IndiGo Places Order for Buying 250 A320neo

IndiGo, India's biggest airline by market share, said it has placed a firm order for a record 250 Airbus A320neos, giving the European aircraft maker its largest-ever order by number of planes.
At list prices, the total order size equals $26.55 billion. However the actual deal value will likely be much lower, thanks to the high number of planes ordered, said analysts.
The order for the Airbus A320neo (new engine option) planes revives an earlier agreement signed in October 2014 for the same number of planes. The agreement lapsed this year, according to the IndiGo's pre-IPO document, the draft red herring prospectus (DRHP) filed with Sebi, the capital markets regulator. In the earlier agreement however, the airline had provisioned for an option of another 100 planes, something it hasn't done this time.
“With today's announcement, IndiGo has ordered 530 A320 family aircraft with Airbus,“ the airline and the plane maker said in identical statements, put out simultaneously. The agreement was signed on Saturday.
This is Airbus' biggest passenger aircraft deal by volume, IndiGo said in its statement. Airbus' global VP for strategy and marketing Kiran Rao said it is also the aircraft maker's second biggest deal by value.
IndiGo had in 2005 placed an order for 100 A320s and in 2011 for another 180 neos, than the biggest aircraft order in aviation history in terms of volume.
The deliveries of the 180 plane order will start at the end of this year and continue till 2023. IndiGo's president Aditya Ghosh said the first plane delivery from the 250 plane order is scheduled in 2018 and the last one for 2026. This means that between 2018 and 2023, IndiGo will receive deliveries from both sets of orders, which analysts fear will lead to overcapacity.
Of course a large part of these deliveries will replace existing planes, which will be returned to lessors. IndiGo works on the popular sale and leaseback model buying planes, selling them to lessors at a premium to part-finance the original deal, and leasing them back at monthly rentals. According to IndiGo's DRHP, it plans to have a fleet of 137 planes by 2018 from 94 currently . But that plan, Ghosh said, doesn't take into account the latest order. He didn't elaborate.
IndiGo is expecting a valuation of $4 billion from the IPO, more than six times the current market cap of its nearest rival, Jet Airways.
Ghosh defended IndiGo's expansion strategy with the argument that India suffers from under-supply of airplane seat capacity. “A total of 8.4 billion people travel by railways every year and less then 1% of that by air. That shows the scope of growth of airline travel in India. Also there is an interesting statistic which shows that since 2004, the growth of revenue passenger kilometres (the number of revenue paying passengers in a flight multiplied by the number of kilometers it travels) has been 1.8 times that of the economic growth of the country. That gives an idea of the potential,“ Ghosh said.
To be sure, IndiGo's mammoth aircraft orders have helped it to grow rapidly to become India's No. 1 carrier. More importantly , the deals have helped the airline wrest major discounts on pricing, lease rentals and above all maintenance costs. These cost cuts, with a robust operational performance have helped the airline clock consistent profits since it started operations in 2005.
The deal gives Airbus a decisive lead over rival Boeing in the Indian market. 

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