[jigar1791@gmail]

This is interesting.

With about 1.5 years into Tata taking over the reigns of AI from the Govt, they have placed a mega order of about 500 aircraft’s from both, Airbus and Boeing.

Preliminary estimates suggest Airbus getting the larger chunk of the order, with about 250 narrow and wide bodies, while Boeing’s count stands at 220, across 737, 787 and 777 families.

Tata’s Airbus order is split into -
210 A320 NEO (no split up between 320,321 families)
40 A350s (no specific segregation between 350 800/900/100/XWB)

While the Boeing’s Purchase Order will consist of-
190 B737 Max
20 B787
10 B777s

Looking at the current fleet composition between AI, Vistara, AI Express and AirAsia India, the narrow-body Airbus family will be meant for AI, Vistara and AirAsia India (to achieve better synergies with existing fleets and also to have lower complexities in maintaining wide variety of fleet types).

Currently the AI Express owns and operates only the B737 family of aircrafts, so in all probability, the largest beneficiary of the Boeing Narrowbody will be dedicated to AI-Express. Though, how the Tatas utilise the B737s will be an interesting business case to be studied once the order materialises into actual deliveries

With India having a strategic and a geographical advantage of near-similar long-hauls (distance and time wise) to North America and Europe in the west to Australia/NZ and Far-East, the long term goal of AI will be to challenge the Gulf big-3 (Emirates, Etihad and Qatar).
Moreover, with more capacity being added to Delhi and Mumbai Airports (New Mumbai Airport should be functional in the next 3 years), and AI developing these 2 as their base, it’s worth the wait to see how AI becomes the flag bearer of the new global aviation market - India

[rahulcmoulee]

Much needed fleet revamp. The current fleet is really starting to show it's age, especially the AI Express 737s. The hard product of AI is what needs the most work and this is a huge step in that direction.

[volkman10]

Air India update:

[dragracer567]

Tata group has officially placed the order for 250 Airbus aircraft consisting of 40 Airbus A350s and the remaining from the Airbus A320 family. The deal was signed in a ceremony in the presence of Prime Minister Narendra Modi, Ratan Tata, French President Emmanuel Macron and other leaders.

Apart from this, Air India is also expected to order another 220 planes from Boeing consisting of 737 MAXs, 777s and 787s.

Given the huge order backlog, especially from Indian carriers - just Indigo has almost 500 aircraft remaining on order from Airbus, I think it would be prudent for Boeing and Airbus to consider assembling their entire aircrafts in India like they already do in China. Already, both companies do offshore a lot of their work to India.

[Dieseltuned]

wow can't wait to see A350 wide body in Air India Livery.

[V.Narayan]

Air India’s $100 billion aircraft order

So at least the Airbus half of this mega deal is official. The $ 100 billion is the list price. The actual price will be at some discount plus some financial engineering with the lessors who are in all probability involved in the funding.

This has been in the news for a while. And on cue at the Aero 2023 show at Bangalore Air India signed the first part of what must be the largest ever single order for aircraft placed in aviation history*. The size of the order reflects the state and promise of India’s civil aviation industry and its place in the global order. As dragracer567 says the next step for us to take is a cue from China and ask Boeing and/or Airbus to step up a modern assembly line in India for their aircraft and source X% of the parts from India over next 15 years and thus help build the local aeronautical parts industry and ecosystem. China achieved it by active participation by its Govt and the Govt making this clear to Airbus.

One gap in our fleet is the small regional jet carrying 60 to 120 connecting Tier III airports to other Tier III airports and to the main Tier I and II airports. The Embraer ERJ series and the new Airbus C220 series are the contenders.

I wonder why Air India is ordering both the Boeing 737 MAX and the Airbus A320 neo and not standardize on just the A320 which is the logical choice given their current mix. It might be an insurance of sorts or lack of delivery slots on the A320 production line.

Chart below giving a simple comparison of the aircraft involved.

[Hayek]

Originally Posted by V.Narayan

I wonder why Air India is ordering both the Boeing 737 MAX and the Airbus A320 neo and not standardize on just the A320 which is the logical choice given their current mix. It might be an insurance of sorts or lack of delivery slots on the A320 production line.

Think you answered the question yourself. Don’t think even for an order of this size, Airbus would be able to give slots for 400 A320s. Plus Air India Express already uses Boeing 737s, so guess they can be integrated fairly easily. Longer term, it also makes sense for India to have both a Boeing and Airbus ecosystem, if both Indigo and Air India are Airbus only, you would find yourself very vulnerable to them 5-10 years from now.

[PearlJam]

Originally Posted by V.Narayan

Air India’s $100 billion aircraft order

So at least the Airbus half of this mega deal is official. The $ 100 billion is the list price. The actual price will be at some discount plus some financial engineering with the lessors who are in all probability involved in the funding.

This is the historical profit of Air India in the last few years, in Crores (source - internet):



From my reading, the accumulated losses of Air India seems to be around 70000 crores!

Assuming a 20% discount (just for argument sake) on the new $100 billion purchase, it comes to $80 billion, which is around Rs.6.63 lakh crore at an exchange rate of Rs.82.90. A simple return/interest of 8% on deployed funds (which I assume a business must earn at a minimum, for it to even make sense in putting in all the hard work) comes to Rs.53000 crores per year. I'm not even calculating depreciation, inflation, and other outgoing cash flow, which I assume is huge. So at a minimum, the net profit that Air India needs to report every year, would need to cross 53000 crores a year, just on considering the new purchase alone!

Also, I concede that the payment for the purchase would not be done in one installment, but rather in parts over years. Also, Covid years might have skewed the numbers for 2 years. I'm not sure how large the "other income" part of the P&L would be.

So what is the hope for Air India to even break even, forget recovering earlier losses? What kind of growth are they looking at, even assuming that India is going to be the 3rd largest in airlines, as predicted by some?

This is my layman, back-of-the-envelope calculations, so I might be totally wrong here!

[dragracer567]

Originally Posted by V.Narayan

I wonder why Air India is ordering both the Boeing 737 MAX and the Airbus A320 neo and not standardize on just the A320 which is the logical choice given their current mix.

If I understand correctly, the 737 MAXs are for the low cost wing that arises out of the merger between Air India Express and Air Asia India. Air India Express is already the only entity in Air India that operates 737s.

[jigar1791@gmail]

Originally Posted by dragracer567

Air India Express is already the only entity in Air India that operates 737s.

SpiceJet is the other active operator of the B737s. Erstwhile Jet Airways also operated the B737s, few of which are currently operational with Spocejet and Vistara, both.

[avishar]

Originally Posted by PearlJam

This is the historical profit of Air India in the last few years, in Crores (source - internet):

Attachment 2418946

From my reading, the accumulated losses of Air India seems to be around 70000 crores!

Assuming a 20% discount (just for argument sake) on the new $100 billion purchase, it comes to $80 billion, which is around Rs.6.63 lakh crore at an exchange rate of Rs.82.90. A simple return/interest of 8% on deployed funds (which I assume a business must earn at a minimum, for it to even make sense in putting in all the hard work) comes to Rs.53000 crores per year. I'm not even calculating depreciation, inflation, and other outgoing cash flow, which I assume is huge. So at a minimum, the net profit that Air India needs to report every year, would need to cross 53000 crores a year, just on considering the new purchase alone!

Also, I concede that the payment for the purchase would not be done in one installment, but rather in parts over years. Also, Covid years might have skewed the numbers for 2 years. I'm not sure how large the "other income" part of the P&L would be.

So what is the hope for Air India to even break even, forget recovering earlier losses? What kind of growth are they looking at, even assuming that India is going to be the 3rd largest in airlines, as predicted by some?

This is my layman, back-of-the-envelope calculations, so I might be totally wrong here!

Tata has not carried over that debt. From the sale:

The airline had a total debt of Rs 61,562 crore as of August 31, 2021. Of this, the Tata Group took over Rs 15,300 crore and the rest 75 per cent or around Rs 46,000 crore was transferred to a special purpose vehicle, AI Asset Holding Ltd (AIAHL).

AIAHL also held Air India's non-core assets such as stake in Hotel Corp of India (HCIL), paintings and artifacts and immovable properties.



After which the government infused Rs 62,057 crore as equity into AIAHL. That money was used to pay off creditors. Mostly to state oil companies and AAI among others.

So that debt is gone. Now the role of AIAHL is to liquadate more assets one by one (for example, the Air India building) to generate some revenue for the government.


"Whatever was to be borne by the government that the government has squared off rather than paying it off later... we found that it is carrying higher rate of interest. It wasn't worthwhile to retain it and pay it off later.

"If we take it to AIAHL and pay it later we have to pay higher rate of interest. So we have chosen to square it off straight away," he said.

[PearlJam]

Originally Posted by avishar

Tata has not carried over that debt.

Thanks for clarifying this. But my core point still remains - namely, how does Air India plan to even remotely get an FD rate of return on the new funds deployed?

The past profits (losses in fact) indicate the historical situation. The losses over the years are not all due to Air India being inefficient so far. Either the Tatas need to drastically cut expenses (difficult beyond a point, since safety is also paramount and they can only cut administrative costs), increase sales (depends on people's spending power), or both. Airlines being a very capital intensive industry, with lots of regulations, variations in fuel prices, etc - my simplistic (hopefully not wrong) analysis shows a very small probability of hitting even basic and consistent returns.

[V.Narayan]

Originally Posted by PearlJam

Thanks for clarifying this. But my core point still remains - namely, how does Air India plan to even remotely get an FD rate of return on the new funds deployed?

The past profits (losses in fact) indicate the historical situation. The losses over the years are not all due to Air India being inefficient so far. Either the Tatas need to drastically cut expenses (difficult beyond a point, since safety is also paramount and they can only cut administrative costs), increase sales (depends on people's spending power), or both. Airlines being a very capital intensive industry, with lots of regulations, variations in fuel prices, etc - my simplistic (hopefully not wrong) analysis shows a very small probability of hitting even basic and consistent returns.

Member @avishar has explained your question on debt etc as best as it can be explained. These aircraft ordered by Air India will be purchased by international leasing companies who in turn will lease them to Air India while absorbing the depreciation themselves. These leasing companies access debt at rates far lower than most Indian companies ever could. So Air India will be using someone else's superior credit rating to access funding while keeping the asset off their balance sheet which in any case cannot absorb these depreciation amounts. The leases with Air India might be for example 10 years while the life of the machine is easily 25 years. Which means Air India will only pay rent for 40% of the life after which the machine will be leased to another airline. There are other complex financial arrangements to these financings which cannot be explained in two paragraphs except to say it is a cost effective way to fund aircraft purchases. Indigo has funded all its acquisitions from day 1 this way. Almost always engines and airframe are leased separately to increase cost effectiveness. This is so as the two have different life cycles and different resale values towards the later parts of their lives.

This has been discussed at length from page 9 onwards here https://www.team-bhp.com/forum/comme...sition-14.html (Air India Divestment - Tata Sons completes acquisition) post numbers 125, 133, 156, 159 and many others.

To make a profit Air India's Board need to run the airline efficiently getting the optimum out of machine and employees. New aircraft tend to be much lower on maintenance especially in the first 4 to 5 years much like a car, they have better fuel efficiency than older ones as engines are of later marks. A narrow body needs to be flown 10 hours a day and a wide body 12 to 15 hours a day to generate real good profits. Airlines, like steel plants tend to lend themselves to scale. From purchase of fuel, spares, landing slots, parking fees to spreading fixed costs scale matters immensely with all things aviation. While the airline business by itself isn't as attractive as say the IT business {e.g. TCS} a well run airline can deliver 5% to 8% profit after tax and because funding comes through leasing a reasonably acceptable return on equity. You may want to read the Indigo annual reports.

[skanchan95]

Originally Posted by dragracer567

If I understand correctly, the 737 MAXs are for the low cost wing that arises out of the merger between Air India Express and Air Asia India. Air India Express is already the only entity in Air India that operates 737s.

Akasa Air now has a sizeable number of 737 MAXs in their fleet. Spicejet has been a 737 operator for a long time, including 737 MAX 8. Vistara operates a few ex-Jet Airways 737s. In fact, one of these( VT-TGG) was recently transferred to Air India express.
VT-TGG in AI Express livery

VT-TGG in Vistara livery ( ex- 9W VT-JFS)


Quikjet Cargo operates a 737-800 freighter in the lovely Amazon Prime Air livery (VT-AAZ)

[Gansan]

What about Alliance Air? Are they part of Air India now or have been kicked out? I used their services a few times recently and felt they were decent.