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.



100 % FDI in Indian Aviation Boosts Markets

In a move that revealed the government’s strong reform intentions, the FDI floodgates have been thrown open in nine sectors. India’s Civil Aviation being one of them. The government has permitted foreign non-airline entities to invest up to 100% in domestic airlines. These measures, along with India’s National Civil Aviation Policy (NCAP) which has been instituted in an integrated format for the first time since independence, and was released only a week earlier, are expected to minimize some of the drawbacks in the aviation sector.

tonyIn an interview with Bloomberg TV India, Tony Fernandes, Group CEO, AirAsia said, “I think this is a great step for the Indian aviation sector and for the government. The fact that they removed the 5/20 rule and replaced it by 0/20, is a compromise. We would love to see it removed completely. But I think it was a surprise, a very positive step to see that foreigners could now own 100 per cent of an airline. It is a good step and it shows the intent of the government to bring in more capital into this industry which is a great driver of the economy.”

The 100% FDI in Aviation is likely to open up the sector to new avenues of financing and access to advanced international aviation technology. “The 100% FDI could make Indian airlines interesting to foreign capital markets that could support initial public offerings without worrying about foreigner ownership limits,” said Craig Jenks, president at New York-based consultancy firm Airline/Aircraft Projects Inc.

Present situation in India.

The Indian market is wooing foreign airlines. While the foreign airlines are keen to have a 100% stake in Indian airlines, investment by them in domestic airlines will be limited to 49% of paid-up capital.

Jet Airways (India) Ltd had sold a 24% stake to Etihad Airways PJSC in 2013. Etihad may consider increasing its stake from 24% to 49% after the government’s FDI announcement.

Vistara, run by Tata SIA Airlines Ltd, is a joint venture between Tata Sons Ltd (51%) and Singapore Airlines Ltd (49%),

AirAsia India is a joint venture between AirAsia Bhd (49%) and Tata Sons (51%). AirAsia’s Tony Fernandes has said that his airline would like to increase its stake in its Indian unit, AirAsia India, given a chance.

Aviation stocks are trading firm, extending previous session’s strong upmove after the government allowed 100% Foreign Direct Investment (FDI) in aviation sector under automatic route in Greenfield Projects. Jet Airways is trading 1.3% up at Rs 593.35 and SpiceJet is moving up nearly 2.5% at Rs 70.85, while InterGlobe Aviation (Indigo) is up marginally at Rs 1074. These three stocks had moved up 6% – 7.3% in the previous session.Air Asia flies high

The real implications are not much for existing scheduled airlines, but for regional carriers under the new civil aviation policy. “They will be attracted, provided the subsidy mechanism has a state buy-in and enough airport infrastructure is upgraded to make operations viable,” as per aviation analysts.

The NCAP formulated by the NDA government is undoubtedly well-intentioned and aimed at achieving overall progress of the industry in a meaningful way. However, there are several shortcomings in it which could derail the efficacy of the measures. The projected growth and objective might never be attained. These shortcomings are related mainly to admin. Although the NCAP has addressed almost every aspect, but it has not given any direction for professionalising the Civil Aviation Department and the various offices under it: notably the Directorate General of Civil Aviation (DGCA) and Bureau of Civil Aviation Security (BACS). These are the chief entities that govern aviation in the country and are themselves plagued with numerous problems. Shortage of staff being one of them. They have regularly been criticised since they are incompetent to meet modern-day challenges. They are not process-driven to deliver world-class service. Even then, even without a policy, air passengers, number of aircraft in the country, and number of airlines grew handsomely  as indicated in the IATA statistic: more than 21% a year aviation growth in India. The aviation growth in India is being propelled by a comparatively strong economic backdrop as well as by a substantial increase in service frequencies; there has been little contribution from the admin side as (1)

The NCAP is silent on how to radically transform these offices and their work culture. The need for strong air safety and security regulators in India has always been there. Airports Authority of India (AAI) is another entity that needs complete transformation, yet NCAP does not say anything about it. “Not addressing key and structural issues is a big disappointment. NCAP is ambitious about growth but has not focused on creating structures for managing growth,” says Kapil Kaul, Chief Executive Officer, South Asia, Centre for Asia Pacific Aviation (CAPA). “Without a clear infrastructure plan in place I don’t know how job creation can happen,” he added.

Overall, from the fliers and industry view point, the policy is well articulated. It does make a case for a better-connected India through the mode of aviation. The government’s intentions in Aviation FDI and NCAP can be termed as  steps in the right direction for both the industry and consumers and it is hoped it if the government gets its admin act together, all the stakeholders shall be happy.