India Paris Air Show | IndiGo Places Record 500-Jet Order with Airbus

[Gessler]

By Theo Leggett in Paris & Nikhil Inamdar in Mumbai
BBC News

Indian carrier IndiGo has made a record order for 500 Airbus A320 aircraft - the largest single purchase agreement by any airline in commercial aviation history.

The deal, announced on the first day of the Paris Airshow, is worth roughly $55bn (£43bn) before any bulk-order discounts. IndiGo now has an order book of 1,330 aircraft with Airbus. It is expected to mean a stream of deliveries between 2030 and 2035.

The new deliveries will help budget carrier IndiGo lower its operating costs and improve fuel efficiency, the company says. India is a burgeoning aviation market, with some analysts saying it is on track to replace China as the aerospace industry's next growth frontier.

The country is expected to be the fastest-growing G20 economy over the next few years and has seen a significant increase in the number of first-time flyers since the pandemic. And there's still a large runway for growth. Under 5% of the country's 1.4 billion people are estimated to have ever taken a flight and air traffic in India has been growing hugely as disposable incomes rise.

In February, Air India, IndiGo's rival, made headlines by placing its own order for 470 aircraft from both Airbus and Boeing.

This latest deal shows that confidence is returning to the airline industry in the wake of the pandemic - and this order from the low-cost carrier is a statement of ambition from one of the fastest-growing airlines in the world.

Ryanair and Saudi start-up Riyadh Air have also recently made large aircraft orders. But while airlines now seem keen to invest in new aircraft, manufacturers are struggling to build them quickly enough, because supply chains remain disrupted by the after-effects of the Covid shutdowns.

While this may be by far the most dramatic order seen so far at the Paris Airshow, it is unlikely to be the last.

The airliner market ground to a halt during the pandemic, but now carriers are making up for lost time, renewing their fleets and in some cases expanding aggressively as well.

IndiGo: Record aircraft purchase announced at Paris Airshow

The deal between the Indian carrier and Airbus is the largest single order by any commercial airline.

www.bbc.com

 

[Afif]

Can anybody explain how these deals actually works?

Because of my lack of understanding in commerce, it seems very absurd that a company with $7.4 billion total assets buying jets worth $55 billions jets.

 

[Gessler]

Can anybody explain how these deals actually works?

Because of my lack of understanding in commerce, it seems very absurd that a company with $7.4 billion total assets buying jets worth $55 billions jets.

Deals are financed by banks/NBFCs by looking at the airline's passenger numbers, no. of routes served & growth potential in the area it serves.

These deals are also a hedge by the airlines - for example this order is expecting deliveries between 2030-35. If IndiGo feels the need to raise some liquidity for their operations in the meantime, they can 'sell' some of their production slots to other airlines that want more airframes ASAP and are willing to pay a premium for that.

 

[Nilgiri]

Can anybody explain how these deals actually works?

Because of my lack of understanding in commerce, it seems very absurd that a company with $7.4 billion total assets buying jets worth $55 billions jets.

Combination of credit, bond issuance and separate asset holding.

To add to what Gessler said....India currently has 600+ billion dollar corporate bond market, 700+ billion dollar commercial credit issued.

The market cap denominator is around 3.4 trillion USD right now. So the leveraging is within the norms.

All are expected to grow healthily in next 10 years....so borrowing should not be big issue for Indigo.

Regd asset holding, something like 50% of aircraft in world airline industry are leased rather than owned by the airline directly.

As Indigo buys 500 aircraft, a look at how carriers finance their wishlist

Before this, Tata Group-owned Air India had placed an order for 470 aircraft

www.business-standard.com

According to data from the CAPA Fleet Database, leasing is a common practice in the aviation industry and about 50 per cent of commercial aircraft around the world are leased. Thus, in a lot of cases, purchase announcements are not really purchases at all.

The 10 Largest Aircraft Leasing Companies in the World, and What They Do

Most airlines do not own planes. Instead, they lease from aircraft leasing companies. Here are the largest aircraft leasing companies.

history-computer.com

i.e Indigo as part of its commitment has another holding company acquire the a/c with deal worked out with them later (they actually own the asset plane and indigo leases from them and may buyback over time etc depending on what its cashflow and strategy turns out then)

i.e indigo has looked at the market fundamentals of growth till 2035 and made this call to commit to 500 (300 were already planned before covid delayed that deal) with the market analysis its done....and there are things in middle to work out to make it happen.

Its probably a large part of how indigo operates right now even, as if you look at the fleet size (300+) and most are airbus neo etc, theres no way assets can be just 7 billion USD if they directly owned all those a/c.