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India's SpiceJet signs $12.5 billion-deal with Safran for aircraft engines

LEAP engines to power 155 Boeing 737 Max jets

SpiceJet will buy CFM International’s LEAP engines to power its 155 Boeing 737 MAX jets.

MUMBAI (NewsRise) -- Indian budget carrier SpiceJet signed an agreement with France's Safran to buy aircraft engines worth $12.5 billion from its venture CFM International, underscoring rising demand for air travel in the world's fastest-growing aviation market.

Under the deal, SpiceJet will buy CFM International's LEAP engines to power its 155 Boeing 737 MAX jets, along with spare engines to support the fleet, the carrier said in a stock exchange filing on Sunday. The deal was part of a string of agreements signed between Indian and French companies during French President Emmanuel Macron's visit to India.

CFM International is a joint venture between GE Aviation and Safran. CFM supplies engines exclusively for Boeing 737 MAX and is a rival to Pratt & Whitney for Airbus' A320neo engines. Globally, the demand for LEAP engines have been surging thanks to their better fuel efficiencies.

"From what we have seen so far, the LEAP-1B is living up to its promises for efficiency and reliability," Ajay Singh, chairman and managing director of SpiceJet, said. "We hope they provide us unmatched service reliability while keeping our costs in check to ensure profitable operations."

SpiceJet's agreement with Safran comes at a time when India's aviation market is booming as rising incomes and the advent of no-frills carriers prompted more people to shun trains for long-distance travel. Air travel in Asia's third-largest economy has grown at an annual pace of more than 20% in recent years. In 2016, India became the largest aviation market behind the U.S. and China with domestic traffic touching 100 million passengers.

Carriers such as InterGlobe Aviation's IndiGo and SpiceJet have ordered aircraft worth billions of dollars in a bid to cater to the rising demand. Indian airlines, which operate about 500 aircraft, have ordered an additional 1,000 planes, according to an estimate by HSBC.

However, some analysts warn that the pace of growth may moderate to 13%-15%, amid rising congestion at Indian airports and rising fuel costs. Aircraft in India often spend up to an hour longer in skies due to the shortage of landing slots in major airports. The industry is also facing a serious challenge from the rising cost of crude oil that may lead to an increase in the fares.

Safran's partnership in India comes at a time when CFM's biggest rival Pratt and Whitney is facing a setback in the south Asian nation, weighed by technical issues with its engines fitted on European plane-maker Airbus Group's A320 NEO narrow body jets.

Last month, InterGlobe Aviation, which owns India's largest airline IndiGo, said it has grounded three Airbus A320neo aircraft due to the Pratt & Whitney engine issue. India is finalizing guidelines to fly the A320 NEO aircraft after the string of technical troubles.

--Dhanya Ann Thoppil

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