MUMBAI: The Indian aviation industry is estimated to report a net loss of about Rs 30-40 billion in FY2025, significantly lower than Rs. 170-175 billion in FY2023, said credit rating agency ICRA. It said that the drop in quantum of losses comes as airlines continue to witness healthy passenger traffic growth and maintain pricing discipline.
But the pace of recovery in the Indian airline industry earnings is likely to be gradual owing to the high fixed-cost nature of the business.The industry had reported a net loss of Rs. 170-175 billion in FY2023 due to elevated ATF prices twined with the depreciation of the Indian rupee against the USD.
Among the problems at hand for airlines are the usual supply chain challenges and engine failure issues that impact industry capacity. The Indian aviation industry has been facing supply chain challenges and issues of engine failures for the Pratt and Whitney (P&W) engines supplied to various airlines. In FY2024, Go Airlines
(India) Limited grounded half of its fleet due to faulty P&W engines, which led to the stalling of its operations. InterGlobe Aviation Limited (IndiGo) had also grounded more than 70 aircraft due to P&W engine issues, as on February 2, 2024, including an issue from powder metal (used to manufacture certain engine parts) contamination with its P&W fleet. “It is estimated that 24-26% of the total fleet of Indian airlines in operations was grounded by March 31, 2024. Considering the bulk recall of the engines globally by P&W and other existing issues with the OEM’s engines, the testing by P&W is likely to take longer at 250-300 days. This will result in high operating expenses towards the cost of grounding, increase in lease rentals due to additional aircraft being taken on lease to offset the grounded capacity,
rising lease rates and lower fuel efficiency (due to replacement with older aircraft taken on spot lease), which will adversely impact an airline’s cost structure,” said ICRA. “However, healthy yields, high passenger load factor (PLF) and partial compensation available from engine OEMs would help absorb the impact to an extent,” it added.
Then again, in the current fiscal, the industry has also faced challenges related to availability of pilot and cabin crew, leading to several flight cancellations and delays. In April 2024, Vistara had to cancel some of its scheduled flights, with many
experiencing delays as well, due to shortage of cabin crew and pilots. Further, on May 8, 2024, Air India Express had to cancel over 100 flights due to similar reasons. “Such issues impact the capacity availability and add to customer grievances,” it said.
While some airlines have been facing financial distress, stretched liquidity issues, others have adequate liquidity and/or financial support from a strong parent supporting their credit profiles. The credit metrics and liquidity profile of others will remain under stress over the near term, despite some improvement relative to the last few years, said ICRA. For instance: with half of Go Airlines (India) Limited’s fleet grounded due to faulty P&W engines, it faced payment defaults with vendors, aircraft lessors and financial creditors. Consequently, GoFirst filed for insolvency with the National Company Law Tribunal (NCLT). The NCLT, in February 2024, extended the deadline for the completion of the resolution process of GoFirst by another 60 days, which ended on April 4, 2024. On April 8, 2024, The NCLT granted a further extension of 60 days till June 3, 2024, to complete the corporate insolvency resolution process (CIRP). On May 1, 2024, the Directorate General of Civil Aviation (DGCA), on the directive of the Delhi High Court Order, deregistered all 54 aircraft of GoFirst.
But the pace of recovery in the Indian airline industry earnings is likely to be gradual owing to the high fixed-cost nature of the business.The industry had reported a net loss of Rs. 170-175 billion in FY2023 due to elevated ATF prices twined with the depreciation of the Indian rupee against the USD.
Among the problems at hand for airlines are the usual supply chain challenges and engine failure issues that impact industry capacity. The Indian aviation industry has been facing supply chain challenges and issues of engine failures for the Pratt and Whitney (P&W) engines supplied to various airlines. In FY2024, Go Airlines
(India) Limited grounded half of its fleet due to faulty P&W engines, which led to the stalling of its operations. InterGlobe Aviation Limited (IndiGo) had also grounded more than 70 aircraft due to P&W engine issues, as on February 2, 2024, including an issue from powder metal (used to manufacture certain engine parts) contamination with its P&W fleet. “It is estimated that 24-26% of the total fleet of Indian airlines in operations was grounded by March 31, 2024. Considering the bulk recall of the engines globally by P&W and other existing issues with the OEM’s engines, the testing by P&W is likely to take longer at 250-300 days. This will result in high operating expenses towards the cost of grounding, increase in lease rentals due to additional aircraft being taken on lease to offset the grounded capacity,
rising lease rates and lower fuel efficiency (due to replacement with older aircraft taken on spot lease), which will adversely impact an airline’s cost structure,” said ICRA. “However, healthy yields, high passenger load factor (PLF) and partial compensation available from engine OEMs would help absorb the impact to an extent,” it added.
Then again, in the current fiscal, the industry has also faced challenges related to availability of pilot and cabin crew, leading to several flight cancellations and delays. In April 2024, Vistara had to cancel some of its scheduled flights, with many
experiencing delays as well, due to shortage of cabin crew and pilots. Further, on May 8, 2024, Air India Express had to cancel over 100 flights due to similar reasons. “Such issues impact the capacity availability and add to customer grievances,” it said.
While some airlines have been facing financial distress, stretched liquidity issues, others have adequate liquidity and/or financial support from a strong parent supporting their credit profiles. The credit metrics and liquidity profile of others will remain under stress over the near term, despite some improvement relative to the last few years, said ICRA. For instance: with half of Go Airlines (India) Limited’s fleet grounded due to faulty P&W engines, it faced payment defaults with vendors, aircraft lessors and financial creditors. Consequently, GoFirst filed for insolvency with the National Company Law Tribunal (NCLT). The NCLT, in February 2024, extended the deadline for the completion of the resolution process of GoFirst by another 60 days, which ended on April 4, 2024. On April 8, 2024, The NCLT granted a further extension of 60 days till June 3, 2024, to complete the corporate insolvency resolution process (CIRP). On May 1, 2024, the Directorate General of Civil Aviation (DGCA), on the directive of the Delhi High Court Order, deregistered all 54 aircraft of GoFirst.