India’s low-fare airline IndiGo has placed a $15.6 billion order with European Aeronautic Defence and Space NV (OTC: EADSY) for 180 new aircraft, including 150 of EADS’s re-modeled Airbus A320. The order could push Boeing Co. (NYSE: BA) to re-vamp its 737, something the company has been reluctant to do.
IndiGo is the third largest airline in India, flying domestic routes only. The airline is expected to place a firm order with EADS within two months for 30 of the company’s current A320 planes and 150 new versions of the same plane that will offer improved fuel economy. IndiGo plans to seek authorization to fly international routes in August 2011, when it will meet a mandated five years of operation as a domestic carrier.
IndiGo has not yet lined up financing for the 180 new planes, and the bulk of the order won’t begin arriving from EADS until 2016.
The supply of aircraft in India is far outstripped by the population. According to Reuters, China, with a similar-sized population, sports a fleet of 2,600 aircraft to India’s 400. Passenger traffic in India grew by 19% in 2010 to about 47 million people through November 2010, compared with about 230 million passengers in China in all of 2009.
Boeing probably did not even have a chance to win this order, which is being touted as the largest in aviation history. IndiGo already flies 32 of the Airbus A320 aircraft, and as a low-cost flier, the company has essentially standardized on a single aircraft to help cut maintenance and training costs. Think Southwest Airlines Co. (NYSE: LUV).
For Boeing, which has so far been slow to upgrade its 737, the IndiGo deal with EADS could be a wake-up call. The company has been so focused on its 787 Dreamliner that it hasn’t paid a lot of attention to its cash cow. The new engines for the Airbus A320 will not fit under the wings of a Boeing 737, unless the Boeing aircraft’s ground clearance is redesigned. The more efficient engines will give Airbus a substantial boost in fuel efficiency and range. For regional or domestic carrier use, this can be a deal-maker or a deal-breaker.
A Bloomberg story notes that Boeing has said it can offer the 737 with a more efficient engine, but the company doesn’t think the business is large enough to repay the investment.
Paul Ausick
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