Podcast: Will India Be Aviation’s Next China?

Aviation Week’s team discusses Air India’s massive aircraft order and defense highlights from Aero India.

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Joe Anselmo:

Welcome to Aviation Week's Check 6 podcast. I'm Joe Anselmo, editorial director and editor-in-chief of Aviation Week magazine.

Will India be the next China for the aviation business? That is the focus of today's podcast. China became civil aviation's growth engine in the 2010s and a critical customer for Airbus and Boeing. People are now asking whether India will take that role in the 2020s. Earlier this month, Air India announced a record order for 470 Jets; 250 from Airbus and 220 from Boeing, surpassing the previous order record set by American Airlines back in 2011.  India is also a market long coveted by Western defense contractors. But it can be a maddening place to do business, hobbled by inadequate infrastructure. That's all a lot to unpack. So today we have four of Aviation Week's finest with us. Jens Flottau is Aviation Week's executive editor for commercial aviation. The numbers guy, Daniel Williams, is our manager of fleet, flight and forecast data. Jen DiMascio is Aviation Week's executive editor for defense and space, and spent last week at the Aero India show. And Craig Caffrey, our head of defense markets and data, keeps a close eye on India's air force and defense spending.

Jens, let's start with you. This was a really big airplane order last week, wasn't it?

Jens Flottau:

Yeah, 470 aircraft roughly split between Boeing and Airbus, Airbus getting a little bit more than half, 220 in narrowbodies, 40 widebodies. The really interesting stuff is when you dig a little further into the details, the order as such has been expected for a long time given the Tata Group plans to revive Air India. We can probably go into this in a little more detail later, but just a hint, big order for the A350-1000, which hasn't been selling well so far. And to me the biggest piece of news was the engine selection on the narrowbodies, 800 Leaps and zero Pratt GTFs tells you something about airline confidence in the GTF performance right now, given all the problems that we've heard about in the past few months.

Joe Anselmo:

Dan Williams, I want to go to you. You and I have had this conversation offline. You're a little bit skeptical of all this talk of India becoming aviation savior in the 2020s.

Dan Williams:

Yeah, India has perpetually been the country, or in our case we even split out as a region for our forecast product because it's that massive. It's always perpetually the sleeping giant. India has the growth in the middle classes, it has the population to replicate in a way what China did 10, 15 years ago where China pretty much single-handedly helped the big OEMs, post- '08, '09 financial crisis by taking literally a quarter of all aircraft every year.

Now India is a huge market, but it's a different situation we find ourselves in with India today because there is as an established market with lots of low-cost carriers. IndiGo sucking aircraft up left, right, and center. This order is not firm. When you actually do some digging into it, they are not firm orders. They are yet to hit the order books of the OEMs and there's going to be some clever management with this.

There are already three A321s painted up in Air India colors and there is no current Air India A321 orders on the order book. As I said, they're letters of intent. So there will be a case of some of these, a percentage of these will actually come straight from lessors. So that's probably what Airbus are working out at the minute. The A350-900s, I suspect they will be firm orders because they're the already built X Aeroflot aircraft, so they're an off the shelf. And likewise, there's a possibility that some of the MAXs are an already off-the-shelf aircraft, for some of those aircraft that have been built and yet to be delivered to various airlines, predominantly Chinese, around the world.

So I am reasonably skeptical. Our forecast products does anticipate that India will grow over the next 10 years with a CAGR  -- if you like CAGRs or not, it's a metric -- of over 10%. So again, there's always a chance of India becoming huge. It's just a case we've not quite seen the fruits of those labors yet.

Joe Anselmo:

So Jens, obviously the story of this year has been the inability of Airbus and Boeing to deliver enough airplanes to meet demand because of all the supply chain problems. Is this really good news for the airframers? Are these orders spread out along enough years that it's not going to further stress the supply chain?

Jens Flottau:

Yeah, they are spread out a long, long time. Dan mentioned the A350-900s that have already been built for Aeroflot. That's six aircraft, but those are the exception. The A350-1000s will come in towards the end of the decade, like five years out. The same is true for the new build A320neos, A321 Neos. Those are starting to come in '27 in small numbers and then picking up later. So in terms of the current supply chain issues, they are not a factor. But obviously, it's good news for Airbus because the order demonstrates that there is long-term demand for high volumes of narrowbody aircraft.

It's also good news because the order demonstrates the return of widebody demand. We've seen the recent United Order for 100 787s. We may soon see an order from Riyadh International Airlines in Saudi Arabia for a lot of A350s, we hear. Who knows when that's actually going to happen, but ultimately it probably will. So there are bits of good news there, and yes, it's not firm yet, but I do think sooner or later a large portion of this will be firm.

Dan Williams:

And just to add into your engines comment, Jens, Air India looked at the experience of the GTF in India and it's a tricky environment that it operates in, and they've had the opportunity to make a learned decision that they prefer the Leap. Rightly or wrongly, that's their choice, but they've used experience to make that choice for the A320s.

Joe Anselmo:

So Jen, you were on the ground in India when all this was announced. What was the mood there?

Jen DiMascio:

Well, the mood at Aero India was very much focused on India making products on its own. And to that effect, after the big announcement was unveiled, one of the military officials got up, they recognized that India is a giant market, not just for defense products but for commercial aircraft as well. And one of the generals got up and said, ‘Look, we are a huge market for civil aviation, we should be making our own commercial airframes.’  So, certainly it's a big market for Airbus and Boeing, but who knows how long before India will start making its own.

Jens Flottau:

Yeah, and it was funny, when Tata Group made that announcement, they were very, very clear in their ambition to say that ‘We want to build aircraft’. And that didn't mean components, that did mean aircraft. And Airbus was almost as quick to say that they don't want to do a final assembly line in India. They have already one in Mobile, they have one in Canada, they have in France and Germany, in China. They don't want another one. So that's going to be a tricky one to play for Airbus. They are hoping they can get away with putting more supplier work into India, but we'll have to see whether that'll hold long term.

Joe Anselmo:

Well, this is a good point to segue to defense, Jen. Tell us a little bit about what you saw at the show and what the mood was.

Jen DiMascio:

Well, the mood was, as I said, very much focused on kind of a shift. Over the last 10 years, the catch phrase has been ‘Make in India,’ and now it's one of self-reliance. But also I just wanted to touch on the amazing flying display at the show. There were all kinds of aircraft in the skies. B-1 bomber, the F-35 was there, the F-16, the Dassault Rafale, C-130Js, trainers made by Hindustan Aeronautics Limited and BAE Systems, the Hawk. So, it was a vast array of aircraft on display. And then the rhetoric there was all on ‘How do we make more of our own defense products here in India.’ as Jens said, ‘we don't want to just be assembling things, bits and pieces anymore, we want to make our own aircraft, so we're going to do that.’ And Hindustan Limited was there with a huge display and a giant number of aircraft that it has in development or in production right now.

Joe Anselmo:

Well, speaking of all those airplanes on display, there was an F-35 there. India has the same Russian air defense system that the U.S. has been giving Turkey so much grief about. Why was there an F-35 in India? They're not going to sell F-35s to India and India's not going to buy them, are they?

Jen DiMascio:

Lockheed Martin and the U.S. government were both not willing to say that they are offering the F-35 to India. And the State Department official that I talked to did make the same point that you did it about the S-400 surface-to-air missile system that India had delivered from Russia. So they're not in a hurry to offer it, but they want India, I think diplomatically, to know that it's there.

India is in a hot region with China on its northeastern border and Pakistan on its northwestern border. And the U.S. is a regional partner in the Indo-Pacific with India. So U.S. Pacific Command was there with the F-35s and it's sort of an assurance initiative, but never say never. Things could change in 10 years if the Indian Air Force, the Indian Navy, if they're still looking for aircraft, maybe the U.S. will offer it, but nobody's willing to say that right now.

Joe Anselmo:

Craig Caffrey, what do you think about what Jen just said, F-35s in the Indian Air Force? Is that possible?

Craig Caffrey:

I can see it long term. I think the thing is I think with Indian fighter programs is they shift so much over time. They get delayed so much. I think I've been covering the kind of Indian search for a Western fighter aircraft for basically the whole of my career. It's kind of ingrained in my memory that MMRCA program was for 226 fighter aircraft.  I could never forget that figure. It kind of hangs around with me and now it's 114 and it keeps moving around and moving backwards and moving forwards. The numbers go up, the numbers go down.

So you know, by the time that happens, it may well be that we've seen a big shift in how India interacts with the U.S. The quad is a big thing at the moment with Japan and Australia as well. So there's plenty of things, plenty of moving parts and plenty of reason to think that down the line things will change. I could definitely see them making that kind of a thunder off later on. The thing is as well, they've got two potential operators for it because the Indian Navy's building more carriers, they need more aircraft for those. And then the Air Force is obviously way down on the number of fighters it wants to operate. I think they're down around 31 squadrons at the moment. They want about 42, I think is where they want to settle at the moment. Maybe a little bit higher. 45  was the original target. So there's definitely plenty of requirements there, and I can see things shifting as time goes on, for sure.

Joe Anselmo:

Craig, we've written a lot about China's increase in defense spending, huge increases in Chinese defense spending. What's the climate in India and what are some of the priorities going forward?

Craig Caffrey:

Yeah, India's an interesting one with the defense budget. I think there's plenty of money about, but maybe not enough money about at the same time. It's quite an interesting one. I think this year, actually, the week before the Indian airshow, they announced the headline was that there was a 12.5% increase in the defense budget. So India's defense budget went from something like $64 billion to $72 billion. So it's a sizable defense budget. It actually means that India went past the UK. So India's now the third-biggest defense budget in the world on paper.

The procurement budget within that's $20 billion. It's $20 billion on offer for defense suppliers. But I think you notice, it's a lot of mitigating factor to that. A lot of that $20 billion is earmarked for local industry. So great if you're a local supplier or great if you've established a nice joint venture in India, but maybe only $5 billion of that 20 billion is available to foreign suppliers.

So I think that's one of the constant things with India is this theme on self-reliance. Like I say, what's making India. But I think the key is that you have to partner locally to get anywhere. I think there's a very definite focus on indigenous programs as Jen mentioned with HAL. With HAL, I think I tried to do some counting before I came onto this podcast, but I think it's maybe 14 active production lines. Depends how you count them, but maybe 14 active development or production lines that HAL are running at the moment just for fixed and rotary-wing aircraft, not including UAV.

So, a lot of that money is going internally and those programs are being prioritized. Considering all the things they want to do with the defense budget, there's not that much money around. And those internal programs have certainly been prioritized to a larger extent that we've ever seen in the past. So yeah, I think it means that if you're an exporter, you're trying to get in there and sell to the Indians despite spending $72 billion a year on defense, the money is a little bit tight for people if you're trying to sell an off-the-shelf product to India.

Jen DiMascio:

And just to follow on to that, India is making its Tejas light combat aircraft by the dozens. Hindustan Aeronautics Limited has a giant backlog of orders for it, and it's looking for more. At the same time, India's DARPA equivalent, the Defense Research and Development organization, is pursuing an advanced medium combat aircraft design. They talked about that a lot at the show and all of the enabling technologies, everything from stealth coatings to advanced electronics, artificial intelligence and electronic warfare suites that they have in development for that.

They're targeting an aircraft to be complete in the mid-2030s. We'll see if that materializes on the time scale that they're talking about. But they're pursuing that aircraft for the Indian Air Force and another twin-engine deck-based fighter for the Indian Navy. They're looking at optionally-manned aircraft to go forward on the Navy side as well. They're already testing automated takeoff and landing systems similar to the U.S.’s magic carpet. So we'll see. And all of that, they're planning to offer at much lower cost to India itself and to the global market.

Joe Anselmo:

So Jen, India is a democracy. It's a rival of China, it's friendly with Russia. But U.S. defense companies can sell to India unlike China, but they don't seem to be doing all that well in the market, do they?

Jen DiMascio:

Well, it's a mixed bag. Boeing and Lockheed have had relationships in India now that they've been building for the last two decades. They both have sizable joint ventures with Tata, which is a giant Indian company, and they have contracts that they're working on already. Boeing makes the P8 for India, it makes the Apache, the fuselages, in India, which it exports to the world. It makes equipment for the Chinook helicopter. Lockheed Martin makes the C-130 empennages there, and Airbus has sizable operations in India. But these are all pieces of aircraft, they're not the whole enchilada. Craig, did you want to add to that?

Craig Caffrey:

Yeah, just to say, I think one of the other things is I think that, like I say, budgets are kind of under strain. I think, especially when you look at things like depreciation of currency, the Indian Rupee depreciated by around 10% against the U.S. dollar over the last year or so. So there's reasons why you would kind of prioritize the local programs. When money's tight, every country does it. Malaysia's doing it, Spain does it. Italy does it. When budgets are tight, don't buy off the shelf or don't go buying from foreign competitors. Use your defense budget as a form of internal investment, boost your economy that way. Build jobs, build prestige, build technology capabilities.

So I think that's one of the things that the U.S. suppliers are coming up against at the moment is that where there are limited amounts of money around, then it makes sense to put that money into indigenous programs. And that's very much been the focus since Modi came to power. I think that's been a key theme over the last few years.

Jen DiMascio:

But it's still such a huge market with such big potential that nobody's willing to turn away from that.

Craig Caffrey:

Right. There are a huge amount of requirements. On paper, I would say realistically, India can't really fill all of these requirements in the timeframe it needs to, especially if things start to go slightly sideways with China or with Pakistan. And I think when you bear that in mind, with a slight change in government or a slight change of policy, you could quite quickly see all of a sudden actually that deal for those foreign-made aircraft, the 114 multi-role fighters that India are getting, you could easily see that return as a priority. You could see that expanded.

There were times when we were looking at those 126 multi-role fighters or medium combat fighters and a whole add-on purchase after that. But things slightly shift. And at the moment, indigenous development and self-reliance is the focus. But strategic factors can quite quickly change that and then you might see them start to approach foreign suppliers to kind of fill those gaps.

Jen DiMascio:

And one more note. India's infrastructure has been problematic for a long time, but you can see both the infrastructure and the professionalism of Indian companies growing dramatically over the last 20 years. And so I just put that out there, things are changing.

Joe Anselmo:

We're running short on time, but I wanted to come full circle back to Jens to ask you about this Air India order again. India is pretty close to the Middle East and there's a lot of carriers in the Middle East, some pretty big carriers, that have long-haul networks. Is this really realistic, Air India buying all these airplanes?

Jens Flottau:

Yeah, you mentioned one of the factors, there's others. Obviously over the past few decades, the growth of the Gulf carriers has been, they have benefited a lot from the weakness of Air India, which has been a kind of state-owned entity, very inefficient, terribly run. So if India wants to be successful in its revival, then it will have to compete with the Gulf carriers and that will be a big task. There's a few other factors that I'd like to mention that will make this a long process. Indian bureaucracy one, just to get slots at airports, just to get approvals for whatever, it takes a long time, judging from experience.

India has one of the most restrictive bilateral regimes for air services, trying to protect Air India in the past, the small scale Air India. Now, if Air India wants to grow, it will need better bilaterals, and that will also mean opening up more. So that will be more competition. Visa requirements. If you want to build a hub domestic to international, getting a visa for India is pretty complicated. It's not like Dubai where you just go or you get on an aircraft and go and get your visa on arrival. So there's a number of issues that Air India will face, even if it gets the company straightened out and more efficient and profitable, ultimately. It will be a long road.

Dan Williams:

And India has, let's say, form, they're struggling. You just look at recent history, the demise of Jet Airways, SpiceJet, Kingfisher, the list goes on. One of the reasons Boeing was left with quite a few MAXs built and not delivered was that some of them were originally destined for Indian owners that went bankrupt. So this is not going to be a road without hurdles. Jen summed it beautifully before, in terms of defense market, it's a huge market with big potential. The same exact words apply to this commercial market, and we've got a decade to see how this will unfold.

Joe Anselmo:

Well, thanks to all of you for a very informative discussion. I didn't hear the word ‘balloon’ once either, which is a nice relief after the last two weeks, but really appreciate all of you coming to lend your insights. That is a wrap for this week's Check 6 podcast. Special thanks to our London-based podcast editor, Guy Ferneyhough.

Aviation Week's MRO Americas the world's largest aviation MRO show is fast approaching. Delta Airline's CEO, Ed Bastian will be on stage to help us kick off this year's event on April 18th in Atlanta. For more information on the show and how to attend, go to mroamericas.aviationweek.com. That's mroamericas.aviationweek.com. Thank you for your time, and join us again next week for another Check 6.