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Last updated: 12 Apr, 2024  

Flight.9.thmb.jpg Indian aviation industry cleared for takeoff despite engine woes: ICRA report

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IANS | 12 Apr, 2024
The Indian aviation industry is set to scale new heights. Despite facing supply chain challenges and engine failures, the industry is poised for significant growth in the coming years, according to a recent report by the ICRA Limited, a leading credit rating agency.

“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 the Pratt & Whitney (P&W) engine issues, as of February 2, 2024, including an issue from powder metal (used to manufacture certain engine parts) contamination with its P&W fleet,” the report said.

It is estimated that 24-26 per cent of the total fleet of the Indian airlines in operations was grounded by March 31.

“Considering the bulk recall of the engines globally by P&W and other existing issues with the Original Equipment Manufacturer (OEM) engines, the testing by the P&W is likely to take longer at 250-300 days,” the report said.

“This will result in high operating expenses towards the cost of grounding, an increase in lease rentals due to an 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,” it added.

However, healthy yields, high passenger load factor (PLF) and partial compensation available from OEM’s engines would help absorb the impact to an extent.

Meanwhile, the report also claimed that the capacity deployment for March 2024 was higher by 1.8 per cent over March 2023 (93,785 departures in March 2024 against 92,098 departures in March 2023).

“Further, the number of departures in March 2024 was higher by 9.2 per cent on a sequential basis,” ICRA said in its report.

The report said that for March 2024, domestic air passenger traffic stood at 135 lahk against 129 lahk in March 2023, implying a YoY growth of 4.9 per cent.

“However, on a sequential basis, domestic air passenger traffic in March 2024 was higher by 6.9 per cent, with February having a lower number of days than March,” it said.

The ICRA said that while some airlines 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.

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), which imposed a moratorium on the airline’s assets and prohibited the lessors from repossessing their aircraft, which was upheld in the National Company Law Appellate Tribunal (NCLAT).

The airline lost its airline code 'G8’ assigned by the International Air Transport Association (IATA) for being non-operational since May 2023.

The NCLT in, February 2024, extended the deadline for the completion of the resolution process of GoFirst by another 60 days. A two-member bench of the Delhi-based NCLT admitted the plea filed by the resolution professional (RP) of GoFirst seeking an extension of the timeline to complete the corporate insolvency resolution process (CIRP).

“The maximum period for completing the resolution process as per Section 12 of the IBC (Insolvency and Bankruptcy Code) is 330 days, which ended on April 4, 2024. However, the NCLT on April 8, 2024, granted an extension of another 60 days till June 3, 2024, to complete the CIRP,” the report said.

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