Jet Airways plans big fleet expansion from 2018

Jet Airways will induct 50 Boeing 737 MAX aircraft between 2018 and 2021, mirroring IndiGo?s expansion plan

Tarun Shukla
Updated12 Aug 2013, 01:09 AM IST
Jet announced a `355 crore loss for the first quarter of this fiscal on Thursday, meaning it lost `3.9 crore every day it flew. Photo: Ramesh Pathania/Mint<br />
Jet announced a `355 crore loss for the first quarter of this fiscal on Thursday, meaning it lost `3.9 crore every day it flew. Photo: Ramesh Pathania/Mint

New Delhi:
Naresh Goyal-promoted Jet Airways (India) Ltd will introduce 50 new fuel-efficient Boeing 737 MAX planes and expand aggressively from 2018 onwards, mirroring the capacity addition pursued by rivals, documents reviewed by Mint show.

Jet has ordered 50 MAX planes with CFM-Leap-1B engines and configuration of 168 seats for delivery starting 2018 and ending in 2021.

This means Jet will induct 16 aircraft a year in those three years on average, mirroring the current expansion of rival IndiGo, which is operated by InterGlobe Aviation Pvt. Ltd.NextMAds

“To meet its aircraft requirements, Jet Airways has been negotiating with Boeing Co. for concluding an agreement for the purchase of aircraft and the protection of the available delivery positions,” chief commercial officer Sudheer Raghavan wrote in a 26 June letter to the aviation ministry. “Following discussions, the company has recently finalized agreement with Boeing Co. for the purchase of 50 Boeing 737-8 aircraft on a firm basis.”

IndiGo, which flies 68 planes, had a 29.5% share of the domestic market in June, followed by Jet and subsidiary JetKonnect, which together had a combined share of 23.1% with 113 aircraft. SpiceJet Ltd has a 19.5% market share, Air India Ltd 18.9% and GoAir 8.9%.

IndiGo will add 16 aircraft by December and start inducting an additional 12 from that month to retain its pole position.fourthMAds

Both Jet Airways and Boeing have remained silent on this order, declining to confirm it in public.

A deal for 50 737-800 MAX planes would be worth $5 billion at the list price of $100.5 million per aircraft. Airlines usually get deep discounts on sticker prices depending on how many aircraft are being bought, besides other factors. Boeing had booked 1,381 firm orders for the MAX through May before securing additional deals at the Paris Air Show.

Goyal, who was present at the Paris Air Show held in June, may have signed the deal at this show, said a person with knowledge of the subject, who declined to be named.sixthMAds

The secrecy could be linked to Etihad Airways PJSC buying a 24% stake in Jet, which has to go through several regulatory clearances, including at antitrust watchdog Competition Commission of India and markets regulator Securities and Exchange Board of India. The $900 million deal will bankroll Jet and potentially pay for these orders, this person said.

Jet has recently sent the letter to the ministry potentially after the Foreign Investment Promotion Board cleared its deal with Etihad on 29 July.

Raghavan, in his 26 June letter, said the airline plans to make pre-delivery payments for these aircraft soon and sought the aviation ministry’s approval as Jet had already “finalized with Boeing” a purchase agreement. Mint has seen a copy of the letter.

Jet said it is prepared to meet the needs of these aircraft. It has 365 commanders and 364 first officers who are qualified to operate the B737, and 21 additional trainee captains. It also has 629 engineers to support this growth.

The airline plans to add five Boeing 737-800 aircraft by November to its fleet of 94, besides two turboprop ATRs.

Raghavan said that while some of these new aircraft will replace old Boeing 737-800s, some of the MAX aircraft will be for expansion.

The airline, which has lost its leadership position to IndiGo in the past few years, announced a 355 crore loss for the first quarter of this fiscal year on Thursday, disappointing analysts. This means the airline lost 3.9 crore every day that it flew.

“Jet will continue to underperform unless they turnaround their domestic operations,” said Kapil Kaul, South Asia chief executive at CAPA Centre for Aviation, a consultancy. “However, the aggressive pricing in Q2 (second quarter) indicates that Jet is happy with such large losses.”

Another analyst said Jet’s fleet strategy will gradually be in sync with Etihad’s.

“There will be a complete strategy shift at Jet, as there needs to be,” said Debayan Sen, India practice head for US-based consulting firm Landrum and Brown Worldwide Services. “The JetKonnect 737 fleet is relatively old (eight-nine years) compared to the low-cost carriers, and a large order to replace some of the 737s.”

“Delivery of the 737 MAX is still four-five years away for Jet. If we could project fuel prices that much into the future, the fuel savings of 10% that the MAX offers would be probably be critical at that time. A lot can happen in the time being though—for example, shale gas is expected to completely change the demand-supply equation for hydrocarbons (which would mean cheaper aviation fuel), not to mention the possibility of biofuel taking centrestage at some point of time,” said Sen.

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First Published:12 Aug 2013, 01:09 AM IST
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