http://www.bloomberg.com/news/articles/2015-12-03/air-india-s-4-5-billion-bailout-fails-to-avert-grounded-787s

Air India's $4.5 Billion Bailout Fails to Avert Grounded 787s

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Anurag Kotoky
t anuragkotoky
 

December 3, 2015 — 2:06 PM CET

Updated on December 4, 2015 — 6:38 AM CET

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Blue Arrow
Carrier grounded 2 Boeing Dreamliners on spare parts shortage

Blue Arrow
Airline didn't get components on credit due to cash crunch

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Air India Ltd., the state-run carrier that has survived on a 300 billion-rupee ($4.5 billion) taxpayer-funded bailout, is struggling to pay for spare parts, forcing it to ground two Boeing Co. Dreamliners.

The planes were not operational for about 10 months each as worldwide demand for parts outpaced supply from Boeing, and a “financial crunch" prevented Air India from procuring components on credit, Mahesh Sharma, India’s junior aviation minister, told parliament Thursday. The carrier kept paying rentals of $1 million every month for each of the two planes, in addition to losing money while they were out of operation, he said.

The grounded planes underline the woes of Air India, which has been unprofitable since its 2007 merger with state-owned domestic operator Indian Airlines Ltd. The carrier’s share in the local market has shrunk to 16 percent from 35 percent a decade back, placing it third in the national ranking, even as competition has intensified with foreign airlines buying stakes in local carriers and new ventures starting operations.

Dreamliner operators across the world are facing problems due to “high rate of failures of components,” Sharma said. He added that Boeing “could not support the demand of failed units on various 787 aircraft, since demand was more than supply.”

Compensation Wanted

The airline said last year it was demanding compensation from Boeing for delivering Dreamliners that didn’t meet promised fuel-efficiency targets because the planes were heavier than planned. Earlier in 2014, Boeing said Air India was not happy with the reliability of the aircraft and the Chicago-based planemaker was upgrading software and changing components on some of Air India’s planes whenever they could be taken out of service.

One of the aircraft was grounded from April 2014 to February this year, while another has not been operational since January, Sharma said.

Dinesh Keskar, a Boeing senior vice president based in SIngapore, said there had been ”some issues” with Air India’s Dreamliners earlier this year but the problems mostly had been ironed out.

“We continue to work with Air India on the challenges of spare parts and all, but we feel that both reliability and availability of the aircraft has reached a good stage in the Air India operation right now,” he said. ”The Dreamliner fleet has been the cornerstone of Air India’s turnaround plan and over the last few months it has been reiterated that it’s working.”

Marquee Plane

The Dreamliner, Boeing’s marquee jet, has experienced a series of malfunctions since its 2011 debut, including a three-month grounding of the global fleet in 2013 after battery meltdowns on two planes.

Air India and some other carriers such as Norwegian Air built their growth plans around the composite-material Dreamliner, which promised more fuel-efficient operation. The Indian airline, which in 2O12 received the taxpayer-funded bailout, needs to meet cost, revenue and load-factor targets to keep getting money from the government through 2021.

The state-run carrier pays higher interest rates on its overseas loans compared with other Indian companies, as lenders remain unimpressed with the airline’s turnaround. It probably lost $900 million to $920 million in the year through March 2015, according to estimates by CAPA Centre for Aviation, after losing about $810 million in the previous 12 months.