Air India’s contract with Airbus & Boeing delayed over Engine-Cost Debate

Air India

Air India’s contract for up to 500 aircraft from Airbus and Boeing is being delayed by a standoff with the engine manufacturers powering the 737 MAX.

The order of the aircraft by Air India would be one of the largest single purchases in the history of Civil Aviation!

The order of the aircraft by Air India would be one of the largest single purchases in the history of Civil Aviation! According to those with knowledge of the negotiations, CFM International, the General Electric Co. and Safran SA joint venture, is hesitant to provide significant discounts on engines and maintenance that frequently go along with such large orders.

One of the sources, who asked not to be named because the discussions are private, claimed that the issue at hand is the hourly rates Air India would pay for repairs.

The latest generation of turbofans for Boeing and Airbus workhorse jets are experiencing earlier-than-expected maintenance, which the engine venture and its rival, Raytheon Technologies Corp.’s Pratt & Whitney subsidiary, are attempting to resolve. Because of this, it has become more difficult for the manufacturers to project revenues and costs over the engines’ lifetimes. GE Chief Executive Officer Larry Culp is taking this into account as the industrial conglomerate moves forwards with a corporate split that will leave aviation as its core business.

Months have been spent negotiating an order for 400 narrowbodies and 100 widebody aircraft that would enable Air India, the nation’s flag carrier, to improve service and dependability. 

An agreement to purchase 400 narrowbodies and 100 widebodies has been negotiated for months in order to help Air India, the country’s flag carrier, increase reliability and service

A deal could potentially be revealed this month, according to some of the sources, after failing to reach an agreement by the end of last year. This would bring to an end about a year of negotiations with the planemakers, engine manufacturers, and a few leasing companies.

Similar to representatives from Boeing and Airbus, a spokesperson of CFM declined to comment, citing the privacy of customer communications.

Tata Group, the parent company of Air India, feels a growing need to lock in aircraft commitments due to the tightening supply of recently constructed aeroplanes.

Travel is once again permitted into China, and the 737 Max was given the go-ahead to take flight after being outlawed for several years. The earliest slot for an A321 is now in 2029, according to Airbus, though customers occasionally earn faster deliveries if another handover fails.

The Boeing 737 family of aircraft only uses CFM engines, but the Airbus A320 can use either CFM or Pratt versions. According to some of the sources, Air India’s management has nearly finished the work on the Airbus portion of the contract, but it is still finalising details, including the split of models.

The agreement includes a combination of Airbus 321neo and Boeing 737 MAX models, as well as the Boeing 787, 777X, and certain 777 freighters, along with the Airbus A350 on the widebody front, according to Steven Udvar-Hazy, the influential chairman of the aircraft leasing company Air Lease Corp.

Steven Udvar-Hazy told reporters at the Airline Economics conference that the Tata-owned airline was actively seeking new aircraft as the pandemic-related sector recovery process was accelerating.

Steven Udvar-Hazy revealed to reporters that the Tata-owned airline was aggressively looking for new aircraft as the pandemic-related industry recovery process was quickening

“As a result of this recovery, there is now more momentum for large orders from airlines who have sort of sat back and watched the movie, and now they’re seeing there’s going to be a positive trend.”

–Steven Udvar-Hazy, Chairman, Air Lease Corp

Following the COVID-19 pandemic, the aviation sector is striving to grow, and several global operators are in the market with fleet expansion in mind. Recently, 200 large and small planes were ordered by United Airlines. A large order for Airbus aircraft was placed by China last year.

According to Reuters’ industry sources, negotiations with engine manufacturers are still underway and might affect if the proposed agreement with Air India gets completed.

Source: Bloomberg