India’s sky wears a new colour. Premier Airlines orders 40 neo planes

After IndiGo, it’s now Chennai based Pemier Airlines that’s making headlines for having ordered a fleet of 40 Airbus A320 neo planes at a listed value of $4.3 billion.

India’s sky runs a cutthroat competition among the airways. And if consummated, this will be the second-biggest order in terms of value by a newcomer after IndiGo's 100 plane purchase in 2005 besides marking the entry of an seemingly serious player into India's highly competitive aviation industry.

According to a news report in The Economic Times, the A320 neo (New Engine Option) is the latest upgraded version of Airbus' single aisle aircraft family. The latest list price of the plane, according to the manufacturer's official statement in January this year is $106.2 million. The actual deal value will however depend on discussions between Premier and Airbus and could come down after negotiations, given the size of the deal.

Premier got the aviation ministry's approval to induct the planes around October. It is now awaiting a nod from the Reserve Bank of India (RBI), post which purchase documents will be signed and pre-delivery payments structured. Going by Airbus' current order backlog for the A320 neo, Premier will likely get its first delivery only in 2019-20, if the deal is finalised.

Kiran Rao, the vice-president (strategy and marketing) for Airbus, confirmed his company is in final stage discussions with Premier. An email sent to the airline's chairman Uma Pinaghapani didn't yield a response before the story went to press.

Pinaghapani founded the airline company in 2005 but got the NOC (no objection certificate) from the aviation ministry only in July of last year. His Linkedin profile lists him as an Indian businessman based in the US who has over 33 years of industry experience, ranging from manufacturing, education, distribution, retail, finance and software consulting, informs the ET.

The financial daily believes, the airline's entry will expand India's aviation market, one of the fastest growing in the world. Local air traffic is once again growing after month-on-month declines several times in 2013. Domestic air traffic grew 13.9% while international passenger numbers grew by 9%. Finances too are improving for most Indian carriers. Fuel costs are down and carriers such as SpiceJet have turned profitable, while others such as Jet Airways have cut losses. Sydney-based CAPA Centre for Aviation said in a recent note that Indian carriers likely posted a loss of $1.25 billion in the financial year ended March 31, 2015. The quantum of losses is likely to decline by up to 40% in the current fiscal year.

A new carrier's entry will increase competition in a price-sensitive market where airlines have in the past indulged in suicidal price wars, selling below cost and often hurting their own margins. Also, while the government has been promoting regional connectivity, airport infrastructure growth remains slow, making many regional routes unviable and unprofitable.

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