Dogfight Over India
A year ago, G.R. Gopinath was not getting what he wanted from aircraft manufacturers Airbus and Boeing Co. (BA ) As founder of India's first discount carrier, Air Deccan, Gopinath needed planes, but he didn't win much attention from the two majors. So he settled for a pair of turboprops from France's ATR to prove he could profitably operate an airline. When his first short-hop flights proved successful, Gopinath leased two Airbus A320s for a longer, Bangalore-to-New Delhi flight. "First I had to sell India to them, and then the fact that I could pull off a discount airline," recalls Gopinath.
A lot has changed since then. Air Deccan has been a huge success, with 90% of its seats occupied on 106 flights daily serving 32 destinations. Last month, Gopinath ordered 30 A320s -- worth $1.9 billion before discounts -- from Airbus. And Airbus can't do enough to support his young airline. Three Airbus employees -- experts in logistics, pilot training, and engineering support -- are now stationed at Air Deccan's Bangalore offices. In January, when a plane was damaged while being towed, Airbus sent a team of engineers the very next day to set things right. "They're bending over backward to support me," says Gopinath.
Boeing and Airbus are taking Indian airlines -- even startups -- far more seriously these days. "Air Deccan's success changed everyone's mindset," says Kapil Kaul, India country head for the Center for Asia Pacific Aviation, a consulting firm. The country's air travel market is growing 25% annually, spurring the two manufacturers to redouble their efforts to win new business. With the number of passengers in the country expected to grow from 19 million annually now to 50 million by 2010, a dozen groups are planning to launch service by this time next year. All told, Indian airlines are expected to buy at least 280 new planes by 2010, worth an estimated $15 billion, and another $15 billion worth in the following decade. "India is the hottest growth market on the planet," says Richard Aboulafia, an analyst with Teal Group, an aerospace consultancy in Fairfax, Va.
The two majors have been present in India for years, but until recently have had little to show for it. The most excitement that Airbus had seen there was in 1986, when state-owned domestic carrier Indian Airlines ordered 19 A320s. In 1994, Boeing agreed to sell 20 short-haul 737 aircraft to private Jet Airways. For the past decade, Boeing has been awaiting a decision by state-owned international carrier Air India to buy new widebodies -- a ruling delayed by successive governments. As recently as last year, the company was expecting Indian carriers to buy about $25 billion worth of jets over 20 years. In February, it upped that estimate to $35 billion. "India was a sleeping giant, and it has awakened," says Dinesh Keskar, Boeing's top salesman for India. "New low-cost carriers are emerging that have significantly increased demand for new airplanes."
The newfound dynamism in India is largely due to Praful Patel, the Civil Aviation Minister who took office a year ago. In his first week, he announced he would push ahead with a partial privatization of the dismal airports in Delhi and Bombay. The next week he boosted the ceiling for foreign institutional investment in Indian airlines from 40% to 49% and later permitted private domestic carriers to serve international destinations. That spurred even sleepy Air India and Indian Airlines to expand. Together they're planning to spend $10 billion on 110 new aircraft, and both are spinning off discount carriers of their own. Then on Apr. 14, Patel signed an "open skies" pact with the U.S., allowing airlines from each country unrestricted access to the other's market. That same week he inked agreements that will boost flights to Britain, China, and Qatar.
The potential growth has Boeing and Airbus licking their chops. Even before some airlines have gotten approval from New Delhi to operate, their promoters and managers are being courted by the two manufacturers. Dinner meetings at posh restaurants, sales calls every other day, and on-the-house invitations to both Toulouse and Chicago have been extended -- a far cry from last year, when Air Deccan's chief had to pay his own way to Airbus headquarters in France. "Right now, they are both hyperactive," says the project manager of a new airline who is watching the proceedings with amusement.
So far, Boeing is in the lead. About 80 of India's 180 commercial aircraft are Boeings. Flag carrier Air India has mostly flown Boeing aircraft for decades, as has private player Jet Airways since it began in 1993. But there has been a "flurry of deals in the past six months," says Keskar. Boeing has won about $1 billion in fresh orders: At least 30 planes from Jet Airways and newbie discounter SpiceJet, which plans to launch in May. The big prize is likely to come in early May, when Air India is expected to agree to an $8 billion deal for 50 new widebodies from Boeing, including the company's latest offering, the long-haul 787.
Airbus has not exactly been a slouch. The company has $2.6 billion in firm orders for 43 of its A319 and A320 short-haul jets from Deccan Air and Kingfisher Airlines, which begins flying domestically on May 9. It also has a commitment from Indian Airlines to buy 43 more A320s worth $2.7 billion. But so far, Airbus has found no takers in India for its newest plane, the double-decker A380.
The courtship is extravagant. As in most other markets, the aircraft manufacturers are offering discounts of 30% to 50% off the list price for their planes. Then there's free training for pilots and engineers, free spare parts for newly purchased planes, and free maintenance manuals. When a deal is close to being signed, airline executives say they receive calls from Airbus or Boeing every hour. "Boeing and Airbus are fighting tooth and nail to get orders in India," says Amitabh Malhotra, an aviation expert at investment bank N.M. Rothschild India in Bombay.
That's why the two companies need all the help they can get -- and they're not shy about asking for it. The U.S. government is pressuring India to buy Boeing planes, with President George W. Bush, Transportation Secretary Norman Y. Mineta, and Secretary of State Condoleezza Rice all lobbying the Indian government on the company's behalf. Airbus, usually the master of political influence, enlisted France's Trade and Foreign Affairs Ministers to talk the company up in India late last year. Presidential help. Lavish parties. Deep discounts. India's airlines aren't being ignored anymore.
By Manjeet Kripalani in New Delhi and Stanley Holmes in Seattle, with Carol Matlack in Paris
— With assistance by Carol Matlack