Akasa Air Places Order for $9 Billion Worth of Boeing Planes
Akasa Air, the ultra-low-cost airline backed by Rakesh Jhunjhunwala, has placed orders for a total of 72 Boeing 737 Max airplanes in an order worth $9 billion. This is the largest order that Boeing has received from India and gives them the much needed foothold in the Indian aviation markets.
It may be recollected that the Max-737 had been under regulatory ban and only recently the DGCA had allowed the 737-Max to fly again in India.
The order was finalized and announced at the Dubai Air Show. It is estimated that this price was after a large bulk discount but the exact details of the pricing were not available.
Akasa Air plans to tap the rapid growth in the Indian aviation market by offering an ultra-low-cost offering that would encourage almost every person to fly. It is not yet clear what would be the profitability trajectory or unique positioning of the model.
Check - Akasa Air Gets Approval to Launch Operations
Akasa Air is expected to have its base in Delhi and Bengaluru and will commence operations around June 2022. It is expected to induct 20 aircraft into its fleet in the first year of operation and then gradually add to its fleet.
Most low-cost airlines make money when they are able to fly at full capacity and also churn their flights quickly. In addition, the absence of frills gives them a huge cost advantage.
Akasa Air will look to design a sale and lease back arrangement with a large lessor wherein it would buy the planes from Boeing and then sell the same to an aircraft leasing company and lease it back. This allows them to reduce the capital locked into the business and improve the ROI.
The only catch is that most of these aircraft lease contracts are covered by the “Hell or High Water” clause wherein there is no provision for “Force Majeure”.
For Boeing, this order is a ticket to the lucrative and fast growing Indian aviation market. India’s largest airline, Indigo Airlines with 55% market share, has opted to stick with Airbus aircraft all through. Once the 72 aircraft are procured by Akasa, it will have the fourth largest fleet in India after Indigo, Air India and Spice Jet.
Boeing 737 Max is reputed to deliver the lowest seat mile cost and that would be a big edge in the competitive Indian market.
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