IndiGo Places Largest-Ever Order of Airbus Aircraft

New Delhi/Paris: Indian budget airline IndiGo has agreed to buy 250 A320 planes from Airbus, a purchase that could be worth $25.5 billion (over Rs. 1.5 lakh crore) and rank as the largest single order of jets from the European plane maker.

India's biggest airline is expanding aggressively as it seeks to win more market share in one of the world's fastest growing aviation markets and cement its position as the country's only profitable carrier.

The airline will start taking delivery of the planes from 2018 and has secured rights to buy a further 100 A320-family aircraft, Indigo president Aditya Ghosh told Reuters after the announcement the carrier had signed a memorandum of understanding to buy the jets.

"We believe India is a highly underpenetrated market," he said. "Some of these (new planes) will go to replacement. It's difficult to say how many at the moment, but a lot will be for growth."

Reuters reported on Tuesday that IndiGo was close to placing a large order worth billions of dollars for a variety of aircraft as it looks to expand.

The provisional deal extends Airbus' lead over Boeing Co in the Indian market and could, if confirmed in the coming months, close a worldwide deficit in orders versus its US rival during the first nine months of the year.

A deal for the planes would be worth $25.7 billion at list prices, although airlines typically get a discount.

IndiGo, which sources have said is planning to list on the Indian stock exchange next year, has a fleet of 83 Airbus A320s and has ordered or taken delivery of another 280 Airbus aircraft - including 160 of the upgraded and re-engined A320neo model that will begin arriving next year. It was one of the first customers for the A320neo.

Long-term plans

While rivals such as SpiceJet are cutting the size of their fleet to combat losses, IndiGo is expanding into a market where passenger numbers are expected to grow by more than 75 per cent in the next six years to exceed 200 million as more Indians fly for the first time.

Launched in 2006, IndiGo has grown into the country's largest airline by market share with close to a third of the domestic market at the end of the March, according to data from the Directorate General of Civil Aviation (DGCA), the country's aviation regulator.

The airline's model of selling and leasing back its planes is credited by some analysts with helping to control costs and boost profits.

"The way that they position their ownership costs at such a low end is by taking such volume," Timothy Ross, Singapore-based Asia transportation analyst at Credit Suisse. "They have a fairly tight handle on capacity management even though the headline numbers look quite daunting."

Mr Ghosh said the order reflected IndiGo's long-term plans for expansion in India, as well as the fact the airline retires planes after an average of six years.

The airline does not plan on leasing out any of its fleet to third parties and will stick to flying narrow body aircraft in the domestic market and selected international routes, he said.

"With this, we can plan our growth. It's been a pattern with IndiGo."

The airline has not selected an engine for these aircraft and, given the size of this potential order that could be worth several billion dollars as well.

Pratt & Whitney, a unit of United Technologies Corp, and CFM, a joint venture between GE and Snecma, supply the two engines for the A320neo. IndiGo picked the Pratt & Whitney PW1100G-JM engines for its earlier A320neo order.

Copyright @ Thomson Reuters 2014