The politics of aircraft sales

Published : Oct 25, 2002 00:00 IST

As both the Boeing Corporation of the United States and Airbus Industrie, the European consortium, seek to sell their aircraft to Air-India and Indian Airlines, looking to update their fleet, international political pressure and manipulations come into play.

THE proposal put forward by Indian Airlines (IA) in March this year to buy new Airbus aircraft in order to replace gradually its ageing fleet was all set to be cleared by the Union government. It was announced that IA would buy 43 medium-range aircraft from the European consortium Airbus Industrie in a deal worth around $2 billion. The planes, A319s, A320s and A321s, were to be delivered during a four-year period, starting 2004. The IA board had also recommended that the aircraft be powered by General Electric CFM-56 engines, which are already in service in India.

The proposal was considered as a done deal till some high-level political intervention took place in July. The decision to postpone the purchases followed a visit by Thomas Pickering, a former United States Ambassador to New Delhi. The prices quoted by Airbus Industrie for the deal with IA during the bidding process were valid until the end of June. After the recent developments, the IA board extended the deadline till the end of September. It had decided to go in for Airbus planes after various technical and financial committees recommended it. IA officials say that they were given the task of completing the fleet acquisition report in a time-bound manner. It fulfilled this task and it is now up to the government to act, they said.

Pickering is an old India hand, having served as Ambassador to New Delhi in the early 1990s. The veteran diplomat was at one time even tipped to be the Secretary of State after Bill Clinton first won the presidency. After joining the Boeing Corporation as senior vice-president recently. Pickering has tried to use his high-level contacts to advance the commercial interests of his company worldwide. It was at the suggestion of India's External Affairs Ministry that Civil Aviation Minister Shahnawaz Hussein met Pickering in July. After the meeting, it was announced that Boeing had offered to reduce prices for its planes on offer to IA.

When IA announced in the mid-1980s that it was going in for a massive renewal of its fleet, Boeing had made a similar eleventh hour offer to reduce prices. Airbus, which at that time was seeking a foothold in the Asian market, had to make a matching offer. The IA management says the Boeing offer would help it negotiate a better deal this time also. With several airline companies closing down and the global tourism industry in recession, aircraft prices are down by around 20 per cent. Airbus had quoted around 15 per cent less than Boeing for the IA contract during the bidding earlier in the year.

The past couple of years have not been good for the Boeing Corporation, the main rival of Airbus Industrie. Its global sales have steadily declined with even some U.S. airlines opting for Airbus passenger planes. The lay-offs and industrial unrest in Boeing plants in the U.S. are a symptom of the downturn in its financial fortunes. The international political climate has also not been conducive, with Boeing being increasingly viewed as being part of the U.S. military-industrial complex. The anti-U.S. feelings generated by the events of the past two years had adversely impacted on Boeing's sales, especially in West Asia, which is a lucrative market for the industry.

Currently China is the biggest market for Boeing and it is expected to remain so for the next 20 years. In fact, China, through its considerable purchases of Boeing planes, has managed to gain a lot of political leverage in the U.S. Many aviation industry watchers are of the opinion that it is the massive expansion of the Chinese aviation sector that is keeping the Boeing Corporation afloat. The aviation industry, barring in East Asia, has run into turbulent weather following the events of September 11, 2001.

It is therefore not surprising that Boeing has redoubled its efforts to market aggressively both its civilian and military planes in South Asia. After Taiwan's China Airlines (CAL) signed an agreement with Airbus Industrie in July to purchase 16 passenger jets to replace its ageing Airbus fleet, the head of the U.S. representative office in Taiwan (the de facto Ambassador) met Taiwanese President Chen Shui-bian to plead the case of Boeing. Soon after the meeting, CAL officials announced that the decision to buy Airbus planes was being reviewed. The Opposition alleged that the government had caved in to U.S. pressure to buy Boeing in exchange for political favours for the embattled President. (He was promised an official stopover in the U.S. in September.)

The spokesman for the Taiwanese President was not at all apologetic for the government's proactive role in helping Boeing bag the contract while admitting that CAL's decision was based on "professional" factors. "Given the fact that the U.S. has been helping Taiwan in many ways over the past decades, the government should have the right to set its feet into such a big deal,'' the senior Taiwanese official was quoted as saying.

CAL had opted for Airbus because of the similarities between the planes in its existing fleet and the new planes it wanted to order. Its crew would have been more familiar with Airbus planes as they have similar cockpits, engines and flight simulators. A lot of money and time can be saved in training pilots.

IA could also get the same advantages if the Indian government approves the acquisition of Airbus planes. Airbus has a large maintenance, training and spares service network for its fleet in India. On the other hand, the private airlines that operate in India, which have Boeing planes, have to send their planes abroad for servicing.

The U.S. move in Taiwan seems to have been replicated in India following Pickering's visit, which coincided with the visit of other senior U.S. officials to the region. At that time India was giving a lot of importance to the U.S., as there was a marked tilt on the part of Washington towards New Delhi as the tension along the India-Pakistan border had reached critical levels. Washington had become the virtual arbiter in the conflict between the two countries.

A senior official in India's Ministry of Defence recently confirmed that the government had taken an informal decision to use defence purchases as a means to build political and strategic relationships with the West. The eleventh hour decision to keep Boeing in the reckoning may well be part of this policy. It has been reported that the Cabinet Committee on Security (CCS) had recommended against IA placing orders with Airbus Industrie as this would adversely impact on India's security concerns by upsetting Washington.

However, there has been a perceptible change in New Delhi's stance towards Washington ever since President George W. Bush publicly identified Pakistan President Pervez Musharraf as one among his closest allies. The Bharatiya Janata Party government was also angry with the European Union (E.U.) for its critical stance on Kashmir and the government's handling of the Gujarat issue. Airbus Industrie officials are keeping their fingers crossed and hoping for a favourable outcome.

Analysts who closely monitor developments in the highly secretive aviation sector feel that the government may finally divide the order on a fifty-fifty basis between the two companies as many East Asian and South-East Asian nations have done in recent times. Such a decision may keep the Americans in a happier frame of mind though India's public sector aviation would be adversely affected in the long run. In one of the few public statements that have been made on the subject the Communist Party of India (Marxist) demanded that the CCS reverse its decision. The CPI(M) characterised it as yet another instance of ``the BJP-led government bending over backwards to please the U.S.'' and a ``manifestation of the slavish mentality'' towards the U.S.

Even if the IA board is allowed to opt for an exclusively Airbus fleet, Boeing may still not go empty-handed. Air-India's board announced in the middle of September that its much-awaited fleet expansion and acquisition had been cleared. The board announced that 17 long-rang aircraft would be inducted into its fleet by 2008. This is the first time in more than a decade that AI has been allowed to go in for new planes. The choice of planes is expected to be finalised soon by the technical committee of the airline. AI officials have said that they are interested in planes with 250 and 400-plus seats. Both Boeing and Airbus will again be in the running. Among the planes on offer are the Boeing 747-400 and the double-decker A-318, which is scheduled to make its first flight in three years' time.

The AI board announced that it had also asked its technical committee to finalise the choice of planes in the 160-plus seat category. While the bigger planes will be used for direct trans-Atlantic and European flights, the smaller ones will be used for shorter hauls, to the Gulf region and to South-East Asia. After it finalises the choice of planes, the AI board will have to get the approval of various government-appointed committees such as the Public Investment Board. Given the intense behind-the-scenes wheeling and dealing and the political factors involved, it will be a surprise if Boeing loses out after the proposals of AI and IA are cleared by the Central government.

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