Monday, March 03, 2014

Jet Airways, SpiceJet Set to Make Boeing Orders: WSJ

The Wall Street Journal

By Gaurav Raghuvanshi


March 3, 2014 7:08 a.m. ET

India's unprofitable Jet Airways Ltd. and SpiceJet Ltd. are set to unveil dozens of new aircraft orders from Boeing Co., which is likely to turn up the competitive heat in the country's increasingly crowded airline industry.

The orders, which are worth US$8.3 billion at list prices, may be announced as early as next week at India's biggest commercial aviation show in the city of Hyderabad, people familiar with the matter said Monday. They said the orders could include about 30 Boeing 737-MAX single-aisle jets for SpiceJet, as well as a formal announcement of at least 50 planes of the same type for Jet Airways.

Another carrier, IndiGo, is also evaluating orders for more Airbus Group A320 jets, according to another person familiar with the situation, though the nation's biggest discount carrier by fleet size may not place its orders before the end of the first half.

The large orders reflect strong growth potential for India's airline industry, though the nation's domestic carriers continue to struggle.

Traffic growth is robust. Domestic travel between April and December rose 6% from a year earlier, while international traffic increased 10.7%, according to data from consulting firm CAPA — Centre for Aviation.

But India's airlines are strapped financially, having reported losses in the last three years as stiff competition forced them to discount tickets while excessive government regulation stunted growth.

SpiceJet reported a 1.73 billion-rupee (US$28 million) loss in the quarter that ended Dec. 31. The airline last reported an annual profit for the year that ended in March 2011.

Jet Airways, India's biggest premium carrier, last reported a consolidated annual profit for the year that ended in March 2007. Analysts expect the two airlines and flag carrier Air India Ltd. to report losses for the current financial year.

Competition among local carriers will likely intensify, after India's government last year allowed foreign airlines invest locally. Malaysia's AirAsia Bhd. and Singapore Airlines Ltd. have announced separate plans to enter the Indian market in partnership with local conglomerate Tata Group.

In addition to increasing competition and government regulation, India's airlines face high jet fuel charges and their airport fees are steep, especially at newly built terminals in New Delhi, Bangalore and Mumbai.

Spokesmen for Boeing, Jet Airways, SpiceJet and Indigo declined to comment Monday, while Airbus couldn't immediately be reached for comment.

Still, analysts say the industry has enormous growth potential if the country's sizable middle class chooses air travel over rail, which is the backbone of India's transportation infrastructure, despite being notoriously unreliable and inefficient.

"The losses of Indian carriers will not continue forever. The long-term outlook for the sector is extremely positive," said Amber Dubey, the head of aerospace and defense at consulting firm KPMG.

India is "getting increasingly aligned to global best practices in aviation and becoming a better place to do business in," said Mr. Dubey, noting he expects most policy problems to be resolved in the coming years.

Already, the Indian government has begun to liberalize the industry. It has allowed airlines to charge passengers for preferred seats and has permitted the A380, the world's biggest jet, to fly into India.

The government is also planning to abolish a rule that prohibits carriers from starting international service until they have a five-year track record of flying domestically and have at least 20 planes in their fleet.

Indian airlines are expected to order a combined 400 planes this year, according to CAPA, the consultancy. That compares with about 375 planes currently flying with the five national carriers.

Some of the orders will replace older aircraft. In some cases, the planes that are being replaced are only five or six years old. Many Asian budget airlines are increasingly opting to buy new aircraft and sell older planes to avoid hefty maintenance and overhaul costs.

The Indian deals likely to be announced next week will build on the more than 350 aircraft that Indian carriers have on order. The last major order by an Indian carrier was for 180 Airbus A320s by IndiGo, which was made in June 2011.


Source:  http://online.wsj.com

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