Boeing (NYSE:BA) has inked a $22 billion deal with Indian budget carrier SpiceJet to sell the company 155 airplanes. The deal renegotiates old orders for 55 planes and includes options for 50 more, including wide-body aircraft. SpiceJet’s firm orders are for 100 737 Max 8 aircraft, worth about $11 billion before discounts. SpiceJet says that it may boost the total if final talks yield substantial discounts and favorable maintenance contracts.
The commitment is the largest ever for Boeing from an Indian airline. Most of SpiceJet’s low-cost rivals in the South Asian country fly Airbus planes. SpiceJet and AirIndia Express are the only budget carriers to use Boeing aircraft in India. IndiGo, Go Airlines India and the local unit of AirAsia all fly Airbus jets.
Chairman Ajay Singh said in an interview, “We spent a considerable amount of time negotiating and finalizing the commercial terms, including maintenance of the aircraft.” Deliveries will begin in July 2018 and run through 2024. SpiceJet currently operates a fleet of 32 Boeing 737 jets and 17 Bombardier Q400 turboprops. The airline is based in Gurgaon near New Delhi.
Singh said the company was weighing its various options for financing the new purchase, including sale and leaseback. However, he ruled out issuing more debt or raising equity to pay for the planes. SpiceJet shares rose about 4.2 percent after the deal was announced.
India is considered the world’s fastest-growing major aviation market. Passenger traffic is growing at double the pace of nearest rival China. Local carriers in India have almost doubled to 11 in the past five years. Boeing forecasts India will need 1,850 new aircraft, valued at $265 billion, over the next 20 years to meet demand. The Asia Pacific region will need 15,130 new airplanes, worth $2.3 trillion, in that time period. According to Boeing’s outlook, that’s 38 percent of the global estimate of 39,620 aircraft.
InterGlobe Aviation’s IndiGo controls the India aviation market with a 42 percent share. SpiceJet controls about 13 percent of the market. SpiceJet is currently the fourth-largest Indian airline behind IndiGo, Jet Airways and state-run Air India. SpiceJet almost collapsed about two years ago and was briefly forced to ground its fleet in late 2014 when it ran out of cash.
The deal will help Boeing widen its footprint in India. The Indian market is heavily weighted towards single aisle airplanes. The single-aisle market is ruled by its European rival Airbus. IndiGo has some 400-odd aircraft pending delivery from Airbus. The carrier ordered 100 A320 planes from Airbus in 2006, followed by a deal for 180 A320neos in 2011. The company ordered a further 250 planes from Airbus, valued at $27 billion, in 2015.
For the past decade, airlines have been on a shopping spree for jetliners, but those sales are slowing. The two aircraft makers are currently facing the highest level of delivery deferrals in at least 15 years. Boeing sold fewer jets than it delivered last year.