The dog-eat-dog world of aviation isn't a place where one would expect to find moving business philosophy. Yet, strange as it might seem, in the raging battle between American aircraft maker Boeing and its European rival, Airbus, winning seems to have boiled down to a matter of aviation philosophy. You see, Boeing globally has positioned itself as the proponent of the "point-to-point" travel doctrine, according to which airline passengers prefer flying to their destinations non-stop, avoiding congested hubs. Airbus, on the hand, is seen casting its lot behind a "hub-to-hub" model, which envisages the market consolidation and price competition among airlines driving demand for bigger planes that ferry passengers to a hub from where they hop on to smaller planes to reach their destinations.

The divergent philosophies are most evident in the new generation wide-bodied aircraft that the two manufacturers are hawking. Airbus's A380, unveiled recently, starts with a baseline capacity of 555 passengers in a three-class configuration (first, business and economy) and a range of up to 14,800 kilometres. In contrast, Boeing's 787 Dreamliner, which will enter service in 2008, will have a passenger capacity of 223 to 259 and fly up to 15,700 km non-stop. (The Dreamliner 787-3 will offer a seating capacity of 296, but a range of 6,500 km.)

In a market where airlines are desperate for a flexible fleet that will take them closer to elusive profits, Boeing seems to be on a winning streak-after having trailed rival Airbus for the last two years. Air Canada recently placed an order for 96 Boeing planes (including 60 787s). So have Japan Airlines (30), Korean Air (14) and six other Chinese airlines for 60 787s. Indeed, Air France, of all, picked Boeing over Airbus for 13 777 jets. (By the way, this magazine doesn't believe that there can be such stark demarcations as a point-to-point or a hub-to-hub aircraft maker. Every international airline will need a mix of both and, therefore, Airbus and Boeing offer a range of aircraft.) Airbus didn't cry foul at any of these losses. So why is it so peeved at losing the Air-India (A-I) order for 50 aircraft (15 optional) worth $6.9 billion (Rs 30,360 crore)?

There's a litany of complaints (see Airbus Vs Air-India), all boiling down to the point that Airbus hasn't been dealt a fair hand. As far as A-I is concerned, says its Chairman A.V. Thulasidas, it is going purely by its strategic requirements. "Our new strategy is to go for point-to-point service with more aircraft rather than large aircraft," he says. Not surprisingly, there has been a spurt in direct flights from Indian airports. Chennai, Bangalore and Hyderabad have emerged as international embarkation points, apart from Delhi and Mumbai. British Airways offers a Chennai-London service, Lufthansa flies from Bangalore to Frankfurt and Singapore Airlines flies out of Hyderabad to its hub. Says an A-I official: "Direct flights will only increase as all the recent bilaterals offer access to more Indian cities." One example: the India-UK route. Until two months ago, London had only 35 flights a week from India, but in the next two months, there will be 80 flights a week, with carriers like Jet, Sahara and British Midland putting cities like Ahmedabad, Hyderabad and Bangalore on their radar.

THE MAKING OF A DEAL A chronology of Air-India's fleet expansion saga.

NOV. 2003: The Air-India board pitches to the Ministry of Civil Aviation (MoCA) for purchase of 10 long-range and 18 short-range aircraft JANUARY 2004: A-I submits a project report for acquiring 10 medium capacity long-range Airbus 340s and 18 small capacity short-range Boeing 737-800Ws. Estimated cost: Rs 10,000 crore MARCH 2004: Pending aircraft acquisition, the A-I board presents a medium-term business strategy till 2006. Wants to induct 34 aircraft, including 14 737-800Ws for Air Indian Express (A-IE) AUGUST 2004: The MoCA asks A-I to revisit the January 2004 proposal to factor in competition and developments in the airline industry LATE NOVEMBER 2004: The purchase plan is revised. Fleet size for A-I and A-IE increased from 35 to 74, with net addition of 39 aircraft. Entire 19-aircraft fleet of A310-300s, five B747-300 and two B747-200s to be phased out. A-IE decides to induct 18 B737-800Ws DECEMBER 2004: On the 3rd, a tender is floated. Bids are submitted on the 24th MID-APRIL 2005: India-US open skies agreement signed. On the 14th, US Transporation Secretary Norman Mineta pitches for Boeing. French Transportation Minister Giles de Rubin meets Minister of Civil Aviation Praful Patel on the 25th APRIL 26, 2005: The A-I board approves purchase of aircraft for Rs 30,000 crore-all 50 of them are from Boeing, and comprise eight 777-200LR, 15 777-300ER and 27 787 long-range-250 seaters

Airbus doesn't dispute the changing market dynamics. "Both forms of air travel-point-to-point and hub-to-hub-will co-exist," says an Airbus official. "(Which is why while) on the one hand we have the very large A380 for hub-to-hub, on the other we have the A330, 340 and 350 for point-to-point travel." What the Airbus official can't understand is why after figuring on A-I's original purchase plan of November 2003, its A340-300s (Enhanced) lost out in the final lap.

On A Wing And A Call

To seasoned aviation industry watchers, the answer is straightforward. The reason why Indian Airlines (IA) opted to go along with its original plan of 43 all-Airbus fleet is also the reason why A-I went with Boeing. Because when national carriers buy planes, they are actually walking the thin rope of geopolitics. No matter what the A-I board or the Minister of Civil Aviation Praful Patel might say, the fact is India is trying to strike a balance between its relationship with the European Union (that is, the Airbus camp) and the US. Says Brahma Chellaney of the New Delhi-based Centre for Policy Research, a think tank: "It's the single-biggest contract that India has entered into. No PSU in India decides on such a big deal on its own. Political considerations have clearly weighed heavily."

The geopolitical reasons behind India's decision are not hard to fathom. The country needs America's support for a seat on the un Security Council; it wants high technology from us firms; it could even do with the us administration's support in containing the backlash on outsourcing to India. Or as London's Financial Times quoted an unnamed Indian official, the reason could be more economic. "The us never likes this kind of trade imbalance (growing exports) to last for very long and expects us to do something about it or else they will start flexing their muscles," the Indian official was quoted as saying. According to the same official, India wants to buy defence equipment from the US, but doesn't consider America as a reliable supplier because of a history of trade sanctions. "This means that the one thing we can buy from (the US) is aircraft," ft quoted the official as saying. In fact, when us Secretary of Transportation, Norman Mineta, was in India in April this year, he mentioned that us President George Bush had personally pitched Boeing to Prime Minister Manmohan Singh.

INTERVIEW: PRAFUL PATEL, Union Minister, Civil Aviation "THE PLANES HAVE TO BE BOUGHT"

On Airbus' allegations: These kinds of allegations and counter-allegations have been consistently going on for many years-whenever acquisition programmes have come up. As a result, delays have taken place. And the only losers have been both the national carriers. On pressure from the US: I can assure that there is no political-or geopolitical-consideration in taking any decision. These are purely techno-economic decisions taken by the boards of Indian Airlines (IA) or Air-India (A-I). Both their boards are autonomous. We do not interfere in their process of selection of aircraft types or companies. We are only informed after they have decided what they have take a decision about. On allegations of graft: We will definitely look into what they have said. And if there is any issue, a remedial action will be definitely taken. But the planes must be bought. On opting for an all-Boeing fleet and not a mix: Since some decisions were taken during the time of the past government, we asked the boards of IA and A-I if they would like to review any decision or any decisions they had taken. Besides, the scenario in aviation both in India and overseas has undergone tremendous changes in the last one year. That's why they revisited the earlier strategy. And they again went through the process of tendering. It's not something that they have arbitrarily decided. We do not wish to get into any of the decisions of the boards of A-I or IA. On the future role of the national carriers: Public carriers will continue to play a very important role. They are already the prime carriers in India. They should have higher market share.

France, whose India ambassador Dominique Girard publicly criticised the A-I-Boeing deal (and received a dressing down from the Foreign Secretary Shyam Saran for it), understands and plays the geopolitical game as well as the us. Last year, the fear of France blocking its bid to join the EU made Turkey order A320s. And when Girard reacted to the A-I deal, he was clearly more concerned about French defence equipment-maker Dassault winning orders for its Mirage fighter planes against the us F-16s and F-18s from the Indian Air Force, which plans to buy 126 fighter planes.

Still, losing orders for wide-bodied planes must hurt Airbus. Unlike the narrow-bodied, (single-aisle) aircraft that IA will be buying, profit margins are higher in the bigger planes. For instance, according to some estimates, the wide-bodied 747 accounts for as much as a third of Boeing's profits in some years. It's no coincidence, therefore, that when the European jetliner maker entered the industry it did so by competing in the wide-bodied segment.

Meanwhile, Airbus' allegations will not result in a re-tendering process for A-I. A confident Patel said that the national carrier would go ahead with the current expansion plan (see "The Planes Have To Be Bought"). Given the PMO's support, he has also brushed aside allegations of graft made by seven mps, including Rajya Sabha mp Dinesh Trivedi and Congress' V. Narayanswami. "If there is an issue, a remedial action will be taken," says Patel. "But the planes must be bought." Boeing's Senior Vice President Dinesh Keskar is now awaiting the government's approval, a process that can take anywhere between three and six months. "Now the focus should be on going forward. We need to meet A-I's requirement as early as possible," he says.

The way things are placed, IA seems headed for an all-Airbus fleet (Alliance Air's fleet of 11 Boeing 737-200s has an average age of 23.5 years and so it will be phased out) while A-I is all set to embrace an all-Boeing fleet (its fleet of 19 A310-300s is 19 years old and slated for a gradual phase out). Kapil Kaul, Head, Centre for Asia Pacific Aviation, says that it is critical for A-I to add significant capacity between 2006-08. "A-I is a very high-cost airline. If it is unable to get aircraft on lease (it's a tough market for leasing) it will be seriously impacted," Kaul says. In any case, the Rs 400 crore that A-I was getting from foreign airlines for letting them fly some of its routes will not be coming because the government has put an end to such agreements.

Therefore, in retrospect, pulling the national carrier out of its Boeing controversy may seem like a breeze compared to getting it to fly through aviation's crowded skies profitably.