Air India and Boeing have come to an agreement on compensation for 787 delays allowing first delivery of a 787 to proceed to Air India. Air India has been making noise about compensation since 2008 and has often floated a number approaching $1 Billion.

The big driver in Air India’s push for compensation is its own horrific management. One could do 4 or 5 blog posts on that alone. The Indian government hasn’t pushed for a rational operation and the integration of the two airlines, Air India and Indian Airlines. Right now, the airline has a too many constituent groups fighting for the work and the entire company is overstaffed by the tens of thousands. No one in India wants to anger constituent groups such as pilots unions as the political implications stretch far beyond just the airline itself.

Furthermore, the Indian government has pursued trade policies that are hostile towards foreign companies in an attempt to gain all the economic benefit it can from these companies and often in an internationally unfair manner.

Playing hardball with Boeing was a mistake, however. The aircraft that Air India ordered are too easily sold to others clamoring for the 787. Ironically, Boeing could probably sell these aircraft for more than the sale price to Air India. Boeing could afford to take the long view despite the problems that it has experienced with the 787 and production.

Air India needs these aircraft. They will serve routes in a fuel efficient manner and help “right size” the company. It inevitably was going to have to figure out how to pay for these aircraft and get them into service. They are not, however, the magic bullet for Air India’s problems. We’ll talk about that in another blog post in the future.

Filed under: Airline Fleets by ajax