A Chocks-on Nugget  09 OCT., 2013

Bravo !! That’s A Deal with a BANG….by Air India…..

Saddled with a huge debt, hefty losses and the uneconomical B-772’s, this could not have happened at a better time than this.  But was this one of the conditions for the approval of the Jet / Etihad deal ??? Whatever, this will be enormously beneficial to Air India !!!!

Air India to save over Rs 370 cr from sale of aircraft to Etihad

State-owned national carrier Air India is set to clock annual savings of over Rs 370 crore from sale of five Boeing 777-200 LRs to Abu Dhabi based Etihad Airways. The West Asian carrier, which recently received regulatory approvals to check in with 24% stake in Naresh Goyal-promoted Jet Airways, signed a letter of intent earlier this week paving the way for the sale of the aircraft by Air India.

A senior official at Air India told Business Standard, “We were paying $5 million as loan principal and interest on these planes each month. So there will be a saving of about $60 million a year after the planes are sold.” He declined to specify the size of the deal, however, industry estimates, peg it to be around Rs 3,100 crore ($500 million). The sale proceeds will be used to clear outstanding loans against the aircraft and balance will be retained.

 The aircraft sale will help improve Air India's financial performance as these planes have a high operating cost and the airline has been struggling to achieve break-even on routes, where it has 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, Seoul, Hong Kong, Tokyo and Osaka. But operational profitability has been a concern. A case in the point is the Delhi-Japan route, which is being serviced by a Boeing 777 and requires Air India to have 95% 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 load factor is as low as 40%, said a senior official in the company.

The government carrier has plans to replace the Boeing 777s with the Boeing 787s to Europe and Far East routes to address the route and plane mismatch in Air India’s operations. Air India will deploy Boeing 777 300-ER to Newark, while Dreamliners will replace 777 200-LRs to Seoul, Hong Kong, Tokyo and Osaka.

 The turnaround plan of Air India, in fact, banks largely on the induction of Boeing 787 Dreamliners as they are said to be 20% more fuel efficient than comparable aircraft. Air India, which will have a fleet of 14 Boeing 787s by December 2013, has begun full-fledged international operations utilizing the new aircraft from August 2013. Air India has commenced flights from Delhi to

 Birmingham and Sydney-Melbourne, and will start direct services to Rome and Milan from October and to Moscow from early next year.

 "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 in early 2014.

 Etihad Airways said in a statement that it will deploy the aircraft on a new route between Abu Dhabi and Los Angeles starting June 2014. James Hogan, president and chief executive officer, Etihad Airways, said: ”The Boeing 777-200 LR is a fantastic addition, giving us extra reach immediately and complementing our long term fleet strategy. Our continued strong organic growth, boosted by the impact of our equity partners, has opened up new opportunities for additional destinations. 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.”

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SOURCE :  BUSINESS STANDARD / 09 OCTOBER, 2013