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June 7, 2010

AI unable to pay for its order , plans to cancel

Filed under: Airlines,Boeing — aerotowfeeq @ 6:54 pm
Tags: , , , ,

State-run carrier AI (AI) is in a fix ahead of its plan to restructure its international operations by the yearend.

Struggling with massive losses, the carrier is looking to cancel or defer orders of three long-haul Boeing aircraft 777-ER (Extended Range) but the US plane maker Boeing insists it be replaced with narrow-bodied Boeing 737-800, generally used for domestic operations.

Also, the difference over pricing of Boeing 777-3-ER remains an issue as AI wants Boeing to offset these planes at a total of Rs 2,000 crore – the price that prevailed when the orders were placed in 2005.

“We are still in talks with the airline. We are yet to sign a new contract in this regard,” Dinesh A. Keskar, president, Boeing India, told Mail Today.

Keskar hoped that the deal would be struck soon. The cash-strapped carrier had ordered for 111 aircraft in 2005, including 68 Boeing aircraft for Rs 55,000 crore. AI, which has a paid-up capital of just Rs 145 crore currently has a payment commitments of over Rs 22,000 crore for aircraft deliveries this year as against Rs 12,000 crore last year.

AI and Boeing have been negotiating to work out the deal for quite some time. But the former is yet to take a decision on Boeing’s offer as it will have to approach the price negotiation committee, which functions under the Public Investment Board of the Union finance ministry for change in aircraft model.

But Keskar says that this should not be a problem. “In this case AI may again have to go back to it (the price negotiation committee) if the airline wants to take up Boeing’s offer of replacing the delivery of one type of aircraft with another,” said a top airline official requesting anonymity.

But AI doesn’t want to annoy the government as it has not been able to give a shape to the turnaround plan for the carrier.

As per the turnaround plan, the airline has to cut cost by Rs 1,500 crore and increase revenues by Rs 1,200 crore by the end of 2012.

AI’s further concern is that it is slated to join Star Alliance, the largest alliance of airlines by next year and with losses mounting this could also hamper the move.

The newly constituted board of the airline, which has eminent industrialists and experts – who are also members of the airline’s strategy committee – has prepared a network strategy for the airline as part of the turnaround plan. As per the plan, the airline could give up Frankfurt as its European hub.

It would fly direct Toronto as well as Chicago from New Delhi.

“There are also plans to reduce few more loss-making international routes. The cancellation of Boeing 777-300 ER is just a part of the restructuring plan,” a top AI official said.

The former managing director of state-run carrier Vayudoot, Harsh Vardhan, told Mail Today the airline should develop its market overseas if it has to survive.

“It is a retrograde step to cancel wide- bodied aircraft (order). This move would bring down its presence in the international market and benefit other private carriers,” said Vardhan.

Of the total 111 planes ordered by AI, 68 are from Boeing and 43 from Airbus.

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