IndiGo is talking to Airbus Group NV (AIR) about an order for 200 additional A320neo jets valued at about $20.6 billion as India’s biggest domestic airline taps rising travel demand, people familiar with the plans said.
The purchase may be announced as early as next week’s Farnborough International Airshow in England, said two of the people, who asked not to be identified because the details are private. While IndiGo has talked with Boeing Co. (BA), the airline’s preference is to stick with Airbus, the people said.
Adding more neos, which come with fuel-efficient engines would expand IndiGo’s all-Airbus lineup of 78 aircraft and increase a backlog of 186 undelivered jets from the planemaker’s A320 family. IndiGo uses so-called sale-leasebacks, in which it sells jets to lessors, flies them for six years and then hands them in so the fleet remains fresh.
“India is a huge market and it’s a very under-penetrated market,” said Harsh Vardhan, chairman of New Delhi-based Starair Consulting. “There is a need for a lead carrier in India.”
For Toulouse, France-based Airbus, a transaction of this size would be a boost in its competition with Boeing to sell single-aisle jets, the workhorse models of the global airline fleet. Unveiled in 2010, the A320neo features new engines and has become the fastest-selling jetliner in history.
Airbus’s 2014 plane orders totaled 515, trailing the 553 for Chicago-based Boeing, according to the companies’ tallies.
Airbus dropped as much as 50 cents, or 1.1 percent, to 46.5 euros in Paris, after gaining as much as 2.5 percent in earlier trading. The stock has lost 17 percent so far this year, after almost doubling in value last year.
Airbus declined to comment on possible announcements at the air show, spokesman Sean Lee said in a phone interview from Singapore. Sakshi Batra, a spokeswoman for the airline, declined to comment.
“IndiGo is a solid customer for Airbus, and this is good news for the Neo,” said Richard Aboulafia, vice president at the Teal Group in Fairfax, Virginia. “But given everyone’s grand plans for a market that occasionally disappoints, these numbers might not mean very much. IndiGo might not take them all until well into the next decade.”
IndiGo v. AirAsia
Economic growth across Asia is lifting orders for Airbus and Boeing with China forecast to supplant the U.S. as the world’s largest market by 2032, the European planemaker forecast in September. An American makes 1.8 flights per year, a German makes one flight annually while people from China and India make a relatively low 0.2 and 0.1 flights, Airbus said last year.
India will require 1,290 new aircraft valued at $190 billion in 20 years to 2032 to meet the travel demand in the country, the planemaker said in March. Domestic air passenger traffic during January to May rose to 26.7 million from 26 million a year ago, India’s aviation ministry said in June.
IndiGo was India’s largest airline with a market share of 30.2 percent in the first five months of the year, compared with Jet Airways (JBLU)’s 22.9 percent and Air India Ltd. (JETIN)’s 19.3 percent, according to that data.
Airlines typically buy at a discount to the catalog price, which is $102.8 million for the A320neo. Events such as the Farnborough show, the industry’s largest aviation expo this year, often are used to announce major transactions.
IndiGo is facing fresh competition after the Indian venture of AirAsia Bhd. (AIRA) started operations last month, jumping into a market where profit already has proved elusive. Jet Airways (India) Ltd. and SpiceJet Ltd. (SJET) have posted annual losses, while Kingfisher Airlines Ltd. (KAIR), saddled with $1.4 billion of debt, has been grounded since 2012. IndiGo is profitable, the airline has said.
In January 2011, IndiGo ordered 180 planes worth $15 billion from Airbus, at the time the biggest order in commercial aviation history, as it builds toward a goal of eventually reaching a 1,000-jet fleet.
IndiGo is owned by InterGlobe Enterprises Ltd. that has its origins in a travel company founded by Kapil Bhatia in 1964. IndiGo began service in 2006.
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