Indian Aviation Industry Poised For Growth Despite Supply Chain Woes, Engine Failures: ICRA Report

The Indian aviation industry is expected to witness significant growth in the coming years, despite challenges such as supply chain disruptions and engine failures, according to a recent report by ICRA Limited, a leading credit rating agency.

ICRA expects the aviation industry to report a significantly lower net loss of about Rs 30-40 billion in financial year 2024 (FY24) and FY25 over Rs 170-175 billion in FY23. The airlines’ ability to raise yields proportionate to their input cost increases will be key to expand their profitability margins.

The report highlighted that in FY24, Go Airlines (India) Limited was forced to ground half of its fleet due to faulty Pratt & Whitney (P&W) engines, resulting in operational disruptions.

Similarly, InterGlobe Aviation Limited (IndiGo) had grounded over 70 aircraft due to issues with P&W engines, leading to a significant portion of the Indian airline fleet being grounded by 31 March.

The prolonged testing period by P&W, estimated to last 250-300 days, is expected to result in higher operating expenses, increased lease rentals, and lower fuel efficiency for airlines due to the replacement of grounded aircraft with older ones taken on lease.

However, healthy yields, high passenger load factor (PLF), and partial compensation from OEM's engines are anticipated to mitigate the impact to some extent.

Additionally, domestic air passenger traffic saw a year-on-year growth of 4.9 per cent in March 2024, with a sequential increase of 6.9 per cent, reports Economic Times.

While some airlines have sufficient liquidity or financial support from strong parent companies, others continue to face liquidity challenges.

For instance, Go Airlines (India) Limited, with half of its fleet grounded, experienced payment defaults with vendors, lessors, and financial creditors, leading to insolvency proceedings.

The National Company Law Tribunal (NCLT) extended the deadline for GoFirst's resolution process by another 60 days, with the deadline now set for 3 June 2024.

Despite these setbacks, the Indian aviation industry remains optimistic about its long-term prospects, driven by increasing demand for air travel and efforts to address operational challenges.