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IndiGo prepares mega engine order, defying aviation gloom

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IndiGo, India's biggest airline, is in talks with Pratt & Whitney and CFM International for its next batch of jet engine orders, according to people familiar with the matter, a rare sign of dealmaking in a sector that's been paralysed by the virus pandemic.

[NEW DELHI] IndiGo, India's biggest airline, is in talks with Pratt & Whitney and CFM International for its next batch of jet engine orders, according to people familiar with the matter, a rare sign of dealmaking in a sector that's been paralysed by the virus pandemic.

The discussions with the rival manufacturers relate to engines that would power about 150 new Airbus A320neo jets, the people said, asking not to be identified because the negotiations are private. Talks are preliminary and there's no timeline on when any agreement may be reached, the people said.

Based on the size of IndiGo's last engine order - a US$20 billion transaction with CFM that covered 280 planes and was the largest engine order in history - the new agreement could be worth around US$10.7 billion, including service, repair and maintenance. The pandemic presents a unique opportunity, however, for IndiGo to potentially bargain with the engine makers, both of which it now counts as suppliers.

"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," said Satyendra Pandey, a partner at New Delhi-based advisory AT-TV and a former head of strategy for Go Airlines India. "As this selection is for the remaining aircraft, it involves the long-term performance and cost forecasts."

Representatives for IndiGo and CFM declined to comment. Pratt & Whitney didn't immediately respond to a request for comment.

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Operated by InterGlobe Aviation, IndiGo is the world's biggest customer for jets in the A320neo family, with as many as 730 on order. The airline has yet to decide the engine type for the 300 that would be outstanding.

CASH RICH

That any airline is negotiating over future aircraft and related parts is a surprise considering how thoroughly the global aviation industry has been demoralised by the pandemic. India had the world's fastest-growing aviation market for several years before demand started to falter and Covid-19 shut borders and diminished international travel.

IndiGo, while impacted by border closures and a dearth of international travel like other airlines, is relatively rich, with about US$2.4 billion of cash and equivalents as at Sept 30. Total debt as at that date was US$3.5 billion.

Although Pratt, which is owned by Raytheon Technologies, has spent US$10 billion to develop a new engine for narrowbody jets, it's faced delivery delays and multiple issues leading to mid-air shutdowns. IndiGo decided last year to switch away from its engines, placing a US$20 billion order instead with rival CFM, a venture between General Electric and France's Safran.

Airlines around the world have deferred or cancelled hundreds of plane orders as demand plummets. Any meaningful recovery is seen as years away and a viable vaccine remains elusive. That has forced both Airbus and US rival Boeing to cut production and thousands of jobs, putting pressure in turn on hundreds of suppliers.

IndiGo plans to trim its fleet size over the next two years, taking new deliveries and returning older jets at an even faster clip, before starting to grow again by 2023, chief executive officer Ronojoy Dutta told analysts during a post-earnings conference call last week. Unlike other carriers, IndiGo hasn't engaged in any "major renegotiation" with Airbus on new deliveries, Mr Dutta said.

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