The $40 billion jet buying spree - IndiGo's big bet

Sun Oct 19, 2014 7:14am EDT
 
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By Tommy Wilkes and Tim Hepher

NEW DELHI/PARIS (Reuters) - Almost four years ago a handful of people gathered in Airbus sales chief John Leahy's spacious country house outside Toulouse and argued long into the evening over curry and cigars.

Last weekend they met up again at a Parisian hotel for more haggling, with breaks taken at a nearby cafe where the informality of old business friendships mingled with hard-nosed negotiations typical of the aircraft industry.

The sum total of money discussed over these meals? About $40 billion at catalogue prices, and the bill was for 430 jets, all sold to the same Indian airline -- IndiGo, the low-cost carrier which has grown to become the country's biggest airline in eight years of operating.

Represented according to insiders by co-founder Rakesh Gangwal and President Aditya Ghosh, IndiGo has now made aircraft industry history twice in four years -- each time by placing record orders for Airbus planes, including last Wednesday's announcement that it will buy 250 A320neo jets.

The largest order in India's aviation history is IndiGo's most aggressive bet yet that Indian air travel is on the cusp of a huge expansion, and that the model that made it the nation's only profitable carrier will keep working as competition intensifies.

"IndiGo is showing us the level of confidence it has in its own sustainability, in the long-term growth of aviation and in the future performance of the Indian economy," said Harsh Vardhan, chairman at Delhi-based Starair Consulting.

Airline industry executives are hoping India's weak economy will rebound under new Prime Minister Narendra Modi and that the government will press for cuts to jet fuel tax and build more airports, slashing costs and opening up new markets.

Higher disposable incomes, an expanding middle class and rapid urbanization have made India one of the world's fastest-growing domestic aviation markets, where passenger numbers are expected to grow by more than 75 percent in the next six years to exceed 217 million.   Continued...

 
An IndiGo Airlines A320 aircraft is parked on the tarmac at Rajiv Gandhi International Airport in Hyderabad March 7, 2012. REUTERS/Vivek Prakash