Fasten your seatbelt, India

With an order of 470 aircraft, the largest ever in aviation, the Tata Group confirmed their commitment to staying the course and turning around Air India. Coupled with the patient capital approach of the Tata Group, this development’s impact will flow through to the entire aviation value chain. Let’s unpack the deal to understand its importance to India’s aviation trajectory. What’s the composition of 470 aircraft? The order includes a firm commitment for 470 aircraft, along with an option to buy another 370. In all, the potential size of the aggregate delivery is 840 planes. The aircraft are a mix of Boeing and Airbus, and also split between narrow body and wide body machines. Of 250 aircraft to be produced by Airbus, 140 are narrow body A320neos, 70 narrow body A321neos, and 40 wide body A350s. While the narrow body planes will service domestic routes the Airbus wide body aircrafts are to largely serve the ultra-long haul segments, that is, flights of 10 hours or more. On the Boeing side, there are a total of 220 aircraft, including 20 787 aircraft, 10 units of the 777s and 190 B737 MAX aircraft. Collectively these build on market realities, including availability of parts, liquidity of the assets and trained manpower familiar with these aircraft. All of which are critical to costs and competitiveness. Where does this place Air India in the aviation market? This will enable Air India to engage in a complete fleet renewal coupled with significant expansion. Add India’s economic growth prospects and geopolitical dynamics, this historic aircraft order has put Indian aviation squarely on the global radar. Locally, Air India faces a formidable competitor in IndiGo which flies a fleet of 308 aircraft and has more than 55% of the market locked up. For perspective, Air India after combining four entities where majority holding is with the Tata Group – others being Air India Express, AIX Connect and Vistara – has a fleet of 220 aircraft with 26% of the market. So there is a fair gap to be covered. There’s also a fast-growing competitor in Akasa, which has captured more than 2% of the market in five months since launch that will surely impact margins. Internationally, airlines like Emirates, Qatar Airways, Singapore Airlines, British Airways and Lufthansa have already upgraded their product and will roll-out new features that at the very least will have to be matched. And where these airlines are aligned with their city-states, the competition will be anything but easy. This will demand deft forward planning. If managed well, geopolitical dynamics can also be leveraged to provide a competitive edge. Challenges and weaknesses in markets such as Vietnam, Thailand, Indonesia and Malaysia have impacted airlines there. Russia continues to be a market where India’s long-standing relationship has led to an over-flight path which is closed to most other countries. Saarc markets notably Pakistan and Sri Lanka also have seen challenges. These factors will help Air India to enter, capture traffic flows and to build on that foundation. Will the aircraft be made in India? Along with the announcement, the Tata Group also expressed a desire to bring commercial aircraft manufacturing into the country over time. In the case of Airbus, that would mean the set-up of an assembly line in India – currently their only line in Asia is in China. Not only would it be a major boost to manufacturing but would pave the wave for technology transfer agreements which are critical. A similar outcome with Boeing is also being pushed and it certainly helps that there is already an existing joint venture with Boeing on the defence side. Can India’s aviation infrastructure handle the new load? For now, as the celebration fades, there are also questions on whether the country has complex fleet infrastructure to enable a seamless induction and deployment of this mammoth aircraft order. Add to it the additional orders by competitors that will be announced in the coming months. Finally, it is the deployment of aircraft which translates into adequate returns on capital. On this front much work lies ahead. Whether it be in developing airports as hubs, or air-traffic management, or maintenance facilities or trained manpower. Or financing mechanisms, future technologies and fungible connectivity. Policy changes that have been announced will certainly help but time is now of the essence. The excitement and enthusiasm notwithstanding, the aircraft order is just the beginning. Ambitious plans call for even more deft and flawless execution. Because the final outcome for a sustainable business means returns on capital. In the airline business, with razor thin margins and intense competition, returns for the most part have been found wanting. Is India on the cusp of an aviation boom? Demand is not an issue and most recent forecasts see more than 190 million domestic and international passengers taking to the Indian skies in 2023, and the number of flyers tripling by the end of the decade. But chasing this demand are five large airlines flying 650 aircraft and 1.9 aircraft on order for each aircraft that is flying. And the discerning digitally connected consumer has several choices. Overall, the Air India order is a right step – for the airline, for Tata Group and for India. With this aircraft order, the Tata Group has committed to staying the course. But it also means the heavy lifting has just begun. The writer is managing partner of aviation services firm AT-TV