Airlines splash cash on orders, but infra turbulence ahead

It’s the kind of stuff that only dreams are made up of. The order list at the Paris air show says it all – As much as a third of the airplane orders last week – can you believe it – came from India. The orders came pouring in despite the fact that the infrastructure here still remains woefully inadequate to cope with the challenge.

What is at stake is a $23-billion gamble that air will finally overtake rail in the face of a formidable list of obstacles. With an historic 200-plane order, Malaysia’s AirAsia took the centre-stage. Indian budget carrier IndiGo flew in close second, going for an eye-popping 180 jets.

GoAir’s order list included 72 Airbus jets at a price tag of $6.6 billion. “It’s been a frenzy in Paris with orders from India proving that the industry is in pretty good shape… It’s all part of the continuing shift in economic power from west to east,” said BGC Partners senior strategist Howard Wheeldon.

The order pipeline from Indian airlines, at $40 billion, looks pretty strong. But the real test, analysts say, is India’s ability to tackle issues of high fuel taxes, poor infrastructure, debt and frequently rising interest rates. “As of today it seems far fetched that they need so many aircraft because India does not have infrastructure to handle this,” said Kishor Ostwal, chairman of Mumbai’s CNI Research. “We have to see if we can have the infrastructure to support another 300 to 400 aircraft in coming years. Even today, airlines in key metro routes do not get slots to land in time and this pushes up operating costs further.”

There has been some progress on the ground, but much remains to be done, say experts. Connectivity is still a matter of concern as smaller cities go without any airport infrastructure. That has not stopped airlines from ramping up their fleets to catch up with demand, where an economy growing at nearly 9 percent is spurring business travel and a burgeoning middle class long accustomed to traveling by rail is now increasingly opting for air. And with a population of over a billion, India does need more planes.

“At the beginning of 2000, there were 100 large passenger aircraft in India for 1 billion people; now there are 300 aircraft for 1.2 billion. The ratio is extremely small,” said Kiran Rao, executive vice president for sales at Airbus. Over the same period the backlog of airplanes on order has exploded from just 12 in 2000 to well over 500 after the show. By contrast, China, which is itself poised for dramatic growth, starts off with 1,400 large jets for 1.3 billion people.

(With inputs from Reuters)