Indian budget carrier IndiGo is reportedly negotiating with engine manufacturers CFM International and Pratt & Whitney for a new round of engine orders. The engines will power the airline’s massive fleet of A320neo family jets. Sources estimate that this new deal (which would include service) could be valued at roughly $10.7 billion.
Powering 150 new A320neos
Reporting by Bloomberg indicates that IndiGo is talking to the two engine suppliers who provide power plants for Airbus’ A320neo family of aircraft. Sources wishing to remain anonymous report that the engines would power around 150 new Airbus A320neo aircraft.
Based on the 150-aircraft figure and the fact that IndiGo’s last engine order was $20 billion for 280 aircraft, this latest agreement is likely in the ballpark of $10-11 billion, including maintenance and repair work.
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The best time for a bargain
While on the surface, a major purchase of any kind seems to be counterintuitive given the major downturn in air travel demand, this is certainly a buyer’s market. Not only are airlines having to layoff their employees, but manufacturers like Boeing and Airbus also have to deal with workforce rightsizing. This is something an Indian industry expert and the former head of strategy for Go Airlines India touched upon in his comments to Bloomberg:
“This is the perfect time to engage given the overall market conditions and state of competitors — both of which will enable Indigo to get very lucrative deals…As this selection is for the remaining aircraft, it involves the long-term performance and cost forecasts.” -Satyendra Pandey, Partner, New Delhi-based advisory AT-TV
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IndiGo will come back strong
IndiGo‘s fourth quarter and fiscal year reports in June showed a substantial loss of 8.73 billion rupees ($115m), which was to be expected. However, the airline’s CEO, Ronojoy Dutta, was optimistic about the situation and believes that Indian aviation is in a great position to recover from the crisis. Dutta notes that VFR traffic (in this case, meaning visiting friends and relatives) is high in India – and a type of travel that is resistant to travel-worries:
“What is the longer-term sustainability of the airline traffic? India is…an outlier in terms of the VFR traffic. Indians have family everywhere, and they’re like, ‘hey, I don’t care if I die. I want to visit my sister’ or whatever…We have a very strong VFR component. People will travel and go to their cousin’s wedding, so I think that VFR traffic distinguishes India from other markets.” -Ronojoy Dutta, CEO, IndiGo Airlines
Therefore, the timing looks right for the airline to be negotiating with engine-makers in advance of India’s return to the skies.
Do you think IndiGo is making a smart move by ordering these engines during the air travel downturn? Let us know your thoughts in the comments.
Simple Flying reached out to IndiGo, CFM International, and Pratt & Whitney for comment on these reports. However, at the time of publication, no response was received from the Indian carrier.