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Originally published Thursday, June 7, 2012 at 8:20 PM

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Corrected version

In troubled India market, a crucial test for Boeing's 737 MAX

Though India's airlines are struggling, Boeing and Airbus are vying for a key order in the sales war between the 737 MAX and the A320neo.

Seattle Times aerospace reporter

India's airlines

The market: Strong growth long-term,

big losses now

Air traffic growth: Last year, airlines in India carried 60 million domestic and 40 million international passengers. In 10 years, those figures are projected to reach 180 million and 90 million, respectively.

More airplanes needed: India's scheduled airlines have a combined fleet of 440 aircraft today, projected to grow to 1,030 in a decade.

Bleeding money: Indian carriers this year are projected to have combined losses of $2 billion.

The players: Three of four are struggling

Air India: The national flag carrier lost nearly $4 billion in the past three years, and likely will lose $1.3 billion this year. Its pilots are on strike and many international services are suspended. A temporary government shutdown is possible, though the airline is likely to survive in some form.

Kingfisher: Started by Indian beer magnate Vijay Mallya, Kingfisher quickly became the country's second largest airline. But it failed to pay its taxes and meet the payments on its airplane loans. Its bank accounts were frozen, so it couldn't pay its employees. It now has shrunk drastically and can survive only if it taps new capital, likely from a foreign buyer.

Indigo: The only profitable Indian airline this year, Indigo is a low-cost carrier with big growth plans. It operates a fleet of 56 Airbus A320s and has 224 more on order, including 180 super-efficient A320 neos.

Jet Airways: Traditionally a premium service domestic and international airline, Jet has been losing money. But the airline is gaining international business as Air India and Kingfisher cut their routes. Jet is weighing a big single-aisle airplane order from Boeing or Airbus.

Source: Traffic, losses and fleet projections

from the Center for Asia Pacific Aviation (CAPA)

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Boeing's first delivery of a 787 Dreamliner outside Japan is finally expected to go ahead soon, following an agreement with Air India on compensation for more than three years of delays.

India's national flag carrier still faces serious financial and labor trouble at home. Indeed, the entire Indian aviation market is in turmoil, despite healthy projected long-term growth.

And yet, as airlines there jockey for position in an uncertain future, a high-stakes battle for a key Indian order is looming in the bitter sales war between Boeing's 737 MAX and Airbus' A320neo.

Air India is bleeding billions of dollars, its pilots are on strike and many of its long-haul routes are suspended.

Among India's airlines, only low-cost carrier Indigo is not losing money. Formerly highflying Kingfisher Airlines is near collapse and seeking a foreign buyer to bail it out.

But buoyed by the struggles of its main domestic competitors, one premium Indian airline — Jet Airways — is looking to grow and plans to place a critical order.

In a pending deal for up to 100 single-aisle airliners, Jet Airways is "seriously considering" ordering the neo over the MAX, said Binit Somaia, director for South Asia at the Australia-based Centre for Asia Pacific Aviation (CAPA), citing sources in India.

Since Jet has an all-737 single-aisle fleet, that would be a stunning loss for Boeing.

Jet's main domestic competition is Indigo, which has ordered 150 Airbus neos with deliveries starting in 2016.

"If (Indigo) is going to be getting neos and achieving 15 percent reduction in operating costs, (Jet) needs to be able to match that," said Somaia.

With both the neo and the MAX promising similar fuel savings, timing could be crucial, he said.

Boeing's MAX won't be available until 2017. But Airbus has built up a backlog of close to 1,300 firm orders for the neo, so sales chief John Leahy would have to juggle delivery slots from other customers to give Jet neos any sooner.

The order, expected to be finalized in the months ahead, almost certainly will come down to price, as Boeing seeks to hold onto its customer and Airbus fights for clear supremacy in the single-aisle market.

"Cost is going to be the overriding factor in this decision," said Somaia.

A market transformed

The sales battle comes amid a rapid transformation of aviation in India, led by the low-cost carriers, of which Indigo is the most successful.

As recently as five years ago, airplanes were used only by the Indian business and ruling elites, and featured premium service and expensive tickets.

Indigo initially attracted cost-conscious travelers then successfully wooed business travelers with its offering of new aircraft, reliable on-time performance, low fares and good, no-frills service.

Though Jet was founded as a premium airline, it's been forced to shift with society and now has its own low-cost subsidiary, JetKonnect.

Jet lost $58 million in the latest quarter, hampered by a crippling tax on jet fuel that adds about 50 percent to the cost for all Indian airlines.

Yet CAPA's report said the intense troubles at Air India and Kingfisher offer Jet a chance to recover profitability and win market share.

Troubled merger

Air India's botched merger in 2007 with Indian Airlines led directly to its latest trouble: a protracted pilots strike.

Pilots from the legacy Air India unit are demanding that only they, not the former Indian Airlines pilots, should get to fly the 787.

With many of its international routes closed, Air India chose to stall the first 787 deliveries and to use that as leverage to haggle with Boeing over compensation.

But the airline's problems go deeper than the latest labor dispute. Vastly overstaffed, Air India has been bleeding money, losing $3.8 billion in the last three years. CAPA estimates it will lose $1.3 billion more in the current financial year.

Political paralysis in India is hampering any restructuring of the national airline. Continued labor strife is likely in the months ahead, and Somaia said a temporary government shutdown of the airline is possible.

As for Kingfisher, the airline founded by beer magnate and Indian playboy Vijay Mallya, it has grounded many of its planes as it struggles to pay off debt.

The only potential lifeline is a change in government regulations that would allow a foreign carrier — perhaps one of the big Gulf airlines: Emirates, Etihad or Qatar Airways — to buy it.

Meanwhile, Air India and Kingfisher passengers are flocking to other airlines.

"Jet Airways has been, and will continue to be, the largest beneficiary," said a recent CAPA report.

Other likely winners include SpiceJet, a low-cost carrier that flies Boeing 737s, and GoAir, a low-cost carrier that has ordered 72 Airbus A320 neos.

Somaia said CAPA still projects phenomenal growth in Indian airline traffic because of the country's rapid economic expansion. By 2017 or 2018, India should be the world's third largest aviation market, after the U.S. and China, he said.

Last year, Boeing projected sustained double-digit growth in the Indian economy, creating a $150 billion market for 1,320 new passenger airplanes over the next 20 years.

But before then, a shakeout in the country's airline industry seems imminent. Jet is positioning itself to be among the winners.

Its pending single-aisle order may determine whether Boeing maintains at least a half-slice of the growth ahead in India.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

Information in this article, originally published June 7, 2012, was corrected June 11, 2012. A previous version said Air India's merger with Indian Airlines happened last year; it occurred in 2007.

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