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China gets an offer, India makes one

Airbus building Hamburg

there’s one just like this in tianjin. pic/shukor yusof

Airbus makes China an offer that it can (and should) refuse

Fresh from his China tour with the French president in early Jan., outgoing Airbus COO & President Commercial Aircraft Fabrice Brégier said his company has outsold Boeing in 2017.

The Toulouse-based aircraft maker said on Jan. 15 it had surpassed its 2017 target by delivering 718 planes to customers, compared to Boeing’s 763. Orders were up 52% to 1,109 last year, against Boeing’s 912.

But we are obliged to point out that Boeing remains the world’s largest airplane manufacturer – for the sixth consecutive year – and made considerably more money in 2017 than its European rival. Check it out here.

Boeing’s share price soared 25% in 3Q17; on Friday (Jan. 12) it closed just a tad above USD336, a remarkable value indeed.

Brégier, who is leaving Airbus next month, said Airbus faces “challenges” although these were “manageable”. He added the company plans to ramp up production this year and next and has aimed to deliver more planes than Boeing by 2020.

Whilst in China, Brégier announced the Airbus plant in Tianjin would up production of the A320 to six a month in 2020 (from the current four). The Tianjin FAL (final assembly line) was opened in 2008 and has produced over 350 A320s.

Additionally Airbus said it was in talks with the Chinese on some sort of partnership on the A380, possibly handing over some menial tasks like painting and doing up the interiors of the plane’s cabin. However Airbus will only let China do this if Chinese carriers buy more A380s.

Today only one Chinese airline – China Southern – operates the A380, and then only five of them. Putting on finishing touches on an A380 is an offer the Chinese can refuse and we suspect they will unless politics come into play (as it almost always does when politicians are involved).

Air India 787 screenshot

nice plane, shame about the carrier. an air india b787 dreamliner. screenshot photo taken from airline’s website.

India puts national airline up for sale

Here’s another offer, this time by the Indian government, for a 49% stake in troubled flag carrier Air India. Read the FT article here.

Air India was founded by the Tata family in 1932. It was known as Tata Airlines until Jul. 29, 1946 (about a year before the country’s independence) when it was changed to Air India.

It is thus quite understandable that the Tata Group is now contemplating reacquiring its baby 85 years after it was taken away. Tata and Singapore Airlines (SIA) together own an Indian carrier known as Vistara. A week ago Vistara’s Singaporean CEO said SIA is keeping “an open mind”. But why even bother?

Air India has debts close to USD8 billion. It is saddled with bureaucracy and any new buyer will have to contend with thousands of workers who will likely make restructuring almost impossible. To make matters worse, the government will retain a 26% stake in the carrier. And the government has been known to interfere in how the airline is run.

Granted, the potential in India is huge and air traffic will no doubt grow rapidly in the next few decades. The airline also has some lucrative slots, including those at London Heathrow. Air India reportedly also has some very lovely land bank worth over USD1 billion.

However, Air India only has about 15% of the domestic market and 44% of the international market among Indian airlines. It appears unlikely – especially with the likes of Indigo and Spicejet aggressively capturing the local market share – Air India can grow profitably domestically.

Moreover, nobody really can say how much the airline is worth. It hasn’t published its annual report for the past two years. All we have to go by are some figures from IATA: almost 80 million Indians took to the skies between April and November 2017. IATA adds that India will be the world’s third biggest market by 2025 (after China and the US). Read it here.

So far just one airline – Indigo – has officially expressed real interest in Air India. Qatar Airways and Spicejet are also said to be keen. As for SIA’s position, here’s what we think of it.

Investors considering putting money in a loss-making flag carrier should study the slew of national airlines that have gone bust recently (Alitalia, Malaysia Airlines). Both examples revealed that it’s tough to drain the swamp.

 

 

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