Air India defends sale of Boeing planes to Etihad

Air India has defended the sale of five Boeing 777-200LR aircraft to Etihad Airways, saying retaining the fuel-guzzling planes would have aggravated its losses.

The government-owned carrier had acquired eight Boeing 777-200LRs in 2007 for $127 million each (Rs 787 crore as of Monday’s conversion rate). Air India sold five to Etihad for $68 million (Rs 421 crore).

The Comptroller and Auditor General of India is now probing the sale of the aircraft and has asked the civil aviation ministry to explain why the planes were sold at a low price.

Boeing has sold 59 aircraft of this type globally since 2006, while other variants such as 777-300ER and 777-200ER have been far more popular. An aircraft's current market value and retention value is determined by its demand, among other factors.

Air India had acquired the planes to fly non-stop services from India to the US. It used these long-range planes on the non-stop flights to the US, but made huge losses.

“The fundamental assumption of fuel prices and non-stop flights to San Francisco from India was no longer valid due to Gulf carriers offering attractive fares from their hubs. Besides, fuel prices more than trebled from the assumptions made in 2005 when the project report was prepared. The business decision has to be viewed in the light of these factors. It makes no sense to park these aircraft and pay for the loan and interest. Retention of this aircraft would have only caused further losses to the company,” said an Air India spokesperson.

Air India has used the sale proceeds to retire the loans taken for these aircraft, saving $60 million (Rs 372 crore) in interest and $20 million (Rs 124 crore) in maintenance costs. “Government equity infusion in Air India has also come down to the extent of the sale proceeds; guarantees also extinguished to that extent,” the spokesperson added.

Air India