NEW DELHI: Air India's deal with Boeing for 27 Dreamliner (B-787) aircraft is turning out to be lucrative for India's national carrier as the airline is now eligible for an additional annual compensation of at least $80,000 per plane if the machines don't match up to the high performance standards claimed by the manufacturer.
One of the key performance standards touted by Boeing was the new aircraft's fuel efficiency, which for the first few aircraft will be way lower than promised because the planes are heavier by about 7.5 tonnes due to re-engineering.
"The Dreamliners are overweight by 7.5 tonnes, from its initial design. They were supposed to be 17% more fuel efficient vis-a-vis the A-330 aircraft. But the extra weight is likely to reduce that to 12%," a senior official from the civil aviation ministry told ET on conditions of anonymity.
Air India will evaluate the performance of these aircraft for the first 18 months and if they don't meet the promised standards, a separate compensation package will be negotiated, the official added.
This amount would be in addition to the compensation that Boeing is supposed to pay Air India for delaying delivery of these aircraft by almost four years. Air India had placed an order for 27 Dreamliners with Boeing in 2005. On August 3, the Cabinet Committee on Economic Affairs permitted Air India to commence delivery of the Dreamliners it had ordered by approving a compensation settlement agreement for the aircraft delay, ideally supposed to arrive in September 2008.
According to the same official, the additional compensation on lower performance was capped at $80,000 under the agreement between Air India and Boeing but the US aircraft manufacturer is now open to going beyond that figure if need be. "Not all planes will be below performance standards. After the first few planes, the Dreamliners will be lighter and fuel efficiency will be 15% compared with A-330s," the official said, adding that wittingly or unwittingly, the deal is proving to be a big financial gain for the struggling national carrier.
The Dreamliner is a 250-seater aircraft made of composite materials, which make it lighter and is considered 20% more fuel-efficient. These features are expected to give substantial cost savings to airlines. Air India plans to fly this aircraft on its Singapore and Europe routes. It also plans to fly to Australia with this aircraft. Air India is supposed to get three B-787s this month while the delivery of the rest will be staggered till March 2016.
In addition, Air India is also planning to sell and leaseback the first B-787s, by which it will gain $15-17 million per plane. Under a sale and leaseback arrangement, an airline first buys aircraft, sells it to a leasing company and then takes the planes back on lease. This gets the assets into an airline without the aircraft purchase debt in its books.
"The Dreamliners will cost Air India somewhere around $98 million, whereas lessors are quoting somewhere around $115 million per plane. The extra money will help Air India get cheaper loans," the official said.
The demand for exclusive training on Dreamliner aircraft was the main reason for the recent two-month strike by Air India pilots, which has caused curtailment of the national carrier's international operations consequently causing loss of over 600 crore in revenue to the airline.
In India, Boeing also has an order from Jet Airways for 10 Dreamliners. Boeing's order book for the B-787 currently stands at 900 aircraft. Japan Airlines is currently the only operator of GEnx powered-787s, with four aircraft in its fleet. The only other operator of the 787, All Nippon Airways, uses the Rolls Royce Trent 1000 engines.
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