Airbus Gets a Boost from India

Indian airlines expect to fly 200 million passengers a year by 2020. The need for jets has spurred sales for the underdog planemaker

In the sales war between Airbus and Boeing, no battleground has been more fiercely contested than India. Rapidly expanding Indian carriers, including a crop of new discount airlines, have ordered close to $40 billion worth of big jets over the past two years.

Who's ahead? So far, it's Airbus, which has bagged 295 orders from Indian customers since January, 2005, vs. 138 for Boeing (BA). The value of Boeing's order book, close to $20 billion at list prices, is nearer to Airbus' roughly $22 billion in Indian orders because the U.S. planemaker has sold proportionately more widebody jets, which carry a higher price tag.

Still, Airbus is clearly gaining traction in one of the world's fastest-growing and most competitive aircraft markets (see, 5/2/05, "Dogfight Over India"). Just last week, Hyderabad startup cargo carrier Flyington Freighters announced it was scrapping a plan announced last year to buy $1 billion worth of Boeing 777s, and instead would buy A330 freighters from Airbus.

Right Time, Right Product

That kind of news is especially welcome at Toulouse (France)-based Airbus, which has badly lagged Boeing on orders worldwide in the last year (see, 1/5/07, "Boeing Takes Back the Skies"). The victory is especially sweet for Airbus, says Kapil Kaul, a Delhi consultant with the Center for Asia Pacific Aviation, because "India has traditionally been a Boeing market."

No more. Airbus has rung up big sales to Indian startup carriers such as Air Deccan and IndiGo, which are buying dozens of narrow-body A320s, and Kingfisher, which has ordered five double-decker A380 superjumbos, 15 widebodies including the new A350, plus 43 A320s. "We had the right products, and the market turned at the right time for us," says Airbus Executive Vice-President Kiran Rao, who oversees sales in India.

To lure customers, Airbus has offered substantial discounts and special deals on spare parts and services, says Izbal Munshi, a Mumbai aviation consultant who has worked with several Indian startup carriers. "When the orders are substantial, they come with a lot of freebies like free pilot training, engineering training, maintenance, and repair," Munshi says.

Partners and Outsourcers

Indeed, Airbus and its parent, European Aeronautic Defence & Space are planning to spend more than $2 billion in India over the next two years on projects such as an aircraft design center and crew-training facility in Bangalore that are expected to employ more than 2,000 people.

The European planemaker also is joining with Indian manufacturers such as Hindustan Aeronautics, which builds passenger doors for Airbus' narrow-body A320 plane. Indian outsourcing companies, in turn, are looking to grab more aerospace engineering and design work (see, 5/15/07, "Indian Outsourcers' Sky-High Ambitions").

Can Indian carriers really afford all this new equipment? Rao says that all of Airbus' Indian customers have ample financial backing. But some industry watchers are concerned. "Banks are financing the private airlines, but many are not doing well," Munshi says. The Indian government says domestic carriers as a group are losing $400 million a year. Air Deccan, for example, posted a $50 million loss during the first three months of this year. Munshi predicts that some struggling carriers will have to defer delivery of planes they've ordered.

The Widebody Margin

Boeing may be better cushioned than Airbus if that happens. Although it has booked orders from some Indian startups, Boeing's major Indian customers—flag carrier Air India and Jet Airways, the country's longest established privately owned airline—are in better financial shape.

Air India is buying 27 of Boeing's new 787 Dreamliners, plus 23 widebody Boeing 777s. Jet Airways has ordered 10 Dreamliners and 10 777s. "Our market share is in widebody airplanes, which are more lucrative, and we are dealing with airlines that have been in business for a long time," says Dinesh Keskar, a Boeing senior vice-president of sales who is a veteran India hand.

Even if there's a shakeout ahead, Airbus and Boeing are sure to keep battling over sales to India. Both planemakers expect Indian carriers to place orders for tens of billions of dollars worth of airplanes over the next decade as domestic passenger numbers are expected to grow from 30 million today to 60 million by 2010 and 200 million by 2020. No wonder a head start in India matters so much to Airbus.

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