Embraer clinches $2.9 bln India deal with Air Costa

SINGAPORE (Reuters) - Embraer SA(SAO:EMBR3.SA - News), the world's largest maker of regional aircraft, clinched its first major Indian deal for 50 jets valued at $2.94 billion from start-up Indian domestic carrier Air Costa.

Air Costa will become the first customer of the E-Jet E2s, the upgraded re-engined variants of the company's aircraft, in India when it receives its first aircraft in 2018, company officials told a media briefing at the Singapore Airshow on Thursday.

It will be the first airline to order and operate a large number of regional jets in India, a market which has seen substantial losses in recent years due to over-capacity and intense price wars among its carriers.

Observers, however, believe that there is substantial potential for growth in passenger traffic between the non-metro cities, a market which Air Costa is targeting.

The airline ordered 25 E190 E2 and 25 E195 E2 jets, with a capacity of between 98 and 118 passengers, and has options for 50 more. The airline, which operates three of the current variants of the E190, plans to get four aircaft each year from leasing companies until 2018 for its growth plans.

The deal is a boost for Embraer, which met its delivery targets for its commercial and executive segments last year after a surge in sales in the fourth quarter.

In an interview with Reuters, Ramesh Lingamaneni, chairman of Air Costa, said the airline would use the jets to expand its southern regional footprint and then eventually become a pan-Indian player.

Air Costa currently operates a fleet of four aircraft in the southern Indian cities of Bangalore, Hyderabad, Chennai and other cities. The airline, which only started operations in October, is part of the privately held LEPL Group, a diversified company with interests in property development and infrastructure projects.

Low-cost, no-frills, airlines led by IndiGo account for about 70 percent of domestic traffic, while AirAsia (KLS:AIRASIA) is set to start operations this year and a venture of the Tata Group and Singapore Airlines (SES:C6L.SI - News) will also start full service airlines.

(Reporting by Siva Govindasamy and Anshuman Daga; Editing by Jeremy Laurence)