Air India may buy 60 more planes to tap travel demand

July 30, 2007 - 0:0

NEW DELHI (Bloomberg) -- Air India Ltd., which is already buying new planes to spruce up its fleet, plans to order another 60 aircraft to meet rising demand for air travel in the world’s second-fastest growing major economy.

Air India, which ordered 68 aircraft from Boeing Co. last year, will prepare a proposal for the new purchases in two weeks, aviation minister Praful Patel said in New Delhi on July 28. The nation’s biggest overseas carrier will evaluate aircraft from both Boeing and European rival Airbus SAS, he said. State-run Air India, set to be merged with Indian Airlines Ltd., may need more planes as economic growth and rising incomes prompt more Indians to fly. The carrier will have to face competition from Jet Airways (India) Ltd. and Lufthansa AG that are expanding in India. “Looking at the demand and passenger growth, the number of new orders could be about 60,” Air India’s Chairman V. Thulasidas said at an event in New Delhi to showcase the new planes bought by the two carriers. “In the next two to three years, we should be replacing all the old aircraft with new ones.” Mumbai-based Air India will also consider buying the Airbus A380, Patel said at the event. Delivery from Boeing for the estimated $10 billion order placed last year began in December. “We will revisit the aircraft acquisition process of Air India within a fortnight,” Patel said. “After all these new aircraft are inducted and the old ones phased out, Air India will need more aircraft.” ------------Possible share sale Air India may sell shares next year to partly fund the purchase of the new planes, Patel said on May 22. Air India and Indian Airlines were planning to go for separate initial public offerings earlier, but the plan was delayed until the merger. Air India will raise as much as 85 percent of loans for the new planes from the Export-Import Bank of the United States, according to the company's annual report for the financial year ended March 31, 2006. These loans are guaranteed by the government of India as Air India is a state-owned company. The remainder will be raised as loans from commercial banks. Air India had foreign currency loans of 15.02 billion rupees ($370 million) as of March 31, 2006. Purchase of the new planes may help Air India improve its profits, which declined to 149.4 million rupees in the year ended March 31, 2006 from 963.6 million a year earlier. --------- U.S., Canada Air India and Indian Airlines have more than 110 planes in all and have ordered an additional 111 from Boeing and Airbus. Air India ordered 50 Boeing planes for itself and 18 for its low-fare unit Air India Express in January 2006 to start flights to the U.S. and Canada. Indian Airlines, the nation’s third-biggest domestic carrier, ordered 43 planes from Airbus SAS to introduce more services and win market share from legacy and budget carriers in the country. Air India will begin flights with two new Boeing 777-200 LR planes from Aug. 1. The airline will have daily flights to New York from Mumbai, which will be followed by flights from New Delhi, starting early 2008. The combined airline will be run by National Aviation Co. As part of the merger, Alliance Air, a subsidiary of Indian Airlines, will be absorbed into Air India Express. Air India and Indian Airlines weren’t able to tap the expanding civil aviation market in the country because of aircraft shortage, Prime Minister Manmohan Singh said at the function. “With the acquisition of these aircraft, our national carriers will be better placed to take on competition at home and abroad,” Singh said. ------------ Affordable travel Economic expansions, the start of low-fare carriers and rising disposable incomes have made air travel more affordable in India. This has helped Airbus and Boeing win orders of more than 450 planes worth about $30 billion in the past four years. Seven carriers have started flights in India in the past four years and another five have sought approval. Air travel in India will grow by an average of 7.7 percent annually through 2025, compared with 7.2 percent growth for China and 4.8 percent globally, according to a December projection by Airbus, the world’s biggest commercial-plane maker. Airlines in the country may buy another 1,110 planes valued at $105 billion by 2025, according to Airbus. India’s economy expanded 9.4 percent in the year ended March 31, the most since 1989, and may grow 8.5 percent in 2007, a pace surpassed only by China among the world’s largest economies, according to the Organization for Economic Cooperation and Development. The number of passengers rose 24 percent to 73.4 million in the fiscal year ended March 31, 2006, according to India’s Civil Aviation Ministry. It probably grew to 86.8 million, including 60.9 million domestic passengers, in the year ended March 31, the ministry said