Insight: Wednesday 23 September 2019: SpiceJet to Order 100 Airbus Aircraft?

News News reports from India indicate that SpiceJet is planning to order at least 100 Airbus single aisle aircraft. SpiceJet is a major operator of the Boeing 737 and is a major international customer for the grounded 737 MAX.The carrier has been planning to expand operations, and is considering A321LR and A321XLR jets to expand its international route network. While no decision has yet been made, the airline would consider a competing midrange jetliner, the Boeing NMA, if the company decides to build it.SpiceJet’s Chairman, Ajay Singh, said in an interview with Bloomberg that Airbus has “pushed us hard since the day we started flying Boeing aircraft, and of course with the current problem, they’ve pushed us harder. They have made us a commercial offer and we are considering it.” Analysis SpiceJet is a major 737 MAX customer, and a defection to the Airbus A321 would be a major blow to Boeing. SpiceJet currently has 13 Boeing 737 MAX and with orders and options that could bring that total to 205 aircraft.The MAX crisis has pushed off Boeing’s decision on the NMA to the point that airlines are now seriously considering other options, given the timeframe it will likely take to develop the new aircraft. The longer range versions of the A321 SpiceJet is considering would be available much sooner than an all new aircraft from Boeing, which would take at least five years before entry into service.Interestingly, the 737 MAX10 did not appear to even enter the consideration as a mid-market airplane, given its limitations when compared to the A321LR and XLR, as Singh’s discussion focused on the A321 and NMA. Without the NMA in its portfolio, Boeing is facing the loss of a major customer to its competitor. As we indicated last week, the Boeing NMA can’t come soon enough. Insight Is this a negotiating ploy with Boeing as the airline seeks compensation for the MAX, or does SpiceJet need the additional lift with fuel efficient aircraft to grow in the near term? The answer may be a bit of both. SpiceJet has taken on additional 737 NG models that are less fuel efficient, which in India, with high state taxes for aviation fuel, has some of the world’s highest costs. Having the most efficient aircraft is vital for low cost carriers in India, and without the MAX, SpiceJet has been forced into higher cost options.Singh indicated that the carrier would consider flying Airbus airplanes in addition to Boeing and De Havilland Canada (nee Bombardier) aircraft they currently fly. “You need to keep evaluating, and we are evaluating the Airbus option. It’s not the easiest thing in the world to do, of course -- our entire infrastructure is geared for a Boeing fleet -- but if this takes too long, we may not have too much of a choice.”The bottom line is quite clear. The MAX 10 is not competitive with the longer-range models from Airbus, and Boeing has no replacement for the 757, which the A321 has become. The MAX crisis has delayed the NMA decision at Boeing, which has made the business case for the airplane more difficult. Airbus has already taken potential customers for NMA and the A321 has become its best selling model this year, indicating the demand for mid-market aircraft. Without a quick decision on NMA with a firm offering to airlines, Boeing may find its business case untenable and lose potential customers. As those customers add Airbus to their infrastructure, future competitions will become more difficult.Boeing needs to make a decision quickly on the NMA, as even loyal customers are not going to wait much longer.

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