Record IndiGo jet order fails to stem Airbus share slide

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NEW DELHI/PARIS (Oct 15): Indian budget airline IndiGo handed Airbus its biggest ever potential plane order on Wednesday -- but shares in the planemaker slid on fears that the global economic engine underpinning recent jet demand is stalling.

The provisional order for 250 A320neo jets is worth nearly $26 billion at list prices and ranks as the largest single order of jets from Airbus based on the number of planes sold.

India's biggest airline is expanding aggressively as it seeks to win more market share in one of the world's fastest growing aviation markets and cement its position as the country's only profitable carrier.

The new plane order, confirming a Reuters report on Tuesday, leapfrogged what was then the industry's largest order from the same airline in January 2011, when IndiGo helped to launch the fuel-saving A320neo with a $16 billion order for 180 jets.

But while then, shares in the Airbus parent group jumped 6 percent at the start of what developed into an extended bull run for aerospace stocks, investors spurned Wednesday's even bigger deal and pushed Airbus stock down in a gloom-laden market.

Shares in Airbus Group fell 4.6 percent to 43.7 euros, marking their biggest one-day drop in more than two years.

Even so, they were only the 10th biggest faller among European blue-chips as investors slashed exposure to risky assets such as equities on both sides of the Atlantic on mounting worries about global growth.

U.S. airline stocks were sharply hit, some falling more than 5 percent, as the Ebola crisis also hurt confidence.

Airbus sales chief John Leahy hailed IndiGo's "very real" growth and dismissed recent warnings that overall commercial jet demand had reached the top of a cycle as the opinions of "nay-sayers who are almost guaranteed to be wrong".

Asked about such warnings by some leasing executives and aerospace analysts, Leahy told Reuters: "I disagree strongly and this IndiGo transaction for 250 aircraft shows there is a lot of growth and dynamism left in the market."

He said the order would be finalised in about 30 days.

Airbus and Boeing both maintain the global aircraft fleet is set to double in the next 20 years as airlines in countries such as India respond to fast-rising demand.

But some analysts say the factors that have until recently encouraged airlines to order new jets, such as strong growth outside Europe and high oil prices, are starting to unwind.

"Markets are reflecting growth concerns more than anything else and civil aerospace stocks are geared to GDP," said Nick Cunningham, managing partner at London-based Agency Partners.

"But on top of this you have seen airlines being pounded, especially in the U.S., and it is inevitable that this will translate partly into movements in civil aerospace stocks too.

Investors also ignored a boost to Airbus's A350 when it won coveted approval for very long trips over water.


Reuters reported on Tuesday that IndiGo was close to placing a large order worth billions of dollars for a variety of aircraft as it looks to expand.

The draft contract potentially closes a gap between Airbus and Boeing, which is so far winning their traditional annual order race. (Graphic: But analysts also say orders have been somewhat erratic this year.

"This is a bright spot in a weaker order intake but doesn't change the trend," Cunningham said. "The market may be saying 'yes, but this is probably the last one'."

The airline will start taking delivery of the planes from 2018 and has secured rights to buy a further 100 A320-family aircraft, Aditya Ghosh, Indigo's President, told Reuters.

"We believe India is a highly underpenetrated market. Some of these (new planes) will go to replacement. It's difficult to say how many at the moment, but a lot will be for growth."

IndiGo, which sources have said is planning to list shares next year, has a fleet of 83 A320s and has ordered a total of 280 Airbus aircraft.

While rivals such as SpiceJet are cutting the size of their fleet to combat losses, IndiGo is expanding into a market where passenger numbers are expected to grow by more than 75 percent in the next six years to exceed 200 million as more Indians fly for the first time.

Launched in 2006, IndiGo has grown into India's largest airline by market share with close to a third of the domestic market at end-March, according to India's aviation regulator.

The airline's model of selling and leasing back its planes is credited with helping to control costs and boost profit.

"The way that they position their ownership costs at such a low end is by taking such volume," Timothy Ross, Singapore-based Asia transportation analyst at Credit Suisse. "They have a fairly tight handle on capacity management even though the headline numbers look quite daunting."

Ghosh said the order reflected long-term expansion plans and the fact it retires planes after an average of six years.

The airline has not selected an engine for these aircraft and that could be worth several billion dollars as well.

Pratt & Whitney, a unit of United Technologies, and CFM, a joint venture between General Electric and France's Snecma, supply engines for the A320neo. IndiGo picked Pratt & Whitney for its earlier A320neo order.