Mumbai: Air India Ltd has unexpectedly decided to augment its 148-strong fleet by leasing 57 planes as it pushes to boost capacity amid a boom in the country’s air travel market.
The carrier—already in the middle of a $11 billion (Rs50,270 crore) programme to buy 111 aircraft—now wants to lease 10 Airbus SAS A330s for international operations, 14 Airbus A320s and Boeing Co. 737s besides smaller planes made by Avions de Transport Regional (ATR) of France and Canada’s Bombardier Inc.
It wants to lease the planes for a five-year period starting early next year, according to the tender document posted on its website.
“Going by the current situation, we will not be able to buy planes to meet our requirements,” said a senior Air India executive on condition of anonymity. “Hence, we are opting (for the) leasing route.”
The move also signals the airline’s intention to try and regain the market share it has lost to rivals such as Jet Airways (India) Ltd, the country’s biggest by passengers carried, especially in local services, with operations now based in the capital.
Photo by Abhijit Bhatlekar; graphic by Ahmed Raza Khan/Mint
“We have shifted our network hub to New Delhi from Mumbai,” said the executive. “Now we will add more flights on domestic routes and are looking at reviving regional operations by getting more smaller planes.”
The total cost of the leasing programme was not available.
The carrier may be taking on too many planes, given its financial condition, said Mahantesh Sabarad, senior vice-president (equity research) at Fortune Equity Brokers (India) Ltd. “I am surprised by the number of planes that Air India is looking at,” he said. “The quantum of planes is huge. I don’t think it is financially viable at this point of time.”
The Air India executive cited above said the airline was facing financial issues and was in the process of turning itself around with the help of a government bailout package.
“That should not stop an airline in exploiting the potential market opportunities. There is no magic wand with us to speed up the turnaround process. Acquiring planes to regain market share is also a part of the turnaround programme,” he said.
The state-owned carrier, with accumulated losses of Rs12,740 crore in the last two fiscal years, had a market share of 17.7% at October-end in domestic passenger traffic, down from 18.7% in September. Seat occupancy rose to 70.8% in October from 66.7% in September.
Air India’s existing plane acquisition plan, which began in 2007, involves the purchase of 68 aircraft from Boeing and 43 from Airbus. Of these planes, Boeing has delayed the delivery of Boeing 787s, popularly known as Dreamliners, as the launch of the aircraft has missed deadlines. Air India was scheduled to get its first of 27 Dreamliners in September 2008, but this is now set to happen in the second quarter of calendar year 2011.
While Air India will need more planes to retain or regain market share, the move will add to its total debt of Rs40,000 crore, of which Rs18,000 crore is short-term debt.
The airline has sought expressions of interest from manufacturing and leasing companies by 8 December, according to the tender document.
The carrier said it’s preferably seeking new planes that it wants to lease for five years, that may be extended by two.
The smaller planes, such as the ATR 42s and CRJ700s, will be used for its regional airline subsidiary Alliance Air.
On 1 October, Mint reported that Air India is moving to revive the defunct low-cost unit Alliance Air with a different brand name starting next March to connect smaller cities in the country.
Air India is aiming to connect the so-called tier-II and tier-III cities with the 45 small planes that it plans to have in its fleet over the next three years. Air India has 11 such aircraft now with a capacity of 40-80 seats.
The four Boeing 737 planes that are being sought will be added to the fleet of low-fare international carrier Air India Express.
Air India, which posted a net loss of Rs5,551 crore in the year ended March after the previous year’s net loss of Rs7,189 crore, envisages reaching operational break-even, and wiping out accumulated losses by 2014-15, besides raising its fleet strength to 275 planes.