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Air India is set to record annual savings of about Rs 370 crore through the sale of five Boeing 777-200 LRs to Abu Dhabi-based Etihad Airways. Earlier this week, the West Asian carrier, which recently received regulatory approvals to acquire 24 per cent stake in Naresh Goyal-promoted Jet Airways, signed a letter of intent for the sale of the aircraft by Air India.
A senior Air India official told Business Standard, “We have just reached an understanding with Etihad. A formal sale agreement is yet to be signed. It will require an approval from the Air India board and the government,” he added. Deliveries are scheduled to start early 2014.
“We were paying $5 million as loan principal and interest on these planes each month. So, there would be savings of about $60 million a year after the planes are sold,” he added, declining to specify the size of the deal; industry estimates peg it at Rs 3,100 crore ($500 million). The sale proceeds would be used to clear loans against the aircraft.
The sale of the aircraft would help improve Air India’s financial performance, as these planes have high operating costs. The airline has been struggling to record break-even on routes in which it had deployed the aircraft.
Air India flies 20 Boeing 777 200-LRs and Boeing 777 300-ERs to the US, Europe, China, Japan, Korea and Saudi Arabia. The eight 200-LRs are flown to Newark (US), Seoul (South Korea), Hong Kong and Tokyo & Osaka (Japan). For the airline, operational profitability has been a concern. A case in point is the Delhi-Japan route, which is being serviced by a Boeing 777 and requires Air India to have 95 per cent passenger load factor (PLF) or occupancy to make the route profitable.
Deploying a Dreamliner on the Delhi-Osaka route would allow Air India to break-even even if the load factor was as low as 40 per cent, said a senior company official. To address the route-plane mismatch, Air India plans to replace the Boeing 777s with the Boeing 787s on the Europe and Far East routes. It would deploy Boeing 777 300-ER to Newark, while Dreamliners would replace 777 200-LRs to Seoul, Hong Kong, Tokyo and Osaka.
The turnaround plan banks largely on the induction of Boeing 787 Dreamliners, as these are said to be 20 per cent more fuel efficient than other comparable aircraft. Air India, which would have a fleet of 14 Boeing 787s by December 2013, began full-fledged international operations of the new aircraft from August. It has commenced flights from Delhi to Birmingham and Sydney-Melbourne; it would start direct services to Rome and Milan in October and to Moscow early next year.
Etihad said it would deploy the aircraft on a new route — Abu Dhabi to Los Angeles — from June. James Hogan, president and chief executive, Etihad, said: “We are looking forward to starting direct services to Los Angeles, as well as increasing our flying to South America. This is the aircraft to do that.”
The Boeing 777-200 LR, of which less than 60 were manufactured, has a design range of 17,370 km, allowing it to connect almost any city in the world from Etihad Airways’ hub at Abu Dhabi International Airport. Etihad Airways currently flies to New York, Chicago, Washington DC and Toronto in North America, and to São Paulo in Brazil, and has stated its intention to add new services to both continents.
A senior Air India official told Business Standard, “We have just reached an understanding with Etihad. A formal sale agreement is yet to be signed. It will require an approval from the Air India board and the government,” he added. Deliveries are scheduled to start early 2014.
“We were paying $5 million as loan principal and interest on these planes each month. So, there would be savings of about $60 million a year after the planes are sold,” he added, declining to specify the size of the deal; industry estimates peg it at Rs 3,100 crore ($500 million). The sale proceeds would be used to clear loans against the aircraft.
The sale of the aircraft would help improve Air India’s financial performance, as these planes have high operating costs. The airline has been struggling to record break-even on routes in which it had deployed the aircraft.
Air India flies 20 Boeing 777 200-LRs and Boeing 777 300-ERs to the US, Europe, China, Japan, Korea and Saudi Arabia. The eight 200-LRs are flown to Newark (US), Seoul (South Korea), Hong Kong and Tokyo & Osaka (Japan). For the airline, operational profitability has been a concern. A case in point is the Delhi-Japan route, which is being serviced by a Boeing 777 and requires Air India to have 95 per cent passenger load factor (PLF) or occupancy to make the route profitable.
Deploying a Dreamliner on the Delhi-Osaka route would allow Air India to break-even even if the load factor was as low as 40 per cent, said a senior company official. To address the route-plane mismatch, Air India plans to replace the Boeing 777s with the Boeing 787s on the Europe and Far East routes. It would deploy Boeing 777 300-ER to Newark, while Dreamliners would replace 777 200-LRs to Seoul, Hong Kong, Tokyo and Osaka.
The turnaround plan banks largely on the induction of Boeing 787 Dreamliners, as these are said to be 20 per cent more fuel efficient than other comparable aircraft. Air India, which would have a fleet of 14 Boeing 787s by December 2013, began full-fledged international operations of the new aircraft from August. It has commenced flights from Delhi to Birmingham and Sydney-Melbourne; it would start direct services to Rome and Milan in October and to Moscow early next year.
Etihad said it would deploy the aircraft on a new route — Abu Dhabi to Los Angeles — from June. James Hogan, president and chief executive, Etihad, said: “We are looking forward to starting direct services to Los Angeles, as well as increasing our flying to South America. This is the aircraft to do that.”
The Boeing 777-200 LR, of which less than 60 were manufactured, has a design range of 17,370 km, allowing it to connect almost any city in the world from Etihad Airways’ hub at Abu Dhabi International Airport. Etihad Airways currently flies to New York, Chicago, Washington DC and Toronto in North America, and to São Paulo in Brazil, and has stated its intention to add new services to both continents.
Air India officials denied that Etihad has purchased the planes under pressure from Indian government."We conducted a proper bidding process for over a year and there were other bidders.'' Air India had floated tenders for eight Boeing 777 200-LRs, five of which are now to be sold to Etihad Airways.
Another industry source also rejected suggestions of Indian government pressure. “There are only around 50 Boeing 777-200LRs all over the world and only Air India was looking to sell or lease them. If Etihad wanted to place an order with Boeing the waiting period would have been three years.”
