Curious Case of Placing 1850 New Airplanes

In 2015, one of the biggest plane makers in the world, Boeing, had predicted for India a demand for 1,740 new airplanes valued at USD 240 billion over the next 20 years.

In 2016, it is saying that the country will need 1,850 new airplanes worth USD 265 billion over the next 20 years.

This increasing demand will be driven by single-aisle planes such as the 737 Max and Next-Generation 737s from Boeing and A320 Neos from its arch rival Airbus.

Boeing Corporation and others appear bullish about the Indian aviation sector, the fastest-growing market in the world in terms of passenger traffic as per the latest IATA numbers. Dinesh Keskar, Senior Vice-President for Asia Pacific and India, Boeing Commercial Airplanes interacted with media while releasing Boeing’s ‘Current market outlook for India’ report. 

Keskar elaborated on India’s need of more airplanes:

Type of Planes

Seats

Aircraft Nos.

Value USD (billion)

Single-aisle

90-230

1560

180

Wide-body

200+

280

85

Regional Jets

10

90

1

This will make India contributing to over 4.6 per cent of the global demand for 39,620 airplanes by 2035, and 4.5 per cent of world demand in terms of value,” Keskar said.

Attributing the bullish outlook to the new civil aviation policy, favorable demographics and low fuel prices, Keskar said, “India continues to have a strong commercial aerospace market and the highest domestic traffic growth in the world.”

Keskar commented on the government’s regional connectivity push, saying even as it has capped prices, the promise of refunding 80 per cent of losses, if any, will help the airlines drive the business. The government revamped rules governing the aviation industry, liberalising norms for domestic carriers to fly overseas and spreading the country’s air travel boom to smaller cities. “With the new aviation policies in place, we even see greater opportunities, and remain confident in the market and airlines sector in India,” Keskar said. Boeing

The potential for further growth is encouraging operators to scale up their fleets. At least 709 planes are on order for the next 5 years. Domestic carriers are shopping for airplanes one after another in the hope that demand will stay strong and India will eventually become the third-largest civil aviation market in the world after China and the US by 2026.

  • Jet Airways ordered 75 Boeing 737 Max in November 2015.
  • India’s largest player IndiGo, has ordered 430 Airbus narrow-body jets on top of the 108 it already flies. It is the largest order in aviation history from Airbus.
  • GoAir ordered 72 new A320neo planes from Airbus. It is planning an IPO while simultaneously it may begin International services.IndiGo adds more aircraft
  • SpiceJet intends to increase its fleet size to 150.
  • New entrants Air Asia India and full-service airline Vistara, a joint venture between the Tatas and Singapore Airlines, are accelerating their fleet expansion plans.
  • Vistara has said it will have a fleet of 13 aircraft and fly up to 20 destinations by the end of 2016. The carrier has now 11 planes.
  • Vistara is also considering branching into the regional commuter carrier business using 70-seater aircraft. A subsidiary tentatively named Vistara Express.

Big challenge : To find landing and parking spaces for new planes.

Vistara Chief Strategy and Commercial Officer, Sanjiv Kapoor said recently in a Twitter post, “Yet hundreds of A320s on order. Where will they all fly, am really curious!”

Even as Boeing predicts that India will have 1850 aircraft over the next two decades, several Indian carriers struggle today to operate their aircraft. Reason : Inadequate airport infrastructure. The airlines are just able to manage 2,000 flights a day, and only a few of them could touch the 90 percent on-time performance mark. As air travel heats up in India, the world’s fastest-growing major aviation market,  aviation infrastructure has miserably failed to keep pace with air traffic growth which has been phenomenal in recent past .

The average time an aircraft spends circling before it can land in Mumbai during peak hours is about 45 minutes to an hour, versus 25 minutes for Singapore and zero for Qatar, according to Dubai-based Martin Consulting LLC.

India plans to invest $5 billion to improve airport infrastructure, which is “inadequate” compared with China’s proposal for $130 billion in 15 years, a June research paper by KPMG and the Associated Chambers of Commerce of India said. A proposal for a new airport in the outskirts of Mumbai has languished on the drawing board since 1997. 

As much as $40 billion in investment is needed in the next 15 years to improve India’s airport infrastructure, according to estimates by Sydney-based CAPA Centre for Aviation.

“Infrastructure has to catch up as dynamics of aviation have changed,” said Mark D. Martin, founder Martin Consulting. “Countries must make sure that airports are built not just for bigger jets, but also for smaller, 5-10 seater planes to connect its people.”

The problem is not just limited to India. There has often been a gap between Mumbai Airportintention and infrastructure delivery for Asian airport, according to a 2015 research paper by OAG Aviation Worldwide.

It isn’t the case that India hasn’t done much in the past 10 years to develop airport infrastructure. It spent $2.7 billion to upgrade the airport in New Delhi and added a new terminal in 2010, while it spent another $885 million to modernize the Mumbai airport in 2014. 

Still there have been other airports which were not so lucky. There are 394 other unserved and 16 under-served airports in the country. Out of the nation’s 450 airstrips and airports, only 75 handle commercial airlines, with the rest remaining idle or rarely used because of weak demand, according to the government. “No aircraft movement takes place at 32 airports out of 125 airports, including civil enclaves belonging to Airports Authority of India (AAI),”Minister of State for Civil Aviation Jayant Sinha has said in a written reply to the Parliament.

Prime Minister Narendra Modi is trying to revive many of such unserved and under-served airports and airstrips to enhance regional connectivity. This has been a key highlight of the New Civil Aviation Policy. Weak demand have made many of these airports unviable even for commercial single-aisle jets. Moreover, in an effort to attract capital, Prime Minister Narendra Modi in June 2016 liberalised norms for foreigners, who can now fully own existing airports without government approvals.

jayant-sinha“In order to implement the scheme, a proposal has been submitted to the Ministry of Finance for making a budgetary provision of Rs 46,500 million to revive a total of 50 such airports/airstrips,” Sinha said in a written reply to the Rajya Sabha. “The scheme is to be implemented over a period of three years.”

Development and upgradation of airports is a continuous process and is undertaken by AAI depending on traffic demand, commercial viability and socio-economic considerations, among other factors.432526-sanjiv-kapoor-zeenews

“We need to move fast,” Sanjiv Kapoor said in an interview. “That’s a huge issue. You cannot have a commercial capital and a political capital that do not have slots available for growth,” he said, referring to Mumbai and New Delhi.

India finds itself hard-pressed to find parking slots for new airplanes. The lack of infrastructural facilities may even force carriers to defer deliveries. This will eventually immensely hurt plane makers like Boeing and Airbus Group SE.

Airbus Clinches $12.5 bn Order from Air Asia

Malaysian budget carrier AirAsia Berhad has announced a $12.5-billion firm order to buy 100 A321neo aircraft from Airbus on a rainy second day of the 2016 Farnborough air show. The airline co-owns AirAsia India, the Bengaluru-based airline which operates domestic flights to 10 destinations in India.

Addressing a press conference, Tony Fernandes, CEO, AirAsia Group, said that it was the first time that AirAsia has ordered this aircraft. “Low-cost airlines generally operate around 180-seat aircraft. AirAsia’s A320s are 180 seaters, but now we have moved in a new direction. The A321 aircraft can accommodate 240 seats, but AirAsia A321s will have 236 seats for passenger comfort,” said Fernandes.

The A321 induction begins only in 2019.

This happened in the midst of Farnborough air show participants reporting a lower level of deal making than in recent years. Trade experts expect turbulence ahead. They are analysing growing risks to the global economy – from slowing economic growth in China to Britain’s decision to leave the EU. This could dry up orders or even result in some cancellations.

AirAsia Berhad is the largest A320 operator in the world. The budget airline operated 199 Airbus planes as of the end of March 2016 in India, Malaysia, Thailand, Indonesia and the Philippines and is poised to start in Japan. This purchase brings AirAsia’s total orders for A320-series planes from Airbus to 575 aircraft.

It is now under speculation whether the A321s will be brought into the Indian market.

Amar Abrol, CEO, AirAsia India, said: “The option is there to draw on the parent. However, every decision will be evaluated commercially.” For now, AirAsia will concentrate on growing its aircraft fleet to 20 so as to begin international operations. “I already have a board-approved target to get to 20 aircraft. I don’t need to wait for A321 to get to 20 aircraft. In the next 24 months, we will certainly get to 20 aircraft,” said Abrol.

Asian budget carriers, following the growth of AirAsia, have purchased hundreds of jet airplanes from Europe’s Airbus Group SE and its US rival Boeing Co.

  • In 2013, Indonesia’s PT Lion Mentari Airlines ordered 234 planes from Airbus, the carrier’s second purchase contract for more than 200 aircraft.
  • India’s Go Airlines India Pvt. ordered 72 A321neos from Airbus, doubling its total purchases of the model. 
  • In 2015, Indian budget airline IndiGo ordered 250 Airbus planes for $27 billion.
  • India’s Spicejet, too, is poised to place orders for 100 planes in an attempt to catch up with its competitors.

Budget airlines in the Asia-Pacific region are expanding amid a burgeoning travel demand underscoring their ambitious growth plans. The 10-year old budget carrier, IndiGo has become the largest airline in India by market share surpassing everybody. China Southern Airlines Corp. is Asia’s biggest carrier by fleet size, with more than 600 planes.

Air Asia doesn’t want to lag behind and is anticipating that economic growth from India, China and Vietnam will encourage millions of new fliers in Asia – the world’s most populous continent. AirAsia has become a pan-Asian budget airline that has grabbed significant market share from other full-service airlines like Singapore Airlines Ltd. and Malaysia Airlines Ltd.

As per Simon Elsegood, an analyst at CAPA Centre for Aviation in Sydney, the Asia-Pacific is going to account for at least a third of all aircraft demand over the next 20 years based on planemakers’ forecasts. There’s particularly strong demand for intra-regional connectivity in Southeast Asia and North Asia, and then there’s very, very strong demand within China itself for domestic flights.