Air India's Jumbo Airbus Order Has Changed Significantly

By Consultants Review Team Wednesday, 06 December 2023

On Valentine's Day this year, the Air India announced an order for 470 aircraft after much anticipation. This was billed as the greatest buy in history, but rival IndiGo signed up for 500 planes the day before Air India formalized their order. IndiGo snatched that record before it was officially created. Both activities took place at this year's Paris Air Show in June. Air India's purchase comprised a combination of Airbus and Boeing aircraft, as well as a mix of narrowbody and widebody aircraft. The deal with Airbus included 140 A320neo, 70 A321neo, 34 A350-1000, and six A350-900 wide-body jets.

The six A350-900s were scheduled for Aeroflot but were never delivered after Russia attacked Ukraine in February 2022. It was widely assumed that Air India had chosen the A350-1000s for its requirements, with the six A350-900s being taken up because they are readily available. Four of the six A350-900s have been shipped to Air India, but none have yet arrived in India since they are being painted in Air India colors or undergoing cabin refits.

Air India has rejigged its plans, moving for 14 more A350-900s than initially planned and cutting an equal number of A350-1000s, according to the latest orders data given by Airbus, which covers data until the end of November. The more startling move has been on the narrowbody front, where the airline has flipped orders, with only 70 A320neo currently on order and 140 A321neo on order. None of the narrowbody aircraft have yet been delivered, with the present ones stemming from an earlier order placed through lessors in 2022.

A Common Occurrence

Contracts between OEMs and airlines typically allow for such revisions in the order book. It has a cost and a cut-off date that has been back-calculated based on the well-oiled production process. While there are many common parts between the A320 and A321, as well as the A350-900 and A350-1000, the changes must be made well in advance to ensure that the suppliers and their suppliers are notified of the change well before the first part begins its journey towards production. This is especially important in these days when supply chain difficulties are all the rage.

IndiGo has also rejiggered its order split numerous times in the past, initially favoring the A321neo, then going to the A320neo, before returning to the A321neo.

What information does it provide about the strategy?

Air India's priority is to become a premium carrier. It was clear from the announcements for refurbishment, as well as a long-term intention to add premium economy to the narrowbody fleet and postpone the Vistara-Air India merger. The majority of Vistara's fleet is divided into three classes.

The A321neo has gained popularity around the world due to its versatility. In a competitive market like India, the emphasis has been on keeping costs low, and Air India appears to have focused on lowering its CASK, or Cost per Available Seat Kilometer. Vistara has had to invest in reconfiguring its aircraft twice since its inception, and given that history, Air India may have desired additional economy seats in addition to Business and Premium Economy. Airbus does not provide the A321neo in its entirety, but it does offer choices such as the A321LR, which Vistara employs to fly longer flights to Bali, Mauritius, and Hong Kong, while JetBlue uses it to fly transatlantic; and the yet-to-be-inducted A321XLR. These could enable Air India to establish new destinations and increase capacity at slot-constrained airports in India and neighboring countries.

The widebody order changes and sees a balanced approach. The A350-900 seats fewer passengers and has a shorter range than the A350-1000s. While the -1000s give a wider flexibility, it comes at an additional cost, and not all routes may be up for such a huge capacity. Some of these planes may also act as replacements for the older 787s and the A350-900s fit the bill better. The A350-900 also comes with the ULR version which flies up to 18,100 kms, a version which Singapore Airlines uses to fly to the US. Cathay Pacific and Qatar Airways have the two versions in the fleet, while a few more including Air India plan to have both.

With a multi-year delivery schedule, a standard "options" clause is included into the contract but not made public, and Airbus invests in boosting the monthly manufacturing rate. More revisions to Air India's order are possible, particularly on the narrow body side. Passenger demand is fluid, yet capacity is reserved in advance, making it a challenging sector. There have been instances where passenger demand has vanished overnight, leaving airlines with excess capacity, but demand returns, making the game more about reaching equilibrium.


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