Air India vs. Indigo is a favorite case study in management schools. In 2004, when Air-India was piling up aircraft with a capex of around Rs 38,000 core, its private sector competitor Indigo was entering into long-term contracts with Airbus Industries so that deliveries could be staggered into the future to suit its needs.
A long term contract not only protects the price line for the buyer even if it contains a price escalation clause but also ensures that equipment, grounded or flying, are not piled up unnecessarily. There cannot be a greater waste for a commercial organization than unused capacity.
An army man can rest in his barracks but an aircraft cannot be made to idle in its hangar.
The aircraft manufacturers, Boeing and Airbus dance to the tunes of bulk purchasers in a buyers’ market but as the ex-CAG Vinod Rai wonders, curiously, it was the other round with India.
We procured more than 100 aircraft in one go under the outright purchase mode raising the eyebrows of civil aviation experts as well as those of financial experts.
A bulk purchaser can dictate his terms like Indigo did. A long term contract is win-win for both the buyer and the manufacturer--the former increases his fleet incrementally as the tribe of flyers increases and the latter keeps his production planning and plant going.
15/09/14 S Murlidharan/First Post
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A long term contract not only protects the price line for the buyer even if it contains a price escalation clause but also ensures that equipment, grounded or flying, are not piled up unnecessarily. There cannot be a greater waste for a commercial organization than unused capacity.
An army man can rest in his barracks but an aircraft cannot be made to idle in its hangar.
The aircraft manufacturers, Boeing and Airbus dance to the tunes of bulk purchasers in a buyers’ market but as the ex-CAG Vinod Rai wonders, curiously, it was the other round with India.
We procured more than 100 aircraft in one go under the outright purchase mode raising the eyebrows of civil aviation experts as well as those of financial experts.
A bulk purchaser can dictate his terms like Indigo did. A long term contract is win-win for both the buyer and the manufacturer--the former increases his fleet incrementally as the tribe of flyers increases and the latter keeps his production planning and plant going.
15/09/14 S Murlidharan/First Post
