DTN News: Air India Considers Cancelling Delivery Of Six Boeing Aircraft

DTN News: Air India Considers Cancelling Delivery Of Six Boeing Aircraft

*Source: DTN News / Int'l Media (NSI News Source Info) NEW DELHI, India - July 31, 2009: After coming under attack in Parliament over extravagant booking of aircraft, loss-hit Air India is now having second thoughts on acquisition of 111 aircraft — payments for which have added considerably to its financial woes — besides considering a proposal to cancel delivery of six Boeing aircraft, say sources. Air India operates several variants of the Boeing 777 — the Boeing 777-200, Boeing 777-200ER, Boeing 777-200LR and Boeing 777-300ER. The proposal, made at a recent Air India board meeting, is seen as an attempt to bring down the annual interest burden. These six Boeing aircraft, likely to be B777’s, are part of the total 68 Boeing aircraft ordered by the national carrier. The list price of a single such aircraft varies from $165 million to $200 million. However, the negotiated price for Air India could be much lower because of the huge size of the order. A top airline official told The Indian Express that the airline was now trying to work out the ‘cost economics’ of cancellation of the order. “Since these are firm orders, there are likely to be huge penalties, and the airline has already made some advance payments for acquisition of these aircraft,” said the official. By September-end this year, three Boeing 777’s would be inducted in the fleet, leaving only six Boeing 777’s to be delivered by 2012.

In 2005, Air India had more than doubled the order for aircraft from around 24 to 68 in 2005, which got approved in the same year. The aircraft acquisition plan recently came under attack in Parliament where questions were raised on the rationale behind such a huge order. Sources in the Planning Commission reveal that Air India failed to back the aircraft acquisition plan with a viable business plan.

Currently, for servicing the total aircraft order, which is set to cost the airline around a little over $11 billion, the airline has to shell out $1.2 billion annually as capital repayment and interest. The aircraft acquisition issue also figured prominently in a recent meeting of the Committee of Secretaries, chaired by cabinet secretary K M Chandrasekhar. A bleak outlook for the aviation sector and slump in passenger traffic have forced most airlines to trim their fleet as they reduce capacity, and even cancel some aircraft deliveries. When contacted, Air India spokesperson Jitendra Bhargav expressed his ignorance on the matter and added that SBI Caps had been given the mandate to draw a financial restructuring plan that would submit its report on all matters including aircraft acquisition. The airline currently has a fleet of 148 aircraft. Earlier, civil aviation minister Praful Patel had said that Nacil’s borrowings had risen steeply from Rs 6,550 crore in November 2007 to Rs 15,241 crore in June 2009. “This has been largely due to servicing of debt on account of purchase of new aircraft as also operating losses which have compounded due to economic recession and high oil prices,” Patel said. The company is likely to post losses of around Rs 5,000 crore for the fiscal 2008-09 and has already exhausted its working capital limit of Rs 16,000 crore.