Air India deal: Aviation as geopolitics

Air India, which will buy 250 aircraft from Airbus, has also selected Boeing for the purchase of up to 290 planes. While all the three companies involved in the deal are private corporations, its significance became clear when Prime Minister Narendra Modi spoke with US President Joseph Biden and French President Emmanuel Macron after the announcement of the deal.

Air India deal: Aviation as geopolitics
The American President hailed the agreement for Air India to purchase Boeing airplanes as `historic’. (Photo source: IE)

Ranjit Bhushan

Rarely do world’s leading politicians welcome a business deal with aplomb, suitable enough to impact geopolitics of the day, as it did this month.

On February 13, Air India announced that it was planning to purchase 470 aircraft worth an estimated $80 billion from the two global airplane manufacturing behemoths – the French Airbus and American Boeing.

The agreement set the cat among the pigeons. Tata Group-owned Air India successfully sealed the world’s biggest ever commercial aviation deal by purchasing 470 passenger aircraft, a settlement, which is not just unprecedented in its sheer volume and scale but also one that is designed to lift the industry out of its post-pandemic morass, possibly offering it the biggest leg up since the introduction of turbo-propeller aircraft in the early 1950s!

Air India, which will buy 250 aircraft from Airbus, has also selected Boeing for the purchase of up to 290 planes as part of its growth strategy.

While it is no secret that heads of governments and top envoys, often, openly canvass for their prized products namely Boeing and Airbus, this particular purchase was not merely a mega business arrangement – it was more than that. It involved some of the world’s leading politicians singing hosannas to India.

While all the three companies involved in the deal are private corporations, its significance became clear when Prime Minister Narendra Modi spoke with US President Joseph Biden and French President Emmanuel Macron after the announcement of the deal.

PM Modi held a telephonic conversation with Biden and welcomed the landmark agreement as a “shining example of mutually beneficial cooperation”.

“Prime Minister Narendra Modi and President Biden expressed satisfaction at the deepening of the India-US Comprehensive Global Strategic Partnership, which has resulted in robust growth in all domains,” the Prime Minister’s Office (PMO) said in a statement.

It added: “They welcomed the announcement of a landmark agreement between Air India and Boeing as a shining example of mutually beneficial cooperation that will help create new employment opportunities in both countries. The Prime Minister invited Boeing and other US companies to make use of the opportunities arising due to the expanding civil aviation sector in India.”

The American President was equally glowing in his tributes. He hailed as `historic’ the agreement for Air India to purchase Boeing airplanes. 

Biden said, in a statement, released by the White House that the purchase of over 200 American-made aircraft through agreement between Air India and Boeing reflects the strength of the US-India economic partnership.

It was a no-holds-barred appreciation of the power of the Indian economy. The US President said he and PM Modi looked forward to deepening the partnership even further. “The United States can and will lead the world in manufacturing. I am proud to announce today the purchase of over 200 American-made aircraft through a historic agreement between Air India and Boeing. This purchase will support over one million American jobs across 44 states, and many will not require a four-year college degree,” his statement said.

Notably, by highlighting that most American workers who will benefit will not require a college degree, President Biden was appealing to the white voter base in the country, which his predecessor Donald Trump had so assiduously cultivated.  

India and French leaders, too, highlighted the political and economic significance of the deal during a ceremony attended virtually by Modi and Macron, who had earlier welcomed the contract between Airbus and Tata Sons and said it marks a new stage in India and France’s strategic partnership. “I want to tell everybody that for me, this very important contract and this achievement today is one of the milestones of the in-depth strategic and friendly partnership we have between India and France,” he said.

“This achievement shows that Airbus and its partners, including Safran, are fully committed to develop new areas of cooperation with India and we have achieved so much with India in a wide range of sectors from space to cyber, from defence to culture, from health to energy transition,” the French President added.

Clearly stepping into the geopolitical arena, Macron went on to accentuate New Delhi’s rising global stature and said he is working with PM Modi to ensure the success of India’s G20 presidency in the backdrop of the Russian invasion of Ukraine.

“We are working for the success of India’s G20 presidency in a difficult context with the Russian aggression against Ukraine,” Macron said during the virtual meeting, and was clearly prepared to go further. 

He told Modi: “India, under your leadership, clearly can be the one to mobilize the whole world and help us address the tremendous issue we have in front of us.”

Air India’s deal with Airbus is expected to have industrial spin-offs, with Macron pledging cooperation in other sectors, in the process making a significant dent into the country’s Make in India prospects.

For instance, industry sources say that India has repeatedly lobbied for Airbus to add a final assembly line in the country, matching a plant in northern China, but Airbus has repeatedly declined the proposal on financial and industrial grounds. That could now change.

British Prime Minister Rishi Sunak, too, was lavish in his appreciation. He tweeted: “This is one of the biggest export deals to India in decades and a huge win for the UK’s aerospace sector. With wings from Broughton and engines from Derby, this deal will support jobs around the country and help deliver one of our five priorities – growing the economy.”

Like Biden, Sunak too said the deal would create jobs and boost exports from Britain, where the French planemaker designs and manufactures aircraft wings.

The large A350 aircraft of Airbus are powered by XWB engines made by British company Rolls Royce. It has already received an order from Air India for 68 Trent XWB-97 engines, in addition to an option for 20 more.    

A statement from the British High Commission said the deal is worth billions of pounds to the UK as a “significant portion of the manufacturing process for the new aircraft is expected to take place in the UK.”

In a separate statement, the British government – in a rare gesture – backed what their Prime Minister had said. The agreement “will support and create new highly skilled jobs in Wales and Derbyshire, helping to boost exports, grow the economy and level up the UK.”

It added: “The wings will be designed in Filton, and assembled in Broughton, which is expected to bring an additional 450 manufacturing jobs, and more than Pound 100 million of investment to Wales.”

Clearly, the biggest buyout in aviation history gives significant political heft to Sunak, who not just faces crucial elections next year but is racing against time to fulfil his promise of creating more jobs in the UK.

Such was the impact of this deal that leaders of four major countries, including three western super powers exchanged greetings with each other.

The American President’s warmth for the Indian order can be appreciated, in the light of geopolitical tensions vis a vis China. India has been gaining some manufacturing business as western tensions flare with China, including major companies that traditionally rely heavily on Chinese production. Apple is one such company, with Minister of Commerce and Industry, Piyush Goyal, saying that the tech giant was already making between 5 percent and 7 percent of its products in India.

India is set to overtake China this year to become the world’s most populous nation. The country’s massive and cheap labour force, which includes workers with key technical skills, is a big draw for manufacturers. Asia’s third-largest economy also offers a growing domestic market. In 2023, as global recession fears persist, India is expected to remain the fastest growing major economy in the world.

If it can sustain that momentum, India could become only the third country with GDP worth $10 trillion by 2035, according to the Centre for Economics and Business Research, after the US and China.

The deal is just the tonic that the aviation sector’s sagging finances could do with. For instance, Boeing’s 737 Max has been plagued with problems since March 2019 when Ethiopian Airlines flight ET302 crashed minutes after take-off from Addis Ababa to Nairobi. Significantly, the company has plenty of troubles in China, the world’s largest aviation market. It has come close to being shut out of the region as trade tensions between the United States and China have basically halted Boeing sales in the country for the last four years. The company has not announced any sales to a Chinese passenger airline since November 2017, and the country banned the Boeing 737 Max for much longer than most countries. In January, a Boeing 737 Max took off in China for the first time since 2019.

Now, New Delhi has stepped in and Washington is keen to acknowledge it.

Top American senator Chuck Schumer, on a visit to India, said that the U.S. and Europe need countries like India on board to outcompete China, asserting that they all need to work together to ensure the democratic international order does not disintegrate in the face of an increasingly aggressive Chinese Communist Party.

“India, with its democratic traditions, can be a very strong partner in outcompeting China. And India joining the western partnership could serve the purpose of advancing democracy,” Schumer told the recent Munich Security Conference.

As India’s economy gains momentum, the demand for travel is also expected to increase dramatically, prompting airlines to ramp up fleets. According to a recent report by aviation consulting and research firm CAPA India, Indian carriers will place orders for 1,500-1,700 aircraft over the next 24 plus months because the local market, in the post-COVID era, is attracting global attention as arguably the most promising aviation market. And that becomes a big opportunity for India to tie up its market moorings much more strongly with the US and Europe, the two quintessential manufacturing hubs.

For some time now, important Americans have been proposing what Senator Schumer just said. Writing in the influential Foreign Policy magazine in 2021, Nikki Haley, the former governor of South Carolina and Republican hopeful for the 2024 US presidential election, and Mike Waltz, congressman and vice chair of the India Caucus, proposed a formal alliance with India.  

“As a nuclear power with more than 1 million troops, a growing navy, a top-tier space program and a proven history of economic and military cooperation with the United States, India would make a strong ally. An alliance with India would allow both countries to maintain and expand their global strength. And together with Japan and Australia, it would enable the United States to form a real deterrent to potential terrorist threats in Afghanistan as well as counter China,” they wrote.  

When Andreas Haggman, an emerging risks research manager, noted in his blog a few years ago that “aviation is a sector inherently exposed to geopolitical risk because it is so visible’’ and that “aviation is liable to be affected by shifting international political and security situations, as well as new regulations’’, he was making some very pertinent observations.

The Air India deal puts the spotlight on the country’s burgeoning aviation sector, which is eyeing a significant chunk of global business. Notably, it edges out American Airlines’ combined deal for 460 Airbus and Boeing planes more than a decade ago.

Significantly, Modi, in the backdrop of the deal said that India’s growing aviation sector would need over 2,000 aircraft in the next 15 years.

Interestingly, both Boeing and Airbus put India’s requirement to 2,210 new airplanes – to be exact – over the next two decades. Clearly then, India’s aviation card is going to be something to write home about. If it can impact the economies of some of the world’s biggest markets, its reverberations in global – let alone regional geopolitics – can scarcely be underestimated.  

It would also be fair to suggest that from here on, IT apart, aviation is poised to become the economic crackerjack that India needs, and is determined to get it. 

The author is a senior independent journalist focusing on the Aviation Sector. 

Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited).

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First published on: 24-02-2023 at 16:09 IST
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