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50 E-Jets and More
Air Costa places an order of 50 E-Jets E2s at the recently held Singapore Air Show. Emergence of such major orders reinstate the versatility of Embraer’s E-Jets for regional connectivity, stimulating traffic and sustaining airline profitability while providing affordable and comfortable air travel.
The Vijayawada-based Lingamaneni Estates Pvt Ltd, rechristened LEPL group, has grabbed attention from national and international media with its entry into the turbulent airline business, launching Air Costa, India’s first regional airline from South India. At the recently concluded Singapore Airshow, Air Costa signed an agreement with the Brazilian aerospace major Embraer for additional 50 E-Jets, a record-breaking big-ticket deal for any regional airline in this part of the world. The event came as a pleasant surprise.
"We Are Keen On Consolidating In Tier-II Cities"
He is not a man in hurry, but he surely has his feet firmly on the ground, even while he dreams big of flying his airline to every corner of the country. The Chairman of Air Costa, Ramesh Lingamaneni is living his dream. Air Costa now connects six cities and the plans are to gradually expand to other secondary cities. Air Costa is part of the privately held LEPL Group, a diversified entity with interests in real estate and infrastructure development in the commercial, residential, education, power and health sectors.
In an interview with R. Chandrakanth of SP’s Aviation, he announces that the company will go public in the near future to fund its expansion plans.
SP’s Aviation (SP’s): Congratulations on the huge order for Embraer E190 and E195 aircraft. It is indicative of your intent to expand in the country rapidly and through Embraer only? What are the plans?
Ramesh Lingamaneni (Ramesh): Thank you. We have a well thought out expansion plan and it is going to be in a phased manner. I don’t believe in rapid expansion. We will be operating our summer schedule of 2014 with four aircraft (two E170 and E190 each). We plan to expand to 20 aircraft by fiscal year 2018. From 2018, we will see our new orders for E2 Jets joining us at the rate of four per year. In the meantime we would like to consolidate our presence in the market through our superior service combined with convenience and competitive fares in the Tier-II market.
SP’s: From 67-seater aircraft, you are moving towards 90-120 segment. What is the rationale behind that?
Ramesh: The E-170 and E-190 belong to the same family and they share 90 per cent of commonality. There is a market for 67 seats as well as 120 seats and today we are in a position of advantage as I can cater to both these markets with the same E-Jets.We believe the Indian aviation market is buoyant for growth and we want to quickly tap into the growing markets (Tier-II and III) and E-190 with 112 and the E2 will be the right aircraft to cater to these long and thin growing routes.
SP’s: Will you go public to fund your expansion plans?
Ramesh: Yes, we have plans to go public. However, we would like to discuss this at the appropriate time.
Air Costa has become the first customer of E-Jet E2s in the Indian market and will take delivery of the E190-E2, in 2018. The E195-E2 is scheduled to enter service in 2019. Today, the airline flies four E-Jets: two E170s and two E190s.
“E-Jets have proven their ability to stimulate traffic and sustain airline profitability while providing affordable and comfortable air travel to people in emerging markets like Brazil and China. I see the domestic Indian market developing in a similar way with both the current E-Jets and of course the E2s. I congratulate Air Costa for its vision in seizing the opportunity to bring greater connectivity within India and we are sincerely grateful for the airline’s confidence in Embraer,” said Paulo Cesar Silva, President & CEO, Embraer Commercial Aviation.
Air Costa is currently connecting the cities of Bengaluru, Chennai, Hyderabad, Vijayawada, Ahmedabad and Jaipur. Future cities will include Goa, Pune, Madurai and Visakhapatnam. The airline plans to link underserved markets with more direct flights, increasing frequencies and routes, thus serving growing metropolitan areas, as well as key secondary and tertiary business centres.
Ramesh Lingamaneni, Executive Director of LEPL Group and Chairman of Air Costa, the aviation vertical of the Group, noted: “Regional air services have enormous potential in India, especially the ones connecting Tier-I, II and III cities. Our initial experience with our current E-Jets has been very positive. Our passengers have complimented the aircraft on its comfort and pointto-point convenience. The E2s will give us right-sized seat capacity for us to cater to the future target markets and unit costs that are competitive with larger re-engined single-aisle aircraft.”
“I was convinced that the huge gap of 70 flights (grounded by Kingfisher) in the country’s aviation industry easily offers viable business,” said Ramesh. “It is the cumulative number of jets (50) that we would buy from Embraer over the next several years. The actual delivery will be one a quarter or four a year on an average.” He sees demand from the smaller towns for low-cost and no-frills air travel. Those who questioned the logic behind his foray into the sector are now surprised that in almost all its routes Air Costa has over 80 per cent occupancy ratios. “Many have failed in spotting the business opportunities of catering to the growing needs of rich and affluent in Tier-II and Tier-III towns,” Ramesh said.
He hopes to break even by July and post profits by March 2015. The company has not borrowed from institutions so far for its aviation business and funding for most of the 50 aircraft from Embraer will be supported by the Brazilian Exim Bank.
Air Costa would consider options like roping in foreign investors or raising funds by divesting stake, said Ramesh. “Some investors, including international airlines and private equity funds, have already approached us but we requested them to wait. We will raise funds once we prove our operations are successful, so that it helps us get better valuations.”
Air Costa’s E2s will feature new-design cabins with an even higher standard of comfort and more personal space. The E190-E2 will be configured with 98 seats in dual class layout, with six seats in first class, and the E195-E2 with 118 seats, with 12 seats in the first class.
Embraer’s E-Jet E2s demonstrates the company’s commitment to continuous improvement into its line of commercial jets and leadership in the 70- to 130-seat jet aircraft capacity segment. The three new airplanes (E175-E2, E190-E2, and E195-E2) have geared turbofan engines from Pratt & Whitney, new aerodynamically advanced wings, full fly-by-wire flight controls, and advancements in other systems that will deliver double-digit improvements in fuel burn, maintenance costs, emissions, and external noise compared to current-generation E-Jets.
In July, 2013, Embraer launched the E-Jet E2 family of aircraft, the second generation of its successful E-Jet family of commercial aircraft comprising three new airplanes (E175-E2, E190-E2 and E195-E2) accommodating seating from 70 to 130 passengers. The E190-E2 is expected to enter service in the first half of 2018. The E195-E2 is slated to enter service in 2019 and the E175-E2 in 2020.
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