Ajay Singh led SpiceJet to buy 205 Boeing jets, inks $22 bn order

Budget airline SpiceJet said on Friday it would buy up to 205 new aircraft from Boeing for $22 billion (Rs 1.5 lakh crore) in what will be one of the largest aviation deals. The addition to SpiceJet’s fleet would help it grow market share from the current level of about 13%. The carrier plans to expand its fleet nearly fivefold to 155 aircraft by 2024 from 32 narrow-body planes it currently operates.

SpiceJet has topped up its existing order for 55 Boeing 737-8 MAX aircraft placed in 2014 with an order for an additional 100 jets. It has also secured the purchase rights for 50 more jets along with wide-body aircraft. The conversion of purchase rights to acquisition would be contingent upon market conditions, SpiceJet officials said.

Chairman and managing director Ajay Singh said the company will neither dilute its equity nor borrow to finance the deal. “Although the ‘sale and leaseback’ option is a standard practice we could also look at financing from Exim banks as interest rates across the world are low,” Singh added.

Singh also said the transaction had built in an option to buy wide-body planes as the airline was mulling operating low-cost, long-haul flights. The model is currently being used by a few airlines including subsidiaries of Singapore Airlines and Air Asia.

“The induction of the new aircraft, which burn 20% less fuel, would help SpiceJet reduce costs and enhance its ability to compete,” Singh said. He added the new aircraft would increase the range of flights by up to one hour, opening up many more destinations, including international ones.

SpiceJet will receive the first aircraft in the third quarter of 2018, and the rest of the jets would be delivered at an average of 20 every year till 2024.

“Acquiring 20 aircraft every year is a manageable task as India needs about 80 aircraft every year to cater to the passenger growth. We would also install a flight simulator to train more pilots for deployment,” Singh said.

Currently, the budget carrier has 32 B737s and 17 Bombardier Q400s. According to Boeing’s estimates, India will need 1,850 new aircraft worth $265 billion by 2036 to meet demand for air travel.

The deal is also a boost to the American aircraft manufacturer Boeing as SpiceJet remains the only low-cost carrier to operate these aircraft. Other budget airlines like market leader IndiGo and GoAir have a fleet of Airbus planes.

After being on the verge of going belly-up two years ago, the airline has been in the black for the past seven straight quarters. In the 2016 July-September quarter, the airline had posted its highest-ever quarterly profit of Rs 59 crore. However, due to depressed fuel cost, most airlines have made a profit during the same period.