We’ll take 50 of them Boeings

India-US relationship and Air India’s $6.6 billion purchase

While India is yet to decide on the United States’ offer to sell military aircraft to India, Air India, the country’s state-owned airline, has announced its decision to procure 50 commercial airliners from Boeing. The order includes 27 of Boeing’s new 787s, 15 777-300 ERs and 8 777-200 LRs and needs bureaucratic and political approval before it goes through.

The decision to purchase American airliners comes after the recent signing of an “open-skies” deal between India and the United States. It is a reasonable guess that India’s decision to give Air India’s custom to an American manufacturer is the icing on the cake. Airbus, Boeing’s archrival, is already crying foul, even though it won an earlier deal from Indian Airlines, another state-owned carrier. Airbus is also likely to be the primary supplier to private carriers like Jet Airways who, as a result of the open-skies deal, will need to expand their fleets.

Whatever be the motivations behind Air India’s order, it certainly is good news for the fast-developing US-India relationship. It also calls to attention the fact that there is much more to bilateral relations than the sale of military aircraft. While opinion is mounting that India should decline the Bush administration’s offer of F-16s (as Kaushik Kapisthalam and Air Marshal Brijesh Jayal contend), it is unlikely that Air India’s commercial deal is intended to placate America if and when India buys French Mirages for its air force. But if the Indian government did plan it this way, the move is nothing short of a masterstroke.

Related Link: Bill Rice discusses this on Dawn’s Early Light

14 thoughts on “We’ll take 50 of them Boeings”

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  3. Nitin,
    Agree with you on most part. Note that Jet has gone for 737s. They have only leased some 340s from a South African airways (mostly because they are desperately looking for some wide-bodied aircrafts).

    Airbus’s grouse is that so far they got only the measly 320 deal from Spice and Kingfisher. IA is still not confirmed.

  4. IA wants to order more A320s but government is slow to approve the deal. Airbus says that unless the deal is completed soon, it will have give IA’s delivery slots to someone else.

    I don’t know if this is a negotiating maneveur or not, but IA desperately needs these aircraft.

  5. Airbus has an impressive record in slowly challenging Boeing dominance and has in the recent few years pipped Boeing at the post.
    Ideally, Airbus and Boeing are cutthroat competitors and India should continue to look at both these suppliers for their civilian aircraft needs. Airbus’ strategy for growth has been to co-opt multiple partners into their scheme of production. It contains French, German, British, Japanese parts and the way they grew was by ensuring production of components in multiple countries and getting everyone in as stakeholders.
    Indian Engineering is now of a degree that we could negotiate co-production of components with Airbus or Boeing or Embraer and ideally we should get in to hi-tech civilian aircraft manufacturing. The deal the Indian Govt should negotiate with either Boeing or Airbus should involve some level of component manufacture within India by private entities that will encourage the growth of an aviation component industry in India (like how the auto components industry is now world-class, the size would probably be smaller but the technology advantage is considerable). The potential for aviation growth in India makes an aircraft engine services shop in India also within the realm of possibility that the Indian Govt should lobby MNC engine manufacturers to set up.
    Check this book for a fascinating account of the tussle in the skies.

  6. Huvishka, with globalization, the entire world is providing components to either Boeing or Airbus. That Airbus is made up of multiple defence and aernautical companies is political, not business.

    It doesn’t make sense for Airbus to have one A320 production line in Toulouse, France, and another in Hamburg, Germany.

    In addition, India already makes components for Boeing, anyway. I believe HAL is either manufacturing doors, or something. I’m not rally sure.

  7. The new A380, while evoking awe, is perhaps a little outdated. Right now the buzz is on smaller, cheaper airline travel. There’re so many airlines around the world now focussing on the barebones “I just want to go from point A to point B” segment. In such a scenario, the A380 really does seem anachronistic. Perhaps thats what happens when a project takes 10 years to materialize.

  8. Actually there are 2 models currently in the airline industry.
    1. The Regional Jet which is a point A to point B type service as opposed to the hub and spoke model. There is projected to be considerable demand within the Continental United States, within Europe, within Asia, within China and within India
    2. There is still considerable demand for the inter-continental travel (between the Americas-Asia, Asia-Europe, Europe-Australia, Australia-Americas, etc. that still lends itself to a hub and spoke model. This is one sector wherein there is scope of increased profitability with greater passenger numbers.
    Singapore Airlines which is a bellwether in the airline industry has committed to the A380.
    Niraj: The Airbus project was initiated in Europe as a political response. In the 60s there were only American planes and the European civilian aircraft industry was non-existent (The British pioneers & the rest of the Europeans were not in the game). The Europeans at that point realized that they had to build a high technology base through an aircraft and they decided to pool their resources together and the Airbus project grew in parallel with the common European identity that was being forged through the EEC & the EU. The individual parts of Airbus are all manufactured in different countries and then shipped to Toulouse where its all put together.
    Having said that, both Airbus and Boeing sales are intensely political with the individual Govt leaders as their star salespeople and continuous litigation around the prevalence of subsidies in airline manufacture.
    Jagadish: A 10-year civilian aircraft project where there are considerable design changes would not be considered an outlier in this industry.

  9. Huvishka:

    Yes, Airbus is essentially a political entity since it doesn’t run on a business model I know of. It has received billions in state subsidies to keep it afloat, which, at the same time, enables it to undercut Boeing on price. I think this is a contention point to this very day. Nevertheless, this does not detract from the quality of the aircraft, which is superb.

    But I believe there is another production line in Hamburg, Germany, which I believes builds only A319s. Alas, I could be wrong on this score.

  10. As Nitin said, it may not have been deliberate, but it is a masterstroke if it was one. But it also makes sense (from a non-strategic point of view) if you look at the Indian scenario, as I will try to explain.

    First, the giant new Airbus A380, promotes a hub-and-spoke model. Boeing’s yet-to-be-released Dreamliner on the other hand promotes point-to-point travel.

    For a hub-and-spoke model in India, the obvious contenders would be Delhi and Bombay, for sheer numbers. For infrastructure, we would probably have to look at the new airports coming up in Bangalore and Hyderabad. So the ideal solution for India would be to discourage the Bangalore and Hyderabad traffic from further clogging the already dying Delhi and Bombay airports, and instead fly to their destinations in the US or Europe or Japan directly.

    That apart, the orders would “save” some jobs in the US, and take some pressure off the BPO and software services sectors. It would also reduce the balance-of-trade gap in favor of the US – thus more points for India in that direction too. Boy, can someone finish counting the plusses of this decision? ๐Ÿ™‚

  11. Kiran:

    I think some of the changes you are talking about is already happening. Many European and Asian airlines are already directly flying to Hyderabad and Bangalore. If India adopted a complete “open skies” policy, even more flights would pour in.

    As for Air India acquiring any A380s, they may in the future if traffic warrants it. It’s for high-density routes. So they may have use for specfics routes like BOM-LHR or DEL-LHR, which are slot-controlled.

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