SpiceJet, India-Based Discount Airline, Signs $4.4B Deal With Boeing For 42 737 Max Aircraft

Indian low-cost airline SpiceJet (BOM:500285) has signed an order for at least 40 Boeing (NYSE:BA) planes, worth up to $4.4 billion, news reports said Wednesday, citing sources.

SpiceJet reportedly signed the deal at the ongoing air show in the southeastern city of Hyderabad to buy 42 Boeing 737 Max planes at list price. The airline, which is controlled by billionaire Kalanithi Maran’s Sun Group and already has about 30 Boeing 737 planes on order, will add to its existing fleet of 57 planes that run 350 daily flights in India and abroad, according to Mint, a local newspaper.

“Talks have been on and hopefully the order should be announced soon,” one of the sources said, according to Mint.

Boeing’s MAX 737 is expected to be nearly 14 percent more fuel efficient than the current Boeing 737 Next Generation, or NG, aircraft that SpiceJet owns.

S.L. Narayanan, SpiceJet's chief financial officer, reportedly said that payment for the new jets will start near their delivery date in 2018, adding that it would be adjusted against the 12 Boeing 737 NG planes from an ongoing order, which would allow SpiceJet to swap them for the new 737 MAX aircraft.

Following the completion of this deal, SpiceJet’s total orders for Boeing planes will be worth $8.6 billion, according to The Economic Times, a local business newspaper. SpiceJet is India’s fourth-largest airline by market share.

SpiceJet is expected to report a record full-year loss of about 11.86 billion rupees ($194.2 million), which is equivalent to its combined losses between 2007 and 2013, The Economic Times reported, citing the Centre for Asia Pacific Aviation, a consulting firm, adding that the airline's discount-fare model, along with high fuel costs and a weak domestic currency, have led to an increase in losses over the years.

According to Reuters, the arrival of the new aircraft, which could bring down fuel costs, could turn things around for the struggling carrier. SpiceJet’s shares soared 7.4 percent during Wednesday's trading session, immediately after the news of the deal, and were up 4.38 percent in late-afternoon trade.