Economy
India's Rising Global Profile: What Does Air-India's Historic Aircraft Deal Mean For The Global And Indian Economy?
JRD Tata founded Air India before independence in 1932. Following India's independence from the British Raj in 1947, the government of India took over the group as part of the nationalization plan and purchased a majority stake in the carrier from TATA Sons, though JRD Tata remained chairman of the group until 1974.
Over the year, the government's relentless interference in Air India's day-to-day internal business matters made the airline one of the sick business houses in the country. It became a part of every bad decision made by the government, which turned the group into the country's largest loss-making airline, and its condition deteriorated after the 2008 Global Economical Collapse, which was caused by the Lemon Brothers' fall.
The airline began losing money in 2007. At the time, both Air India and Indian Airlines, the two wings of Air India, were losing money, losing Rs541 crore and Rs240 crore, respectively. Faced with further loss, the government decided to combine the organization's two separate domestic and international wings into one.
However, with a massive debt burden of Rs. 60,000 crore in 2021, it eventually becomes a liability for the government, and it was consistently losing money. As a result, the government attempted to sell the organization to private players. The Modi government tried several times since 2014 to sell this entity to private players before finally succeeding in October of last year.
The TATA group bid Rs18,000 crore as part of the bid, with debt to be retained at Rs15,300 crore and a cash component of Rs2,700 crore. Tata's bid was higher than the EV bid of the Ajay Singh-led consortium, which was Rs15,100 crore. As a result, the TATA group gained complete control of Air India, AI Express, and a 50% stake in ground handling firm AI-SATS.
Since TATA's acquisition of Air India after it slipped away from their hand in 1953, TATA is constantly trying to revive the old glory of the airlines and they are trying to make this airline the most efficient, travel-friendly, and important domestic as well as international player on the global scenario.
TATA wants Air India to be the next Emirates, Qatar Airlines, or Turkish Airlines, if possible bigger than these airlines. Basically, they are aiming to become a global airline by modernizing its fleet, expanding its network, and boosting its efficiency to make the airline's image world-class.
Therefore, TATA made history's largest commercial aviation deal with Airbus and Boeing by purchasing 470 aircraft with the addition of 70 aircraft in the future from Boeing, which makes the number 540 aircraft. They made this deal with these two commercial airline giants for $100 billion.
Air India's purchase of 470 planes and 70 additional planes surpassed IndiGo's 2019 order for 300 planes and American Airlines' 2011 order for 460 planes.
In this deal, TATA will induct 210 Airbus A320/321 Neo Planes, 40 Airbus A350s, 190 Boeing 737 MAX Single-Aisle aircraft, 20 Boeing 787s, and 10 Boeing 777-9s. For the additional future fleet, they will induct 50 more Boeing 737MAX and 20 more Boeing 737.
The TATA group's total deal with Boeing is valued at $45.9 billion and the deal amount with Airbus has not been disclosed yet.
In terms of global and domestic operations, TATA's Air India is focusing on going faster, farther, and larger. IndiGo Airlines now dominates India's domestic market, with a total fleet size of 300 aircraft. It only operates Airbus A320 CEO and NEO, A321 NEO, and ATR 72-600 aircraft. IndiGo has a 56.2% domestic market share, transports over 65 lakh passengers per month, operates over 1,600 daily flights, and connects 76 domestic and international destinations.
TATA's Air India is attempting to capture 30% of the domestic aviation market with three subsidiaries: Air India, Vistara, and Air Asia. TATA hopes to fully integrate Vistara into Air India by 2024, allowing them to capture 20% of the domestic market. To achieve this goal, Air India is leasing 11 B777 and 25 A320 aircraft as part of its efforts to restore the airline's former glory. They're taking the lease because the new planes won't arrive until late 2023, with the majority not arriving until mid-2025. Now, Air India is operating only 140 commercial jets of mixed categories.
Out of the total order of 470, 400 aircraft are single-aisle aircraft which means that the aircraft would likely be used for domestic purposes only and sometimes short-halls international operations, like Mumbai to Dubai or Abu Dhabi.
The agreement was reached in London before Christmas last year, but it was not made public. Following the announcement of the agreement, the presidents of the United States, France, and Primeministers of the United Kingdom, and India express their delight because the agreement will benefit their respective economies by billions of dollars.
How will this agreement benefit the Indian and global economies?
The historic Air India-Boeing-Airbus partnership will create millions of jobs in the United Kingdom, the United States, France, India, and other European countries. Only Air India's agreement with Boeing will create 1 million jobs in 44 states of the United States, with additional jobs in ancillary industries.
The Air India order is Boeing's third biggest sale in dollar value and second in terms of the number of planes. For the first time in history, Boeing has been able to penetrate the commercial aviation market of India, which is dominated by Airbus, with the help of this order.
The order boosted the global market, and leaders from the respective countries urged each other to engage in other sectors to broaden bilateral cooperation. The US president called Prime Minister Modi and praised India for this agreement, agreeing to cooperate in defense and other sectors as a Quad member.
This announcement comes on the heels of last month's inaugural launch of the US-India initiative on Critical and Emerging Technology (iCET). It was launched in Tokyo after the direction of US president Joe Baiden and Indian Priminster Narendra Modi to increase cooperation between nations.
The dal of Air India and Airbus will be going to generate thousands of high-end jobs in the UK because Airbus A350 is powered by XWB engines made by the British company Rolls-Royce. Rolls-Royce is already receiving the order of 68 Trent XWB-97 engines and 20 more are on the line.
This agreement has been hailed as a "landmark agreement" by UK Prime Minister Rishi Sunak. Meanwhile, Rolls-Royce is negotiating with HAL and DRDO to jointly manufacture fighter jet engines in India through technology transfer.
Frane will be the main beneficiary of this agreement because the majority of the company's civil aircraft business is handled by Airbus S.A.S. France, which is headquartered in Blagnac, a suburb of Toulouse.
This agreement will bring these two aviation behemoths to Indian soil for MRO operations and manufacturing, and India is attempting to establish India as the world's MRO hub. Singapore is now Asia's main MRO hub, accounting for 25% of the Asian share market and 3% of the global market. There are at least 100 MRO companies operating out of Singapore. If India becomes the Asian MRO hub, it has the potential to control more than 20% of the Asian share by volume, which will gradually increase over time.
This will create millions of jobs in the Indian market and the Indian government is trying to make India the world's largest civil aviation market by reaching the target of 2000 commercial jets in the upcoming 15 years. India is now the world's third-largest civil aviation market after the United States and China. This will generate jobs in both the service and manufacturing sectors.
Will the leaders of the respective countries benefit politically?
Politics and economics are inextricably linked by the knot of job creation, which in this case will benefit Baiden, Rishi Sunak, and Prime Minister Modi in their upcoming elections.
This will generate one million jobs in the United States and thousands in the United Kingdom, benefiting both of these leaders who are up for reelection next year. PM Modi, who is running for reelection for the third time, will also benefit.
Indian economy is the beacon of hope in this gloomy world economy:
The economy is suffering very badly since the Covid-19 pandemic days started in 2020. After Covid relief, Russia invaded Ukraine and that completely broke the supply chain of the world.
The world was experiencing a severe food crisis as well as a chip shortage. Several Asian, African, and South American countries are looking to India to bail them out after their economies have completely collapsed. The Sri Lankan economy defaulted, and India was the primary rescuer, lending them 4.5 billion and becoming a guarantor of the IMF loan. Pakistan's economy, on the other hand, is on the verge of collapse, and it will collapse if the IMF denies them even a $1 billion loan.
India is doing everything possible. It provides free Covid vaccines to over 150 countries and provides assistance to countries affected by natural disasters such as earthquakes, hailstorms, and other types of disruptions. The most recent examples are Turkey and Syria, where the Indian army has sent troops, medicine, and supplies to rescue and support the local population under Operation Dost.
India is also rescuing the world to prevent the world economy from slipping slowly into a recession by taking necessary steps like this, buying Planes from the US and its European partners. These countries are also facing difficulties due to the ongoing conflict in Ukraine.
India is gradually and steadily gaining ground on Japan to become the world's third-largest economy. According to the World Bank and IMF, India may be able to achieve the feat by 2025, rather than the 2035 target.
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