Well we were all told that an order was coming and here it is: An MOU has been signed between Airbus and IndiGo for 150 A320neos and 30 A320s, IndiGo has just cornered the A320neo market for the foreseeable future. At the same time the airline also ordered 30 A320s. The order is worth some US$16.4 billion at list prices although it is clear there would have been discounts.
India’s largest low cost airline IndiGo, which overtook the state-owned Air India to grab the number three spot in terms of market share in the domestic market in November 2010, commands a 17.3% share in the domestic market, compared to 17.1% for Air India. IndiGo has Rs 380.88 crore of debt on its books.
IndiGo began operations on August 4, 2006 with a service from Delhi to Imphal via Guwahati. The airline is owned by the Gurgaon based InterGlobe Enterprises. Former US Airways executive vice-president, marketing and planning, Bruce Ashby is IndiGo’s chief executive officer.
IndiGo has a track record for large orders; you may recall that IndiGo placed an order for 100 A320s during the 2005 Paris Air Show. The total order was worth US$6 billion. Of that order 37 aircraft are in service with a target set at 2016 for last delivery of the remainder. Today’s order is in addition to these aircraft. The Indian Government has approved the airline's aircraft import plan "in principle".
The order will to allow IndiGo to continue to offer low fares, while reducing its costs and improving environmental performance, airline co-founders Rakesh Gangwal and Rahul Bhatia said in a news release yesterday.
Airbus of course says the A320neo will use up to 15% less fuel than existing A320s, cutting up to 3,600 metric tonnes of carbon dioxide emissions a year, with a double-digit reduction in nitrous oxide emissions and reduced engine noise.
But enough of all that manufacturer puff, the big question you will all want answering is which engine option will IndiGo confirm? The answer remains a 50/50 choice I am sorry to say but we can be very sure that reductions are being worked out as an order of this magnitude will affect share prices so it is all to play for, for the CFM International LEAP-X and Pratt & Whitney PurePower PW1100G offerings.
So other than the fact the IndiGo will need to secure quite a bit of financing we can only confirm today that your A320 in service or on order is worth that little bit less today than it was yesterday.
Delivery schedules for this order are close to the end of this decade that puts Airbus into a tricky position as it means that A320neo aircraft will begin delivery to airlines in a timeframe that allows Boeing to launch a 737 replacement that can be delivered on or around the same time. If Boeing were to announce a 737 replacement before the end of 2012 then it is highly likely that they can begin delivery of the same by 2017/18 although Boeing say that 2020 is the likely delivery year for any replacement. This would of course leapfrog Airbus’s neo and leave the European manufacturer with quite a problem. The Boeing offering would need to replace the 717 and 757.
So why did Airbus put itself into a position of short-term stopgap at the expense of long term gain?
The answer to the question is lack of funds. Airbus has a number of programs running in the red at this time. The A400M is a nightmare from which there seems to be little escape with huge costs and little to no gain in sight. The cost of the A350/A350XWB R&D program and construction are massive and for the time being remain a millstone for Airbus. But we cannot forget the A380. Yes the aircraft has orders but only a third of what is required for the program to break even. Airbus is doing a very good job at this time of applying patches to a gaping hole in their finances.
Look out for the A320neo feature and survey results within the February issue of Airline Economics as it just got that little bit more interesting......