Bangalore Aviation

by Devesh Agarwal

Traditional Indonesian dance graces the ceremony

US airframer Boeing has delivered to Lion Air a new Boeing 737-900ER, marking the delivery of the 100th Boeing 737NG to the Lion Group, Indonesia's largest airline group.

It is not surprising that the delivered aircraft was the largest in the Boeing 737 Next-Generation family. Lion Air, which was established in 1999, was also the launch customer for the 737-900ER.

In February 2012, the carrier finalised the world's largest jetliner order, at the time, for 201 737 MAXs and 29 Next-Generation 737-900ERs (extended range), worth $22.4 billion at list prices. Lion Air will also be the launch customer of the 737 MAX 9, which will be the new engine upgrade of the 737-900ER.

Lion Air mainline currently operates 67 737-900ERs and 19 737-800s. The group's other Next-Generation 737s are allocated to its full-service carrier in Indonesia, Batik Air, and to its overseas affiliates: Malindo Air in Malaysia and Thai Lion Air, a new carrier based in Bangkok.

Lion Air is engaged in a bitter rivalry with Malaysia's low cost group AirAsia headed by Tony Fernandes. Lion Air decided to launch Malindo in Malaysia, after Tony Fernandes moved to Indonesia to focus on the growth of Indonesia AirAsia. AirAsia is also in the process of launching a new carrier in India, AirAsia India.

The Lion Group's 100th airplane, a 737-900ER (Extended Range) features a special livery commemorating the delivery. Lion Air's 900s are configured in an all economy 213 seat layout.

The Lion Air Group operates an extensive route network in Indonesia and also serves international destinations. In terms of domestic, Lion mainline and subsidiary Wings Air serve 76 destinations in Indonesia, giving the group the largest domestic network in Indonesia. Lion Air mainline has 580 flights a day and Wings Air has 180 flights per day.

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On the sidelines of the India Aviation 2012 show at Hyderabad, Devesh Agarwal had an exclusive one-on-meeting interview with Dr. Dinesh Keskar, President, Boeing International Corporation India Pvt. Ltd., and Senior Vice President of Sales, Asia-Pacific and India, Boeing Commercial Airplanes. Dr. Keskar also chairs the Committee on Aviation at the Federation of Indian Chambers of Commerce and Industry (FICCI) which organises this show.

The interview was held on-board the 787-8 Dreamliner, N1015B, in Air India configuration, line number 35, specially brought in for the show. (See cabin photos and video walk through here.)

Dr. Dinesh Keskar

Bangalore Aviation covered a wide variety of questions with Dr. Keskar, from the 787 to 737 MAX to 747-8i to 777-X, and not just in his official capacity at Boeing, but also as a seasoned and well informed observer of the Indian commercial aviation industry. Dr. Keskar answered all the questions posed to him, and gave us a frank opinion, on what he sees happening in the ailing Indian airline industry.

Q: Please give us an update of what’s going on at Boeing, from an India, Asia-Pac, to a global perspective?

A: The bottom line is, the world is a big market with 33,504 sales as a long term forecast. Within that, I think Asia-Pacific has the largest potential. If we come from that perspective, Asia is the booming thing right now, Europe is still struggling, the US is kind of flat, and then you have India at the bottom, which is a good market, but as I said yesterday [at the public Boeing press briefing], the growth is there, still double digits, but it is a profit-less growth, and that is our big problem right now.

Q: You have brought the Air India version of the 787 to India. How has been the response to the aircraft? From the public? from [launch Indian customer] Air India? from Government officials?

A: Tremendous… Everybody who has walked in is absolutely impressed with the airplane. Those people who have seen the airplane from the inside, who have seen the features, who have looked at the full flat business class seats, who have played with the electronic windows; who have looked at the economy seats and are absolutely ecstatic. They cannot wait to have this airplane in India so they can start making money with it.

You can see it for yourself, bigger bins, larger windows, better humidity, we talked about what the passengers can see themselves. Then there is also what they can feel, which is the air filtration system, the dust elimination system, the cabin altitude [787 cabin pressure is maintained at 6,000ft MSL vs. 8,000ft of other aircraft], and I mean you can go on and on. These are not present in any other airplane, and these are all important factors.

Q: Have you been successful in your efforts to persuade the government that the Dreamliner is the aircraft Air India needs to succeed in its efforts to turn around? There has been a lot of talk about the Indian government reducing the order due to financial constraints? Can you please comment on how confident you are in retaining the original order of 27 787-8 Dreamliners? [Editor's note: About a month after this interview, the Government of India, in its financial bail-out package of Air India, confirmed the airline will take delivery of all ordered 27 aircraft.]

A: I cannot comment on the Government of India’s mindset or on the on-going negotiations. It is the government's prerogative on what to do; but I will say that this is the best airplane we have. You can see the data. 850+ planes sold, five aircraft already delivered, 59 customers, one has started taking delivery.

Which other airplane gives the fuel efficiency that this aircraft does? 30% lower maintenance costs, 10% lower operating costs. There is no other airplane like this. It is an amazing airplane. How can you save money, except by getting an airplane like this?

Q: How are the five delivered Dreamliners performing at [launch customer] ANA (All Nippon Airways)? Are there any issues?

A: You should talk to ANA too, but they are clearly very pleased with the plane, and they have made a statement to this effect. Over 100,000 passengers have flown on the different sectors that they fly, and it has over 98% dispatch reliability, which is unthinkable for an airplane which is going into service for the first time in the world.

Q: What are some of the other critical indicators, there are concerns some of the initial airplanes were overweight?

A: That’s true, but the plane is making all the missions. One has to see what are you really getting? On the initial airplanes , instead of 20% improvement in fuel efficiency, you are getting 18%. Airlines kill for 1% and this is straight 18%. We are doing programs and we are continuing to improve the program in such a manner that we will be able to make up for these initial deficiencies, reduce the weight, and we will try to improve the aircraft’s engine and engine integration, so that we will get back to the efficiency that we initially advertised.

Computer generated image Lion Air Boeing 737-9 MAX

Q: Switching tracks now. You led the team that closed the largest aircraft order in history, very recently, with Indonesian LCC Lion Air for the 737-9 MAX. What does this order mean for Boeing in general, and for the MAX program in particular?

A: So obviously, it is the third customer after American and Southwest. These are big orders. People were always worried who Lion Air is, but now they’ve taken delivery of their 60th 737-900ER just about 10 days ago, and they are making a lot of money with these aircraft.

Q: Lion Air was the launch customer of the 737-900ER. Will they be the launch customer of the 737 MAX 9 as well?

A: Yes.

Q: What has this done for the MAX program?

A: First of all, it is a clear indication that people believe in this aircraft, when you have airline’s putting belief in this aircraft [by ordering it] in these quantities of numbers. And again, if you look at it, Indonesia is a perfect market, where there are 17,000 islands, across 7 time zones, bigger than the US. You fly 6 hours and you are still in the country. So they can generate lot of RPKs [Revenue Passenger Kilometres - a measure of airline performance], and that is why they need such airplanes. The ASEAN [Association of South East Asian Nations] is being opened up. When there will be open skies in ASEAN, then there is no limit to where they [Lion Air] can go; and that’s where, if Lion Air can run an efficient airline, a profitable airline, which he does in this environment with the fuel price where it is, they’re going to be the leader in the ASEAN low cost segment.

Q: Please elaborate on Boeing's plans for the 737 MAX in India?

A: Jet Airways [group which includes JetLite, now re-named to JetKonnect] flies a majority fleet of 737s which are NGs [737-700, -800, -900/ER], and then SpiceJet is all NG, and Air India Express is now at 23 737-800s. When you are looking for replacement for these airplanes, clearly you are going to get the same thing. We are showing customers what this [the MAX] is all about, and we are showing them how we’re not changing today’s 737. We’re not changing the body, we’re not changing the interior, we’re just changing the engine. So it is whatever is there today, it’s just becoming 15% more fuel efficient. So it’s going to be an amazing thing for airlines. No cockpit changes, nothing.

Q: Currently, Boeing has 451 orders for the MAX, but you have more than 1,000 commitments (which includes these 451 orders). Lion Air has demonstrated their confidence in the form of an order. Why are other customers hesitating to convert their commitments into firm orders?

A: I won’t say it's hesitating. It takes time to define everything, and people have different things going right now. And they’ve stepped up to say that they want this airplane because, as you can appreciate Devesh, the more they wait, they might not get the early positions. Lion Air has locked up the early positions in 2017, so has Southwest, and clearly there’s an advantage to that. But they have to weigh that with respect to their other things going in their life as an airline. But I don’t put too much stock into that difference (between orders and commitments). Some people might think, it’s 2012 and the aircraft is 5 years away, what’s the big rush?

Q: We understand your competitor is facing some issues with CFM. How confident is Boeing in the LEAP-X engine, especially since its a single source engine for the MAX?

A: We feel pretty good. I have not heard anything other than that, and we have time to fix it. Clearly we have given them [CFM] the numbers. We have told them what missions this airplane has to do. It can only happen if they deliver. After all what is the big change on the MAX? its only the engine, and we if we don't have that, we are left with an NG.

Q: What future does Boeing see for the 787 in India, beyond the 27 and ten orders with Air India and Jet?

A: So you are asking who else, in India, do you think can fly the 787 internationally? The rest of our customers are all regional airlines. The two airlines that are capable of flying it [the 787] internationally have already purchased it. Other airlines are still flying within a zone, that is very small and regional. The 787 is not the airplane to go to Dubai and back.

Once we have those airlines interested, we’ll be talking. Even SpiceJet’s people went through this airplane today. So, it’s not like we’re not talking to them, but you have to be realistic also. When will they have the flight plan for using the 787? When will they be able to fly the airplane, etc.? We are working with the various airlines. In any case, even if they came today, right now I could not give them the airplane till 6~7 years down the line, unless they lease it. So it works out all well.

Q: What future do you see for the 777, and 777-X when it does develop, and your 747-8i?

A: The 747-8i, I feel, the potential may only be with Air India, if at all. The reason for that is, you just look at Bombay London, or the India London routes for that matter. Six to seven years ago, we only had 25 to 30 frequencies a week. Today we have 120, just on India London. With that kind of number, you clearly can see that you can’t take a big 747 and fly it because there are five other airlines that are flying a flight within the same hour.

So you got to have an airplane that is right-sized that is more efficient, and that’s what 777 and 787 are all about. We think that the 777 has a tremendous future. As we build variants like the 777X going forward they too will have a solid future. Once you have the base, and we have the base, as an example look at the cockpit; people that fly the 777 can fly the 787 with just five days of training. The 777X is not going to make a radical change either. Whereas, to go to an Airbus requires a long training period and a complete change in philosophy.

We’re going to continue to work with all our airline customers and keep them informed; in fact I am doing that as we speak right now, to airlines about what's coming in the future, and also taking their inputs so the airplane is what they want and like, as opposed to what we tell them it will be.

Q: What kind of demand do you see for new build freighters within the India market?

Not much, though, there is a market for used conversion freighters. That is already happening with Blue Dart, and we only have one dedicated freight airline, in India, today, and that too is regional and small. The reason for that, is that we’ve created a 777 that carries 15 tons of cargo in its belly, that’s half of the 737 freighter’s capacity. 787 is another good example, it’s got 14 tons of belly cargo capability. With that kind of capability, we are creating airplanes which already have a mini-freighter built in the belly, allowing airlines to leverage their passenger operations better.

Q: The Indian economy is growing fast, the passenger market at double digits. It has one of the highest growth rates in the world at 15-20%, yet Indian carriers are losing money, hands over fist. Why?

A: Simply put, because the airlines are pricing lower to artifically stimulate demand. If they continue this behaviour, it is not an industry that can be sustained.

Q: This question is for you, not as a Boeing person, but rather as an informed observer of global aviation. Many Indian airlines are leasing out their 300 plus seat aircraft out to foreign carriers, who then make a lot of money with the aircraft, before returning them back. In your opinion, what factors, are specific to the Indian market, that are holding back Indian carriers from making money with the very same aircraft? [Editor's note: For the last two years, bulk of Jet Airway's Boeing 777-300ER fleet has been leased out to Turkish Airlines, Gulf Air, and Thai Airways. Air India too, is considering leasing its 777s.]

A: So the fundamental answer to that question is that fares from India are a lot different than fares from another country. Dubai and Singapore [Emirates and Singapore Airlines, the two largest operators of the Boeing 777], with the same aircraft make billions of dollars of profit, while we have trouble filling that aircraft because they’re taking away the market. And why is that? it’s because of their connectivity. Once you go to Dubai, you can go anywhere in the world nonstop. Jet Airways will take you to London and then what happens. You don’t go anywhere. When they take you to Hong Kong, you don’t go anywhere. When I fly SQ [Singapore Airlines] from here to Singapore, 75% of passengers connect to somewhere else. So if you understand the fare segment, if you buy Jet Airways up to Singapore and other airline after that, you’ll pay 30% higher fares, so the only way to solve this is the connectivity.

Q: So you’re saying that the Indian carriers have to drastically expand their network to make these larger aircraft work for them?

A: Through Brussels Naresh [Goyal, Jet Airways] does okay. He has a scissor hub, What does Air India do? They go to New York and stop, they go to Chicago and stop, which is better than going just to London, but it still falls way short of the global connectivity offered by SQ and EK [Emirates]. The secret is the connectivity along with the fare.

Q: These last questions are for you in your capacity as Chairman of the Aviation committee at FICCI. What, in your opinion, are the critical steps to correct the problems in the Indian aviation market?

A: We’ve got to find money for the airlines, FDI [foreign direct investment] is one way, but the second thing is that you’ve got to find ways to reduce their cost, fuel being an important one. We also ought to find how they can rationalise their routes. There’s no point having 45 flights between Bombay and Delhi when the demand is only for 35 flights. Finally, there has to be cooperation at the airports. You come to Hyderabad, there’s a ladder from SpiceJet, there’s a ladder from IndiGo, and every airline has its own. Why can’t we have an airport provide those implements, charge for it, and reduce everybody’s costs? If the costs of the consolidated ground handler is high, it needs to be talked and looked into, as to why it is high. We should not abandon the idea.

Q: What about the airport charges? Some people say, India does not need gold plated five star airports with high charges.

A: Great question. You either increase the fare or the airport charge, the effect is the same, you lose the passenger. And this is why AERA [Airport Economic Regulatory Authority] was created, it’s a tough job, I don’t envy them at all.

Thank you Dr. Keskar, a pleasure as usual.