Air India Contracts with Boeing & Airbus Under Fire (BA, EADSY, FDX, FAA)

Just a few months before Air India merged with Indian Air in early 2007, each carrier placed significant orders with Boeing Co. (NYSE: BA) and Airbus maker European Aeronautic Defense & Space Co. (OTC: EADSY) for 68 and 43 new planes, respectively. India’s Comptroller and Auditor General has just blistered the now-merged Air India Ltd. for flaws in planning and execution.

The Wall Street Journal reported that the new report assumed that a projected market share increase, which led to the new orders, was “unduly optimistic” and “not adequately validated.”  The report could force Air India Ltd. to cancel orders for planes that have not yet been delivered, especially because the airlines has been running a deficit ever since the merger.

Boeing has delivered 38 planes to Air India since the orders were placed and has on its books 30 more planes yet to be delivered. Of those, 27 are 787 Dreamliners and 3 are 737-900ERs. The total list price value of the remaining deliveries is $5.8 billion.

Boeing might be able to make up a bit of the sting if the Air India orders are cancelled with an order from Fedex Corp. (NYSE: FDX), which is reported to be considering a combined new order for 50 Boeing 767s and Airbus A330s. Boeing’s 767 is the platform on which the company will build the new US Air Force tanker.

Boeing’s shares are down more than -2% in the first half-hour of trading this morning, at $63.41, in a 52-week range of $59.48-$80.65. Shares of EADS NV are also down about -2%, at $30.11, in a 52-week range of $22.20-$36.17. The Guggenheim Airline ETF (NYSE: FAA) is unchanged on no trades yet, at $27.71.

Paul Ausick