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 $40bn 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 urbanisation have made India one of the world’s fastest-growing domestic aviation markets, where passenger numbers are expected to grow by more than 75% in the next six years to exceed 217mn.

According to Airbus executive vice-president and the president of its India operations Kiran Rao, optimism about growth in Indian aircraft demand is rising.

But few airlines have translated that optimism into new orders on the scale of IndiGo’s since most are losing money.

“People are too focused on India’s negatives. IndiGo is aware of the challenges and it is adept at steering itself around them. That is how it became India’s largest carrier,” said one source familiar with the airline’s thinking.

“There is, however, a great deal of optimism about the future within the airline and that comes right from the top.”

Ghosh told Reuters last week India was a “highly underpenetrated market” and that a lot of the new planes would be for growth rather than replacing older aircraft.

Despite more Indians flying, fierce competition and high costs have left airlines including SpiceJet, Jet Airways and state-run Air India losing cash fast. The sector will lose up to $1.4bn more this financial year, according to consultancy CAPA.

Privately held, IndiGo does not disclose its full accounts but is the only major Indian carrier which says it is profitable. It reported a six-fold rise in net profit to Rs7.87bn ($128mn) in the 2012-13 financial year, and has since expanded its market share to about 32%.

Founded in 2006 by travel entrepreneur Rahul Bhatia and Gangwal, a former chief executive of US Airways and an old hand in executing game-changing aircraft orders, IndiGo has relied almost entirely on the sale and leaseback model to fuel its growth.

 

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