Boeing Scores a $22 Billion Win in Market Dominated by Airbus

Jan. 13, 2017
The deal could help Boeing widen its footprint in the South Asian country, where most of SpiceJet’s low-cost rivals fly Airbus planes.

Boeing Co. won a $22 billion deal from an Indian budget carrier, pulling off a feat in a single-aisle market ruled by its European rival Airbus SE.

SpiceJet Ltd. plans to buy 155 planes, of which 55 were carried over from old orders after renegotiations, the airline based in Gurgaon near New Delhi said in a statement on Friday. It also has options for 50 more, including wide-body aircraft.

The commitment, the largest ever for Boeing (IW 500/9) from an Indian airline, comes at a time when both the Chicago-based planemaker and Airbus are facing slowing sales and the highest level of delivery deferrals in at least 15 years following a decade-long shopping spree by jetliners. It will also help Boeing widen its footprint in the South Asian country, where most of SpiceJet’s low-cost rivals fly Airbus planes.

“Outside of India, Boeing has been doing reasonably well in Asia, with the exception of China,” said Richard Aboulafia, an aerospace analyst with Fairfax, Va.-based Teal Group. “Airbus has enjoyed a strong advantage in India, particularly since Airbus is strongest in single aisles, and the Indian market is heavily weighted towards single aisles.”

Though Boeing sold fewer jets than it delivered last year as it navigated a market downturn, demand for the narrow-body planes such as the 737 Max remained strong. India needs 1,850 new aircraft worth $265 billion in 20 years, with single-aisle planes making up a bulk of the new deliveries, according to Boeing forecasts.

After knocking off the options, a previously unfulfilled and renegotiated deal for 42 jets and an earlier undisclosed order for 13 planes, SpiceJet’s firm orders are for 100 737 Max 8 aircraft, which at list prices are worth about $11 billion before discounts. Bloomberg News reported on Jan. 6 that the carrier was close to signing a deal for at least 92 planes valued at $10.1 billion, and may boost the total if final talks yield substantial discounts and favorable maintenance contracts.

Getting Commercial Terms Right

“We spent a considerable amount of time negotiating and finalizing the commercial terms, including maintenance of the aircraft,” Chairman Ajay Singh said in an interview, adding deliveries will start July 2018 through 2024. “It was important for us to get all the commercial terms right.”

For SpiceJet, the order signals its resurgence after almost collapsing more than two years ago. The expansion will help it compete against IndiGo, which has some 400-odd aircraft pending delivery from Airbus and controls the world’s fastest-growing major aviation market with a 42% share. A representative for Airbus declined to comment.

SpiceJet currently operates a fleet of 32 Boeing 737 jets and 17 Bombardier Q400 turboprops, according to the company. It controls 13% of a market that has seen local carriers almost double to 11 in the past five years.

India, where an emerging middle-class is flying for the first time and passenger traffic is growing at double the pace of nearest rival China, is a crucial market for Boeing and Airbus. In 2015, IndiGo, operated by InterGlobe Aviation Ltd., ordered 250 planes from Airbus valued at $27 billion. That followed a 2006 deal for 100 A320 planes and 180 A320neos in 2011.

While the potential for growth is prompting airlines in the country to order more planes, they also have a challenge to tackle: Airport infrastructure that hasn’t kept pace with the times. Limited landing and parking slots mean longer time spent circling above airports such as Mumbai during peak hours, wasting precious fuel.

“India is an important market both Airbus and Boeing can’t ignore,” said Shukor Yusof, founder of aviation consulting firm Endau Analytics. The SpiceJet order would give Boeing “a lifeline. There’s a lot more to grow in India than other parts of Asia.”

By Anurag Kotoky and Kyunghee Park

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Licensed content from Bloomberg, copyright 2016.

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