AI proposes for $1 Billion, Boeing disposes $500 million to AI!

The Air India – Boeing duel is the stuff of folklore now. Air India seems to clearly be in the mood to milk the cow called Boeing Airplanes as much as it can, to add to its bleeding bottomline. Air India signed on to buy 27 787’s from Boeing, and these were expected to be brought on board starting 2009. The 787 program suffered multiple delays and the first few 787’s were certified and given away to ANA All Nippon Airways only last year towards the end of the year. Air India was next in line, and had a story that the airline could not function properly without the new planes and all its plans went awry. “Yeah, right!,” is all I have to say to that, taking all their infighting and incompetence into account.

However, now that the planes are finally rolling out, Air India expects to receive its first batch sometime in May. Infact one of the planes, which will be registered in India as VT-ANH is sitting in Hyderabad this week as a part of the Boeing entourage to Indian Aviation 2012 event this week.

Air India's 787 - VT-ANH - courtesy Boeing

If all goes as per plan, Air India may well become the second airline to induct the 787s into its fleet. However, to compensate for the 3 year delay, AI asked for a nice round $1 Billion dollars in compensation from Boeing. Clearly, that was posturing to ek out the maximum they could out of the situation where the airframe manufacturer had not met its timelines. And it did seem to succeed in that. AI is now confirmed to receive $500 million in compensation from Boeing, as per Boeing and Government of India sources.

Air India’s RFP for sale and leaseback of the first few planes put out the price of their airframes at ~$110 Million per aircraft for the first 7 airframes, including the engines, which means a back of the envelope calculation should put each airframe cost at $76 million. The compensation offered works out to be $18.5 million per airframe. This is in addition to the profits that Air India expects to make ($10-15 million per airframe?) on the sale and leaseback of the planes. The plane lists at $193 million today, and planes are sold at discounts to list prices anyways. And Air India is going to get it for less than $50 million [$76 million price – $18.5 million compensation – $10 million profit].

Now only, only and only, if they were to do the right route planning and do all the right things that the new toys are going to help them get a lot of visibility in the market, and for once, I’d be happy to fly them if they got it right. Please Air India, don’t screw up this one! And don’t screw up on Star Alliance membership either.

 

Related Posts:

 

Live From A Lounge is also present on Facebook, Twitter and available via RSS.

About Ajay Awtaney

Ajay is a financial services pro, working to bring order to the chaos of the financial industry on an everyday basis! Beyond that, he dons the hat of India's favourite frequent traveller, trying to help people elevate their travel experience via tips and tricks they never knew before, or introduce them to the world of miles and points. Armed with an MBA from MDI Gurgaon and graduate degree in computer science from the University of Delhi, Ajay brings a systematic and objective approach on the table for his audience in dissecting travel and loyalty programs in India and around the world, and how to benefit from them. Ajay has been quoted in various reputed traditional and online media including The Hindustan Times, Inside Flyer, Bloomberg, DNA India, Conde Nast Traveller, The Telegraph, Mumbai Mirror, Mint, MoneyLife and The USA Today.

More articles by Ajay Awtaney »

Pingbacks

Leave a Reply

Your email address will not be published. Required fields are marked *