Air India Aircraft Deal and its Significance

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Air India Aircraft Deal and its Significance


  • Recently, Air India Ltd. placed the largest aircraft order in aviation history, opting to purchase 540 aircraft from Boeing (USA) and Airbus (Europe).
  • This will allow the Tata Group airline to expand its operations both domestically and internationally.
  • Air India is estimated to spend a whopping $82 billion on the acquisition of short and long-haul aircraft, while the real cost would be less as bulk purchases are eligible for discounts and incentives.
  • In this article, we will explore this deal from multiple perspectives.


  • GS3: Infrastructure: Energy, Ports, Roads, Airports, Railways etc.
  • Essay
  • Prelims

Why is the Air India order for 470 new aircraft such a huge deal?

  • The historic Air India purchase of 470 jets, valued between $80-100 billion, has caused the world to sit up and take notice because of its scale and the ramifications it has for Air India, the aviation industry, and some of the biggest global economies.
  • This is the biggest bulk order for aircraft; American Airlines' purchase of 460 aircraft in 2011 is now the second-highest.

  • The deal, which took more than a year to work out, marks India's debut as one of the major aircraft-buying countries.

How is this order beneficial for Air India?

  • After the Tatas' takeover in early 2022, the former national airline of India, which had been making significant losses, has been working to improve its performance.
  • By merging with Vistara recently, it became the nation's largest airline operating on foreign routes and the second-largest domestic airline after Indigo.
  • Prior to the most recent order, the Tata group operated 218 aircraft, flying to 52 domestic and 38 overseas destinations.

Air India:

  • Air India’s journey took off in 1932, when Bharat Ratna J.R.D Tata formed an Airline (Tata Airlines (a division of Tata Sons Ltd)), realising his dream.
  • The first Indian to receive a commercial pilot’s license, it was his passion for flying that had sparked Air India’s origins – with the launch of an Airmail service from the then Bombay to Karachi via Ahmedabad.
  • In July 1946 it became a Public Ltd Company with the name of Air India.
  • 49% of the stake in Air India was acquired by the Government of India in 1948 (with an option to purchase an additional 2%)
  • The government nationalized the carrier in 1953 and passed the Air Corporations Act 1953, which provided monopoly rights to Air India and its associates.
    • This act was repealed after a standing committee headed by Pramod Mahajan recommended it in 1993, and since 1994 the private sector players are allowed to participate in the aviation business
  • Air India’s international connectivity, spanning cities in Europe, the USA, the UK, Africa, the Gulf, Asia and Australia, was strengthened after joining Star Alliance – the largest global air consortium – in July 2014.
  • The airline also covers every remote corner of our country. It has always stood by the Nation and its people during the hour of need and has played a key role in evacuation missions during crises like the Gulf War, the Covid pandemic and the recent Ukraine conflict.
  • On 27th January 2022, Air India has been welcomed back to the Tata Group and is poised to soar high – redefining its goals & approach with a focus on overall excellence & customer-centric processes.

Tata Group:

  • Founded by Jamsetji Tata in 1868, the Tata Group is a global enterprise, headquartered in India, comprising 30 companies across 10 verticals.
  • The group operates in over 100 countries across six continents.
  • Tata Sons is the principal investment holding company and promoter of Tata companies. Sixty-six per cent of the equity share capital of Tata Sons is held by philanthropic trusts, supporting education, health, art and culture.
  • With this deal, Air India's fleet size will more than double, and it will surpass Indigo's fleet of 300 aircraft to become the largest airline operating domestic routes as well.
  • The kind of aircraft that Air India has ordered indicates that it aims to significantly expand its footprint on international routes as well as fly to both major and minor locations within the domestic market.

State of the Civil Aviation Sector in India:

  • India is one of the fastest-growing aviation markets in the world. 
  • Its domestic traffic makes up 69% of the total airline traffic in South Asia. 
  • India’s airport capacity is expected to handle 1 billion trips annually by 2023.
  • The Ministry of Civil Aviation is responsible for formulating national aviation policies and programmes. 
  • The aviation sector came under severe financial stress during the Covid-19 pandemic.
  • After air travel was suspended in March 2020, airline operators in India reported losses worth more than Rs 19,500 crore while airports reported losses worth more than Rs 5,120 crore.
  • However, several airline companies were under financial stress before the pandemic affected passenger travel. For instance, in the past 15 years, seventeen airlines have exited the market.

Government Initiatives:

  • Accessing Northeast India:
    • Over 30 airport development projects are under progress across various regions in Northeast India.
    • AAI plans to develop Guwahati as an inter-regional hub and Agartala, Imphal and Dibrugarh as intra-regional hubs.
  • Infrastructure:
    • The Government is planning to invest US$ 1.83 billion for the development of airport infrastructure along with aviation navigation services by 2026.
  • Private Sector and PPP:
    • With the opening of the airport sector to private participation, 6 airports across major cities are being developed under PPP.
    • Currently, 60% of airport traffic is handled under PPP, while the remaining 40% is managed by AAI. Participation by the private sector has improved service levels and enhanced the passenger experience.
  • Open sky policy:
    • An Open Sky Air Service Agreement allows for airlines from the two countries to have an unlimited number of flights as well as seats to each other’s jurisdictions.
    • India has signed Open Sky Agreements with multiple nations like the US, Greece, Jamaica, Japan, Finland, Sri Lanka etc.
  • National Civil Aviation Policy, 2016:
    • The policy covers 22 areas of the civil aviation sector. Under the policy, Airlines can commence international operations and will have to deploy 20 aircraft or 20% of their total capacity (whichever is higher) for domestic operations.
  • Regional Connectivity Scheme (RCS) – UDAN (Ude Desh ka Aam Nagrik).
  • FDI:
    • The Government has allowed 100% FDI under automatic route for greenfield projects, whereas 74% FDI is allowed under automatic route for brownfield projects.
    • 100% FDI is allowed under automatic route in scheduled air transport service, regional air transport service and domestic scheduled passenger airline.
    • FDI over 49% would require Government approval.
    • FDI inflows in India’s air transport sector (including air freight) reached US$ 3.54 billion between April 2000-March 2022.

Challenges in the aviation sector:

  • Infrastructure:
    • One of the main infrastructure challenges faced by the aviation industry in India is the need for adequate airport facilities.
    • Many airports in the country are old and need modernization, while others are located in areas that are difficult to access, which can lead to congestion, delays, and safety issues.
    • Another challenge is the need for more runway capacity. As the number of flights and passengers continues to grow, there is a need for more runways to accommodate the increased traffic.
  • Regulation:
    • The regulatory framework for the aviation industry in India is complex and often challenging to navigate.
    • There are multiple government agencies involved in regulating different aspects of the industry, including the Ministry of Civil Aviation, the Directorate General of Civil Aviation (DGCA), the Airports Authority of India (AAI), and the Bureau of Civil Aviation Security (BCAS).
    • These multiple agencies can lead to clarity and delays in obtaining permits and licenses and result in the consistent application of regulations.
    • One of the biggest challenges in the regulatory framework is more clarity and consistency in policies.
    • Regulations are often subject to interpretation, which can lead to different outcomes depending on the agency involved.
    • The aviation industry constantly evolves, and regulations must keep pace with these changes to ensure safety and efficiency. However, the process of amending regulations can be slow and cumbersome, which can impede the growth and development of the industry.
  • Skilled Workforce:
    • The aviation industry requires a highly skilled workforce, including pilots, aircraft maintenance engineers, air traffic controllers, and ground handling staff.
    • However, there is a need for more trained professionals in the industry, which can lead to delays and safety issues.
    • One of the main challenges in developing a skilled workforce is the high cost of training. Aviation training is expensive and requires significant investment in infrastructure and equipment.
    • This can make it difficult for individuals to pursue careers in the industry, particularly those from low-income backgrounds.
  • Cost Structure:
    • The aviation industry is capital-intensive with high fixed costs. These costs include aircraft acquisition, maintenance, fuel, and labour costs.
    • In addition, there are regulatory fees, airport fees, and other operational costs that add to the overall cost structure of the industry.
    • One of the main challenges in the industry's cost structure is the high cost of aviation turbine fuel (ATF).
    • The cost of ATF in India is among the highest in the world due to high taxes and other levies. This increases the overall cost of operating flights, making it difficult for airlines to remain competitive.
  • Security:
    • Aviation security is a critical issue for the industry, given the potential for terrorist attacks and other security threats.
    • The industry is subject to a wide range of security regulations to ensure the safety and security of passengers, crew, and aircraft.
    • One of the main challenges in aviation security is the constantly evolving nature of security threats.
    • Terrorist organizations and other criminals are constantly developing new tactics and methods to evade security measures and carry out attacks.
    • This requires a consistent and proactive approach to security, with the industry and regulatory agencies working together to stay ahead of evolving threats.
  • Environmental Concerns:
    • The aviation industry significantly contributes to greenhouse gas emissions, which contribute to global climate change.
    • The industry's impact on the environment is due to the high consumption of fossil fuels and the emissions of pollutants such as carbon dioxide (CO2), nitrogen oxides (NOx), and particulate matter.
    • One of the main challenges in addressing the industry's environmental impact is the need to balance economic growth with environmental sustainability.

About the Airports Authority of India (AAI):

  • It is a statutory body under the aegis of the Ministry of Civil Aviation.
  • It is responsible for creating, upgrading, maintaining and managing civil aviation infrastructure in India.
  • It was founded in 1995 and is headquartered in New Delhi.

What does the deal really mean for India's aviation sector?

  • The agreement aims to turn India into a major international air travel hub by significantly increasing the number of international air carriers operating from India. This will require a revamp of Indian airports too.
  • The chairman of the Tata group suggests that some aircraft parts may be manufactured in India which will stimulate local manufacturing and provide new job opportunities.

Types of aircraft: Narrow Body vs Wide Body

  • The distinction between Narrow- and Wide-Body aircraft is the width of the fuselage (tube-shaped aircraft body, or the part where passengers, cargo and crew sit).
  • A typical narrow-body plane has a diameter of 3-4 m whereas a typical wide-body plane has a diameter of 5-6 m.
  • Due to the bigger fuselage, wide-body aircraft can house more passengers, and the same is achieved by having more seats per row. While narrow-body aircraft will have 3-6 seats per row with one aisle, wide-body aircraft can have up to 10 seats with two aisles.

About Airbus:

  • Airbus SE  is a European multinational aerospace corporation.
  • Airbus designs manufactures and sells commercial aircraft and has separate Defence and Space and Helicopters divisions.
  • The company was founded in 1970 as a collaboration of European aerospace companies to develop and produce a wide-body aircraft to compete with American-built airliners, which would later merge together.
  • Reflecting this multi-national origin, the company operates major offices and assembly plants in France, Germany, Spain and the United Kingdom, along with more recent additions in Canada, China, and the United States.

About Boeing:

  • The Boeing Company is an American multinational corporation that designs, manufactures, and sells aeroplanes, rotorcraft, rockets, satellites, telecommunications equipment, and missiles worldwide.
  • The company also provides leasing and product support services.
  • Boeing is among the largest global aerospace manufacturers; it is the third-largest defence contractor in the world based on 2020 revenue and is the largest exporter in the United States by dollar value.

Airbus vs Boeing in India:

  • Over the years, Airbus has emerged as the undisputed leader in India’s domestic aviation space, with the lion’s share of narrow-body planes coming from its stable — specifically, the A320 family.
  • With the exceptions of SpiceJet and new entrant Akasa Air, all major airlines in India — IndiGo, Air India, Vistara, Go First, and AIX Connect — depend almost entirely on Airbus for narrow-body operations.
    • Together, these five carriers account for almost 90 per cent of India’s domestic air travel market.
  • Boeing had started making inroads a few years ago with large orders for its 737 MAX aircraft from Jet Airways and SpiceJet. However, a combination of factors — the bankruptcy of Jet Airways, financial troubles at SpiceJet, and the grounding of 737 MAX planes globally for an extended period over safety issues — delivered a blow to Boeing’s ambitions in India.
  • With the 737 MAXs now back in service globally and Boeing offering faster deliveries, the US-based manufacturer would be looking to give tough competition to Airbus in India.
  • Among wide-body aircraft, of which there aren’t too many in India, Boeing is the leader — both Air India and Vistara have all-Boeing wide-body fleets. In fact, the Air India order for 40 Airbus A350s is being seen as a win for Airbus, which has been pitching its wide-body products to Indian carriers for some years now but had been unable to make inroads into the Boeing-dominated segment. The last Indian carrier to deploy Airbus wide-body planes was Jet Airways.

What is the Geopolitical significance of the deal?

Strengthened Bilateral Relations:

  • The significance of the order goes far beyond Air India and India’s aviation sector. This was underscored by the lead taken by global leaders Prime Minister Narendra Modi, French President Emmanuel Macron, and US President Joe Biden in making the announcement.
  • It was lauded as a glowing example of mutually beneficial cooperation that will create employment opportunities within all the involved nations.
  • USA:
    • US President Joe Biden hailed Air India’s “historic agreement”. He said the “landmark” agreement will create nearly 1 million jobs across 44 American states.
    • The Indian PM had a “warm and productive” telephone call with the American president where the two leaders expressed satisfaction at keeping Indo-US strategic partnerships, which will result in growth across all domains.
  • England:
    • The British PM said that by building trade ties with growing economic power like India, the UK will ensure that their native business remains at the forefront of global growth.
    • A substantial portion of the manufacturing process for the new aircraft is set to take place in the UK, which includes the production and assembly of wings and engines. It is expected to create hundreds of jobs and bring large sums of investment to the UK.
    • He added that the “landmark deal” will create “better-paid jobs and new opportunities in manufacturing hubs from Derby to Wales.”
  • France:
    • Congratulating the Tatas and Airbus on the agreement, Modi said that the deal reflects on the keeping ties between India and France, and said, “Whether it is the issue of security and stability in the Indo-Pacific region, or global food security and health security, India and France together are making a positive contribution.”
    • French President Emanuel Macron said that France is fully committed in providing India with extremely efficient state-of-the-art technology and added that the end of the COVID-19 pandemic should open up more opportunities for exchanges between India and France.
    • Calling the deal a milestone in ties between the two nations, Macron said that French companies are actively working with India with regard to carbon neutrality and energy transition.

Boosting economic activities:

  • Major Western economies are in the midst of an economic slowdown and are looking to spur economic activity and support employment.
  • After irking the West by ramping up its purchase of Russian crude, it is good optics for India to be seen as creating jobs in Europe and the US through the AI order.
  • The message seems to be that India and Indian companies are open to business with the world, irrespective of the region and geopolitics.
  • The fact that the announcement has come in the year of India’s G20 presidency adds strategic value to the order.
  • The global economic slowdown and Europe being on the brink of recession opens up opportunities for India to fill the void left by China, as seen in this mammoth deal.


  • India’s aviation industry is largely untapped with huge growth opportunities, considering that air transport is still expensive for the majority of the country’s population, of which nearly 40% is the upwardly mobile middle class.
  • The government has been instrumental in developing policies to give a boost to the aviation sector. For this, the UDAN-RCS scheme has been launched by the government which aims to increase air connectivity by providing affordable, economically viable and profitable travel on regional routes.
  • Now, this major move by Air India will undoubtedly place the aviation sector in India on a growth trajectory.

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