and B777s and B787s are available, Air India can harness the traffic originating or bound for other major Indian cities viz Bengaluru, Hyderabad, Chennai, etc. through non-stop flights and record exponential growth.”
Air India Douglas DC-3 at Heathrow; Courtesy: Wikipedia
This is likely to change as Wilson was bullish about the potential of new routes, especially long-haul, saying the “untapped potential of Air India, and Indian aviation, for non-stop services pretty much anywhere in the world is unparalleled. There is a huge business opportunity and diaspora in North America for long-haul flights”.
He is also aiming at repositioning Air India, saying the airline was not just looking at spreading the footprint, but also increasing frequency. “Hitherto, Air India was seen as more of a leisure airline, or a ‘visiting friends and relatives’ airline. As India rises in economic status and becomes a key node in international business, we will have more and more business travellers, so that non-stop service to all business centres is going to be key.”
“This order demonstrates the vision and aspiration of Tata Group to transform Air India into a world class airline and connect India ‘non-stop’ to every major city in the world,” Air India Chief Commercial and Transformation Officer, Nipun Aggarwal, wrote on networking site, LinkedIn.
Impact on employment
Even for infrastructure and employment, the implications of the move. of course, go well beyond planes. To begin with, Air India will require more than 6,500 pilots to operate 470 aircraft, according to industry sources. Air India has about 1,600 pilots. The airline has often been plagued by instances of even its long-haul flights getting cancelled or delayed due to shortage of crew.
All the Tata group affiliated airlines – Air India, Air India Express, Vistara and AirAsia India together have a little over 3,000 pilots to operate the 220 aircraft they have. Air India has announced it will be adding 900 pilots and 4,200 cabin crew this year.
Earlier in the year Air India announced plans to set up a training academy, to be headed by AirAsia India former CEO Sunil Bhaskaran. It will rival the biggest and best anywhere in the world, Wilson had said. “Over the coming years, the ambitious new Air India and aviation industry generally will require thousands of home-grown pilots, engineers, cabin crew, airport managers and other specialists. As India’s flagship airline, we have the need and duty to develop this talent.”
Of course, other jobs will be created too, such as cabin crew, ground staff, maintenance, repair and operations (MRO), etc, though, notably, nothing in manufacturing, as that will continue to be the US for Boeing and Europe for Airbus. Mark Martin, the CEO of Martin Consulting told Business Today, that the total direct plus indirect jobs created for a narrow-body aircraft is around 400, while for a wide body plane, it is around 600-700, though it is unclear how many of these are in manufacturing. Experts estimate that about 200,000 jobs could be potentially created due to this deal, a substantial proportion of which is expected to be in India.
Also, as most of the orders are for narrowbodies or single aisle aircraft, they are primarily for use in domestic or short and medium haul flights, which will mean additional airports. According to India Brand Equity Foundation (IBEF), India’s airport capacity is expected to handle one billion trips annually by 2023.
Air India L-1049G Super Constellation at Prague Airport; Courtesy: Wikipedia
Air India’s leadership has clearly accepted, and is planning for an increased number of functional airports in India will double – from around 75 – with the addition of 80 new airports. While there is little doubt that more airports are needed all over the country, it could be pointed out that some airports are ‘ghost airports’ ie they have no commercial flights due to lack of adequate volumes. Many of these airports might be better served by smaller aircraft, such as the A220, ATRs, Embraer or Cessna.
Fast take off?
There are of course certain factors that are beyond the control of any Indian airline. Even though aircraft are expected to have greener technology in the future, aviation as a sector has done little to check its carbon emissions. And this is where the Gulf airlines have a distinct advantage with their ability to control fuel pricing.
Also, a lot of Indians are already enrolled in loyalty programmes with airlines such Emirates, Etihad, Qatar Airlines, and it will be a challenge to lure them, despite Star Alliance’s global reach. The current slowdown in corporate and business travel is another area which is not expected to see an early revival, impacting many large city airports.
As experts point out, new planes will go a long way in refurbishing the brand, which has suffered immensely of late. Despite many Indians being nostalgic about the airline, headlines spotlighting sub-par service and quality standards (repeated rat spotting, causing delays, to stones in food, non-vegetarian food served to vegetarians, passenger misbehaviour, etc) have impacted the brand. Wilson admitted a lot of work needs to be done, saying there had been underinvestment over the years.
More significantly, Air India has one of the highest employee-to-aircraft ratios of any global airline, though the new planes could actually lead to demand for greater staff numbers, although this is dependent on the rate at which the planes are delivered. According to Statista, in 2021 Air India had 8,156 employees while Air India Express had another 1,439 and about 130 aircraft.
However, the unusually early delivery of aircraft due to global geopolitics is good news for Air India. Boeing’s order for Air China and Airbus planes destined for Aeroflot are expected to be diverted to Air India. Besides helping in brand repositioning – and the group will have nearly all of the full-service seats in India – it will need to get its route planning in order, as well as have MRO (maintenance, repair and operations) efficiently in place. In an initial step to improve customer service on board the airline, Air India has signed up Spanish IT company Amadeus. “Amadeus Altéa PSS is the first of many such initiatives to transform Air India,” Aggarwal said.
Wilson pointed to the improvements already taking place. He said 20 aircraft grounded due to lack of parts had been restored and added the airline has rehabilitated existing aircraft with new carpets, curtains and seats as fast as the supply chain allows. New menus have been added in some aircraft. Significantly, revenues have doubled in recent months. “We have committed $400 million to refurbish all of our wide body aircraft, which will commence service from the middle of 2024. By the end of 2024, it is quite clear that the vast majority of services the people will experience on board the aircraft will be absolutely brand new.”
Air India has been on a spree to expand its global reach of late, with 16 new international routes added or returning to the airline’s routes. The potential for Air India is undoubtedly massive. At the time of its privatisation, it had control of 4,400 domestic and 1,800 international landing and parking slots at airports.
Wilson earlier said Air India was planning to expand its fleet and global network, aiming to increase its market share to 30 per cent on both domestic and international routes from India over the next 5 years. “We want to be a carrier people go to by choice – we offer great product, great service, great reliability, great value – as good as any other in the world.” The Maharaja has definitely set himself on a straight and rather ambitious course to fly on.
JRD Tata with the Air India crew
Did you know?
• The first planes in the airline’s fleet were a de Havilland Puss Moth and Leopard Moth.
• The first Karachi to Bombay (and onwards to Madras) in 1932.
• In its first year of operations, the airline carried 155 passengers and 9.72 tonnes of mail and even made a profit of ₹60,000!
• The airline’s name is written in Hindi on the port side fuselage and in English on the port side tail.
• The first logo of Air India was a centaur, a stylised version of Sagittarius shooting an arrow in a circle representing the wheel of Konark.
• Air India once gave Salvador Dali a baby elephant, in exchange for his creation of ashtrays for first class passengers.
• Air India’s art collection is one of the largest of its kind and reputed to be worth millions – in any currency
• As of January 2023, Air India serves a total of 39 international and 46 domestic destinations
Early Air India posters have become collectibles; Courtesy: Imgur
Air travel: Future disruptions?
The good news for the aviation sector: projections in the short term for air travel predict growth. The Covid downturn looks to be in the rear view in 2023 as most airlines and aviation markets return to real growth. However, a combination of technology-led changes and the pressures of controlling carbon emission could change how airlines operate.
A big concern is climate change and how it will impact the sector, especially as a quarter of all emissions could be from flying by 2050. While many sectors are beginning to reduce their emissions, aviation has to take serious steps. Carbon emissions from the airline industry grew by 75 per cent from 1990 to 2012. It is expected they will continue to grow rapidly until 2050.
Yet there is pressure for less emissions already, and Airbus has announced its testing of an electric plane. From hydrogen-powered planes to the return of supersonic flights, there is a lot of experimentation happening, and the sector could be made to adopt greener technologies sooner rather than later, impacting current aircraft.