Air India and India’s government expect $500 million in compensation from Boeing for delays in delivering 27 787s

“We met Boeing officials two weeks ago and they agreed to an amount of up to $500 million [as compensation], but we have asked for more,” says Prashant Sukul, Joint Secretary of India’s Civil Aviation Ministry. 

A Boeing official says, “We don’t comment on the specifics of compensation. Mitigation or settlements are tailored to meet the needs of our customers and they take on many forms. We are working with customers on addressing the contractor requirements as they take delivery of their airplanes.”

In 2010, Air India asked Boeing for a compensation of $840 million for the delays. The compensation is expected to be just under $1 billion if Boeing further delays the delivery, Sukul says.  

The 787s are part of a total of 111 aircraft ordered by Air India and the former Indian Airlines from Boeing and Airbus. Air India ordered 68 aircraft from Boeing in December 2005, and Indian Airlines ordered 43 from Airbus in February 2006. Air India and Indian Airlines merged in 2007 to form Air India Ltd.

Meanwhile, Chief of Air India Rohit Nandan says the first 787 is expected to be delivered in May this year and the airline is expected to receive seven of the aircraft by March 2013.   

“The aircraft should have come in 2008. Our turnaround plan, route economics and profitability is based on it,’’ he said. 

Air India’s total debt, consisting of aircraft loans and working capital loans aggregate about 450 billion rupees. 

In November, Air India’s board approved a Request for Proposal for the Boeing 787s under a leaseback mechanism pending a final clearance from the government. The federal cabinet is likely to take a decision in this regard this month, according to a senior government official. The leaseback arrangement will help Air India to make full use of the asset while not having capital tied up. 

Boeing is currently displaying a 787 in Air India colors at the air show in Hyderabad.

Air India is scheduled to take delivery of its first 787 in the next quarter. It also is due to take delivery in mid-2012 of the first 787 built at Boeing’s North Charleston, S.C. factory, which is Line No. 46.