Jet Airways may place large aircraft order at upcoming Dubai Airshow

New Delhi: Jet Airways may be gearing up to place a large aircraft order at the upcoming Dubai Airshow, if not sooner.

Sources told Firstpost the airline is awaiting final clearances to the equity deal with Etihad Airways before it orders more aircraft and the initial order could well be for 50 aircraft.

Sources said the airline currently has about 70 Boeing 737 aircraft of which most are leased and only six to seven are owned by the airline.

Typically, these lease agreements are for five to seven years so the 50-plane order Jet is expected to place soon would largely be for replacing the existing fleet as planes begin to come to the end of their lease terms.

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Already, from a previous order, 46 Boeing 737 aircraft are in a delivery mode and the deliveries should be completed by 2016-17.

[caption id=“attachment_989065” align=“alignleft” width=“380”]  Already, from a previous order, 46 Boeing 737 aircraft are in a delivery mode and the deliveries should be completed by 2016-17.
Reuters[/caption]

“So the new order which the airline is expected to place will be for about 50 Boeing 737 Max aircraft,” sources said.

They said subsequently, another similar aircraft order may also be placed as the airline is looking at massive expansion of operations once it aligns itself fully with Etihad. Etihad is to buy 24% stake in Jet and final clearances from the Competition Commission of India and the Cabinet Committee on Economic Affairs are expected by next week.

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These sources said back-of-the-envelope calculations show the airline needs 140 B737s as replacement aircraft alone in the next 12 years and another 150 aircraft for feeding growing capacity demand in the Indian market.

With capacity induction plans in place, how will Jet position itself in the domestic market after the alliance with Etihad?

Sources said it is possible that Jet turns into a completely premium airline while aligning with Etihad but a final decision would be taken only after a comprehensive study of the market dynamics is finished. Market research agency A C Nielsen is conducting a comprehensive study of where Jet’s domestic business should position itself from now on and the report is likely to be submitted within a month.

So how will funds flowing in from Etihad help the debt laden Jet breathe?

The sources quoted earlier said of the $2.1 billion debt on the airline’s books, funds from Etihad are expected to quickly take care of the $350 million high cost rupee debt. This component of borrowings attracts a high 13% rate of interest and by retiring all of it, the airline will not only substantially reduce its overall interest repayments but also be able to cash on the table for better renegotiation of several contracts with suppliers.

Of the total $2.1 billion, at least $1.4 billion is aircraft debt which sources said is backed by assets (the aircraft) and need not be repaid before term. This only leaves another $350 million which is anyway dollar debt at interest rates of 7-8% and again does not need to be repaid in a hurry.