As Indian billionaire plans new airline, Boeing hopes for orders

Rakesh Jhunjhunwala’s plan with former CEOs of IndiGo, Jet Airways comes as India is seen as a hot market for planemakers.

Rakesh Jhunjhunwala is known as 'India's Warren Buffett' [File: Mint/Hindustan Times/Getty Images]
Rakesh Jhunjhunwala is known as 'India's Warren Buffett' [File: Mint/Hindustan Times/Getty Images]

Indian billionaire Rakesh Jhunjhunwala’s plan to launch an ultra-low-cost airline could give planemaker Boeing a chance to regain lost ground in India after the fall of one of its biggest customers, Jet Airways, two years ago, industry executives say.

Jhunjhunwala, known as “India’s Warren Buffett” for his successful stock investments, plans to team up with the former CEOs of IndiGo, the country’s biggest carrier, and Jet Airways to tap into demand for domestic air travel.

While Jhunjhunwala’s proposed Akasa Air comes at a time when India’s aviation industry is reeling from the impact of the COVID pandemic, which has seen airlines losing billions of dollars, the sector’s long-term prospect makes it a hot market for planemakers Boeing and Airbus.

“There will be a big fight between Airbus and Boeing,” said Nitin Sarin, managing partner at law firm Sarin & Co, which advises lessors and airlines.

“For Boeing, this is a great opportunity to step in and up their game, considering they don’t have any other major operator for their 737 aircraft in India apart from SpiceJet,” Sarin said, referring to Boeing’s narrow-body aircraft.

One industry source said the new venture was already moving towards what could be one of the biggest deals of the year outside the United States to acquire purchased or leased 737s.

Boeing did not comment on Akasa’s plans but said it always seeks opportunities and talks to current and potential customers about how it can best support their fleet and operational needs.

Fare wars and high costs

Jhunjhunwala, who is considering investing $35m and would own 40 percent of the carrier, expects to get a no-objection certificate from India’s aviation ministry in the next 15 days, he said in a Bloomberg Television interview Wednesday. The ultra-low-cost airline’s team, which includes a former senior executive of Delta Air Lines Inc, is looking at building a fleet of 70 180-passenger planes within four years, he said.

Jhunjhunwala, whose fortune is valued at $4.6bn by Forbes, did not respond to an interview request.

Indian skies are dominated by low-cost carriers (LCCs) including IndiGo, SpiceJet, GoFirst and AirAsia India, the majority of them operating a fleet of Airbus narrow-body planes.

Boeing dominates India’s wide-body market of 51 planes but fare wars and high costs have led to casualties among full-service carriers, including Kingfisher Airlines in 2012 and Jet Airways in 2019, making LCCs and Airbus even more dominant.

Boeing’s share of India’s 570 narrow-body planes fell to 18 percent after Jet’s demise from 35 percent in 2018, data from consultancy CAPA India shows. Jet was recently rescued from bankruptcy and is expected to fly again.

Indian carriers have more than 900 planes on order, of which 185 are Boeing 737 aircraft and 710 are Airbus, which counts IndiGo as one of its biggest customers globally.

“If you have to lease an aircraft there is an abundance and lessors would be happy to provide competitive rates, even better than pre-COVID times,” Sarin said.

‘A long haul’

He warned, however, that India is still a difficult place to do business, with regulatory hurdles and expensive and underdeveloped airports making LCCs less efficient than elsewhere.

Even as Akasa faces tough competition in a battered, post-COVID market that has pushed airlines to renegotiate terms with lessors and vendors, raise fresh funds and trim costs, starting with a clean slate and good capital will give it an advantage.

Akasa’s other cofounders are Aditya Ghosh, who spent a decade with IndiGo and was credited with its early success, and Vinay Dube, former CEO of Jet who has also worked with Delta.

“It will be a long haul and the new airline will be very severely tested but the capitalisation and the start team gives confidence that it is possible for them to be successful,” CAPA India head Kapil Kaul said.

Source: News Agencies

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