A jumbo deal

Air India's purchase commitment has multiple implications

Air India’s announcement that it will buy 470 new aircraft is a major decision both economically and in terms of geopolitics. It has implications for the partnerships between India, Europe and the United States, the future of the aviation sector in India, and for Air India specifically. In addition to the 250 jets to be purchased from Airbus SAS, which is based in the Netherlands but has German, French, Spanish and British ownership, Air India will lease 20 additional aircraft. It will also purchase 220 planes to be made by the US-based aviation major Boeing. The addition of almost 500 new planes, including those that are to be leased, is a major departure for the company and is the first real indication that the Tata group, which has bought it from the government, has a strategic plan for its revival.

For the new owners of Air India, the hard work starts now. It is an unwieldy company, run through by the unfortunate legacy of decades of public sector mismanagement. The last big aircraft deal that it entered into, following an ill-fated merger with Indian Airlines, saddled it with unsustainable levels of debt. This is not a propitious history, and it could perhaps have led it to be slightly less ambitious with its purchase announcements. The fact that it has spread out this order of new planes across multiple models and the two aircraft manufacturing behemoths is itself a reflection of its convoluted history and internal contradictions.

As has been shown by many low-cost airlines, true efficiency in the sector is achieved by minimising the number of configurations that have to be flown. That at least five different models are part of this deal indicates the vast variability in routes, airports, and passengers to which Air India has committed itself. Managing these competing configurations while improving service is a tall order. At the same time, the airline will also have to win back the market share that could justify the size of this order. Domestically, low-cost airlines with swift service and good on-time records dominate. Internationally, the Gulf-based airlines easily dominate routes into and out of India. Air India’s advantage of direct connections is underutilised.

While a long-term transition to a single configuration might have made the most sense, it would perhaps have been politically inexpedient. The Airbus deal was announced by Prime Minister Narendra Modi and French President Emmanuel Macron together. It was welcomed by British Prime Minister Rishi Sunak, since the Airbus engines will likely be built in the United Kingdom. Meanwhile, US President Joe Biden issued a press statement to announce the Boeing component of the purchase, and emphasised that it would create a million American jobs in 44 different states. Air India’s commitment of billions of dollars of purchases thus clearly has major geopolitical overtones. Choosing just one supplier might well have rendered relations with the other bloc difficult. That said, the government will also have to take advantage of the leverage that the Tata group has provided. Such a large purchase should surely give India an upper hand in its free trade agreement negotiations with the European Union. And it should force the US to be more co-operative in trade talks and on market access.