Explained: Why Is Air India's Order for 470 Airbus, Boeing Planes a Big Deal?

The $34 billion order indicates Air India's deep desire to reclaim its lost crown as India’s aviation 'Maharajah.'

The landmark order for 470 aircraft has shocked the world, owing to its sheer size and how it's going to change Air India.

(Photo: Pranay Dutta Roy/The Quint)

In one of the world’s largest aviation orders, Tata-owned Air India struck a record deal to add a total of 470 planes from Airbus and Boeing into their fleet at a time when the carrier races to tap into the surging demand for affordable air travel, especially from India’s growing middle-class consumers.

The "historic" deal was lauded by the likes of United States President Joe Biden, who spoke to Indian Prime Minister Narendra Modi on the phone following the deal. It also received applause from European leaders, including British Prime Minster Rishi Sunak and French President Emmanuel Macron.

Here is all you need to know about the mammoth deal.

The Art of the Deal

The largest Indian international carrier and second-largest domestic airline is purchasing 220 Boeing aircraft, based out of the United States, and 250 passenger jets from European manufacturer Airbus.

While the agreement between Boeing and Air India clocks in at a whopping $34 billion, financial details regarding the deal with Airbus have remained scarce.

The two deals involve the purchase of 190 Boeing 737 MAX single-aisle planes, 20 Boeing 787 and 10 Boeing 777-9 wide-body aircraft, along with 210 Airbus A320 and A321neo aircraft, and 40 Airbus A350s, the first of which will begin service in late 2023. Meanwhile, the bulk of the order will arrive starting mid-2025.

Moreover, Air India also signed MOUs for 68 Rolls-Royce Trent XWB-97 engines, making Air India the only Indian airline that has ordered the XWB, which is also the largest order ever for the engine that exclusively powers the Airbus A350-1000.

Air India also ordered 12 Rolls-Royce Trent XWB-84 engines, the only engine option for the Airbus A350-900, an order which is considered to be substantial.

But the real winner of the deal is the American company General Electric, which received an order for 40 GEnx and 20 GE9X, the engines that power the Boeing 787 Dreamliner 777-9, respectively.

A Lesson in Geopolitics 

Once the deal was officially announced, it did not take long for the leaders of India, France, the UK, and the US to react. It was lauded as a glowing example of mutually beneficial cooperation that will create employment opportunities within all the involved nations.

US President Joe Biden hailed Air India’s "historic agreement" and said, "The United States can and will lead the world in manufacturing. I am proud to announce today the purchase of over 200 American-made aircraft through a historic agreement between Air India and Boeing."

In a called with Prime Minister Narendra Modi, he said the “landmark” agreement will create nearly 1 million jobs across 44 American states.

The Indian PM had a "warm and productive" telephone call with the American president where the two leaders expressed satisfaction at keeping Indo-US strategic partnerships, which will result in growth across all domains,” an Indian government statement said.

Moreover, British PM Rishi Sunak said that by building trade ties with growing economic power like India, the UK will ensure that their native business remain at the forefront of global growth.

A substantial portion of the manufacturing process for the new aircraft is set to take place in the UK, which includes the production and assembly of wings and engines. It is expected to create hundreds of jobs and bring large sums of investment to the UK.

He added that the “landmark deal" will create “better-paid jobs and new opportunities in manufacturing hubs from Derby to Wales.”

Congratulating the Tatas and Airbus on the agreement, Modi said that the deal reflects on the keeping ties between India and France, and said, “Whether it is the issue of security and stability in the Indo-Pacific region, or global food security and health security, India and France together are making a positive contribution."

French President Emanuel Macron said that France is fully committed in providing India with extremely efficient state-of-the-art technology and added that the end of the COVID-19 pandemic should open up more opportunities for exchanges between India and France.

Calling the deal a milestone in ties between the two nations, Macron said that French companies are actively working with India with regards to carbon neutrality and energy transition.

The global economic slowdown and Europe being on the brink of recession opens up opportunities for India to fill the void left by China, as seen in this mammoth deal.

Why Is the Deal Historic? 

The landmark order for 470 aircraft has shocked the world, owing to its sheer size and the implications it brings for Air India, the aviation industry and some of the largest economies in the world. It became the largest bulk order for aircraft, eclpsing an order by American Airlines for 460 planes almost a decade ago.

Founded in the 1930s by the Tatas, Air India’s massive deal with Airbus and Boeing is an attempt to win traffic from Emirates, Qatar Airways, and Etihad, among others, which have produced a business model ferrying Indians abroad via their hubs in Dubai and Doha respectively.

The demand for air travel in Asia, particularly in India, has witnessed a significant surge over the past decade. The robust economic growth in the region has led to an increase in disposable incomes, making air travel accessible to millions of people.

“This order is an important step in realising Air India’s ambition, articulated in its Vihaan.AI transformation programme, to offer a world class proposition serving global travellers with an Indian heart,” Air India and Tata Sons Chairman N Chandrasekaran said.

Air India’s acquisition of wide bodied aircraft like the A350 now allows the carrier to enter these lucrative routes with non-stop flights to and from India, servicing the massive Indian diaspora abroad.

Currently, Indian travellers heavily rely on international airlines for flying overseas to the United States, Europe, and other parts of the world.

Moreover, it also gives the carrier legroom to battle within the domestic market, where its competitor Indigo has established dominance and led the space in recent years.

For years, Air India’s ‘Maharaja’ mascot, once known for its decked-up planes and stellar service has been plagued with passenger grievances as financial troubles mounted.

New CEO Campbell Wilson is working to revive its reputation as a world-class airline and shake off its image as a tardy, run-down operation with an ageing fleet and poor service.

In line with Wilson’s vision, it recently merged with Vistara, after which it became the country’s largest airline operating internationally and the second largest on domestic routes with a combined fleet of 218 aircraft flying to 52 domestic and 38 international destinations before the recent order.

But after the new deal, Air India’s fleet is expected to grow two-fold and overtake Indigo’s feet of 300 aircraft domestically, while also making its presence felt in international skies.

Air India’ funding model for the multi-billion dollar scheme open up to an interesting question. When the Tatas took over Air India, they absorbed almost Rs 15,300 crore of the total debt, which clocked in at a shocking Rs 61,562 crore, and subsequently claimed that they already refinanced the debt it took.

Details regarding the financing of the massive deal remain scarce, experts say that the company could either approved the domestic or foreign bond market, or the equity market in India.

A Win-Win for Airbus and Boeing?

Airbus CEO Guillaume Faury, on a videoconference with Tata Sons Chairman Natarajan Chandrasekaran, PM Modi and President Macron, said “Today is a historic moment for India, for Air India and for Airbus.” 

The order’s size “demonstrates the appetite for growth in the Indian aviation industry. It’s the fastest growing in the world,” he added. 

Chandrasekaran said that the Airbus A350s will be utilised to “fly all ultra-long distance across the globe,” adding that the airline has “significant options” to raise the order. 

In a statement, Boeing said that their agreement with Air India includes the option for 50 additional 737 MAX aircraft and 20 Boeing 787-9s aircraft. 

"When finalised, this will be the largest Boeing order in South Asia and a historic milestone in the aerospace company's nearly 90-year partnership with the carrier. The order will post to Boeing's Orders and Deliveries website when final," the company said.

It added that the 737 MAX will further provide flexibility across Air India’s growing domestic and international route while putting a damper on fuel use and emissions by 20 percent.