SpiceJet’s 100-Plane And $12 Billion Blockbuster Deal
Two years ago, SpiceJet was fighting for survival as creditors retreated and oil companies refused to refuel its airliners. Today, the world’s biggest planemakers are wooing the recovering Indian budget carrier for a potential blockbuster order worth about $12 billion.
Boeing and Airbus Group are locked in a battle to supply SpiceJet with as many as 100 planes, and both are offering aggressive discounts in negotiations that have intensified in the past few months, according to people with direct knowledge of the talks, who asked not to be identified as the discussions are private.
A win would be key for Boeing, with the U.S. manufacturer lagging behind its European rival in India’s burgeoning budget-airline market, one of the key sources of industry growth globally. Segment leader IndiGo and the local units of Singapore Airlines Ltd. and AirAsia Bhd., which fly only Airbus jets, have squeezed Boeing’s prospects in a market where air travel is growing at a pace faster than in China or the U.S.
The Indian discount airline needs to ramp up its 43-plane fleet quickly to pose a meaningful threat to IndiGo, which controls 38.5 percent of the market and flies 108 aircraft. IndiGo’s owner, InterGlobe Aviation Ltd., has placed orders for 430 Airbus A320neo planes, with a target to build a 1,000-jet fleet eventually.
At least eight budget carriers dot the skies of India, where air travel grew more than 20 percent last year, according to the International Air Transport Association. In comparison, passenger traffic in China rose about 10 percent and less than 5 percent in the U.S., IATA said in December.
India also poses risks, with some carriers failing due to fuel taxes, tariffs and low fares. As many as 17 airlines in India have shut down in the past two decades, while accumulated losses of operating airlines have reached 600 billion rupees ($8.9 billion), according to a research paper published in June by consulting company KPMG and the Associated Chambers of Commerce of India.
Shares of SpiceJet have more than tripled in the past year after co-founder Singh returned to the helm, compared with a 0.9 percent decline in the benchmark S&P BSE Sensex. The stock rose 0.4 percent to 66.35 rupees as of 10:27 a.m. in Mumbai.
A boom in Asian air travel may provide the bright spot that the planemakers are looking for as last month’s so-called Brexit referendum for the U.K. to leave the European Union adds to uncertainty clouding the global economy while low fuel prices sap demand for new, more efficient jets. On Monday, the first day of the Farnborough expo, Asian airlines were set to give the biggest boost to both Boeing and Airbus.
China’s Xiamen Airlines signed an agreement to buy 30 Boeing 737 Max 200 planes valued at $3.39 billion at list price. India’s Go Airlines India Pvt. is in talks with Airbus to purchase approximately 70 more A320neos worth $7.5 billion, adding to the 72 ordered two years ago, people familiar with the matter said.
The Indian market can absorb as many as 60 narrow-body aircraft a year, said KPMG’s Dubey, adding that Prime Minister Narendra Modi’s push for regional connectivity will help expand the flier base “significantly.”
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Source:Ndtv
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