Airbus SAS won the biggest order in commercial aviation history, worth $15 billion at list price, from Indian low-fare carrier IndiGo Airlines, a boost for the company’s decision to upgrade its A320 jet with new engines.
The preliminary agreement to buy 180 planes will include 150 of the modernized A320 aircraft, according to a statement late yesterday. Toulouse, France-based Airbus committed to the new variant in December after more than a year of studying the option and expects a firm order from IndiGo within two months.
Success in selling single-aisle jets is critical for Airbus and rival Boeing Co. as they derive most of their earnings from those planes. Airbus’s pledge to offer new engines on the A320 from 2016 has put pressure on Chicago-based Boeing to consider the future of its best-selling model, the 737.
“It’s a strong start,” said Richard Aboulafia, vice president of Fairfax, Virginia-based Teal Group. “Boeing will face more pressure to make a decision on its single-aisle future. The company’s faith in staying the course with its current 737 probably won’t be tenable for more than 6-12 months.”
European Aeronautic, Defence & Space Co., the parent company of Airbus, added 4.9 percent to 21.05 euros as of 9:02 a.m. in Paris.
Airbus dubbed its latest offering the Airbus NEO, which stands for new engine option. Boeing has said that it was capable of offering its 737 with new, more fuel efficient engines, though has held back so far from a commitment, saying it wasn’t sure the business stacked up.
The new aircraft will help IndiGo boost operations in the world’s second-most populous country. The carrier, owned by InterGlobe Enterprises Ltd., had already ordered 100 Airbus single-aisle jets and operates 32. InterGlobe, headed by Managing Director Rahul Bhatia, also runs hotels, sells business jets and offers technology services.
“The fundamental demand for air travel is only going up,” said Aditya Ghosh, the president of IndiGo, in an interview with Bloomberg UTV. “The gap between capacity and demand is increasing and these planes will extend our order book beyond 2015, when the 100 planes we ordered earlier are delivered.”
India’s economic growth of 8.9 percent in the quarter ended Sept. 30 made it the world’s second-fastest-growing major economy. Prime Minister Manmohan Singh’s government is aiming to sustain more than 9 percent annual economic growth to improve the lives of 828 million people who live on less than $2 a day.
Domestic air travel may surge fourfold to 180 million passengers annually by 2020, Singh predicted last year.
“India is one of the key growth markets of the world for aviation, and we are betting on the winners in India,” Airbus Sales Chief John Leahy said in a telephone interview yesterday.
SpiceJet, Air India
The country will likely need 1,030 new commercial aircraft over 20 years, the planemaker said in March. SpiceJet Ltd., the New Delhi-based discount carrier, last year announced orders for 30 Boeing 737s and 30 Bombardier Inc. turboprop planes. Flag carrier Air India and Jet Airways (India) Ltd. have both ordered Boeing 787 Dreamliners.
The classic Airbus A320 had a list price of $81.4 million in 2010, and Airbus has said the upgraded version would cost $6 million more. The company will start delivering the new versions in early 2016 and predicted a market potential of as many as 4,000 aircraft over 15 years. IndiGo is the first client to commit to the new variant.
Firm Order Pending
Leahy said a firm order will be signed in about two months. IndiGo ordered some standard models because it needed aircraft before the new jets become available. Specific engines for the aircraft will be announced later, according to Airbus.
IndiGo has not yet decided how to finance the order, Ghosh said. “The order is still 5-6 years before kicking in and the company has time to decide on funding options.” he said.
The geared turbofan engine by United Technologies Corp.’s Pratt & Whitney unit and the Leap-X from CFM International, the venture of General Electric Co. and Safran SA of France, are the choices on the new A320. The current IndiGo fleet uses engines from International Aero Engines, a venture led by Pratt & Whitney and London-based Rolls-Royce Group Plc.
The A320 is a twin-engine model that seats about 125 to 185 people. When the company introduced the A320 in the 1980s, the jet included novelties such as fly-by-wire electronic handling, helping Airbus leapfrog Boeing Co. deliveries from 2003 onward.
Doug Runte, a managing director at Piper Jaffray & Co. in New York, said that while the IndiGo order is important for the new A320, the real test will be winning away a Boeing customer.
“IndiGo is a legacy A320 operator so it is not all that surprising that it would choose to stick with the A320 family,” he said today. “The real win for Airbus and for the “Neo” will come if and when they can wrest a legacy 737 customer from Boeing by virtue of their new product.”