Friday the 13th is considered an unlucky day in western world but for Ray Conner, Vice Chairman, The Boeing Company, the first of two Friday the 13th of 2017 turned out to be very lucky. Ray along with Ajay Singh, Chairman of Spicejet, announced the total order of 205 B737-8 MAX aircraft (includes 50 options) valued at $22 billion at list prices. This includes the 42 aircraft order for which was placed under the previous management.
India has seen a growth of over 20% for the last two years and is one of the fastest growing markets. While IATA and many other consultants and agencies have predicted exponential growth for the aviation market in India, it will largely be dependent on low fares – subject to cheaper oil and easing of infrastructural bottlenecks.
For Boeing it was important that this deal goes through to continue having a footprint in India. Currently, 77% of the total commercial fixed wing fleet in India comprises of narrow body planes. Of this 65% of narrow body aircraft are A320 family operated by IndiGo, Air India, Go Air, Vistara and AirAsia India. The rest 35% are B737 series operated by Jet Airways, Spicejet and Air India Express.
The numbers tilt in favor of Airbus further more when aircraft on order are considered. Before the Spicejet order, Airbus had 89% of all the narrow body aircraft on order from India, led by IndiGo’s order of 430 aircraft, only 14 of which are delivered, followed by Go Air which recently doubled the order to 144, 4 of which are delivered. Air India and Vistara have 14 and 7 on order respectively.
Boeing on the other hand had secured order from Jet Airways for 75 B737 MAX aircraft. With the order from Spicejet, the balance is slightly tilted with 28% of all narrow body aircraft on order being Boeing as compared to 72% of Airbus.
Spicejet made the most of competition?
The order was announced at a press conference in Gurugram, where the Low Cost Carrier is head quartered. The airline is likely to have signed the deal at a rate much lower than the list price. Having been pitted against Airbus, Boeing would have tried every trick in trade to secure this order from Spicejet, which has been on a recovery path after being bailed out by Ajay Singh after a forgettable December 2014.
From recovery to growth as Ajay Singh put it at the news conference, the airline has bounced back – thanks to restructuring, management change, re-capitalization and cheaper oil. The airline has had 19 consecutive months of 90% + load factors and has led the Load Factor charts for 20 consecutive months.
Spicejet, which had operated quite a few A320s on wet lease (also operated wet leased B737s), had pitted the two global majors Airbus and Boeing against each other for this order. The airline surely would have got a sweet deal in the process, with Airbus trying for complete domination and Boeing trying to retain some share of the large market. Airline orders are dependent on multiple parameters like financing, Pre Delivery Payments, Engineering Reserves to name a few.
Interestingly Ajay Singh had time and again said that he believes in a single aircraft model for LCCs but the airline ended up adding additional Q400 turbo props after he took over. The airline also has B737-700 and B737-900 in addition to B737-800 variant which is the main stay. Before the airline headed for trouble, it had decided to streamline its operations and move to a fleet of B737-800 and Q400. The airline currently operates a fleet of 32 Next-Generation B737s in its fleet and 17 Bombardier Q400s.
There were rumors that the airline will also sign MoU for options for B787 Dreamliner aircraft and it could start operations with Dreamliner as wet lease aircraft in the next one year. However, no such announcement was done. Airlines typically can change the aircraft type for the “options” in the order and Spicejet may still go for the Dreamliner aircraft, which will not only help with medium to long-haul International flights but also upgrade key metro departures and help increase capacity due to paucity of slots limiting additional flights.
The airline flies to 45 destinations (39 domestic and 6 international) and is widely expected to start operations to additional destinations soon. The airline could also take delivery of few more aircraft by 2018, when the MAX is slated for delivery.
While the 75 MAX on order for Jet Airways could be replacement for the existing 70 B737s in the fleet, Spicejet will join the bandwagon of IndiGo and Go Air which have large numbers on order to cater to the Indian growth story.