Indigo grounds 30 aircraft due to supply chain disruptions; aviation sector faces turbulence
As the Indian aviation industry runs into turbulent weather triggered by severe global supply disruptions, India’s largest airline Indigo revealed on Monday (November 7) that they have grounded 30 aircraft (which constitutes 11 per cent of its fleet) due to a shortage of engines and spare parts.
To minimise this major impact of grounding 30 aircraft, the airline is mulling the induction of wide-body aircraft, explore ways to slow down redeliveries via lease extensions and evaluate wet-lease options under regulatory guidelines. In a ‘wet lease’ arrangement, the lessor maintains operational control of flights while providing the aircraft and crew.
Indigo said in a statement, “As we work on various cost-efficient measures with OEM (original equipment manufacturers) partners, the endeavour is to minimise the economic impact of 30 aircraft on ground, resulting from this global disruption.” It is working with aircraft and engine manufacturers to lessen the fallout of the significant supply chain disruptions that is being experienced by the global aviation sector, it said.
Aviation sector facing turbulent weather
It is not just Indigo which has grounded its aircrafts. According to aviation consultancy firm, CAPA India, the aviation industry has grounded of 75 aircraft or 10-12 per cent of the Indian fleet because of maintenance and engine-related issues. “These will have a significant impact on financials in the second half,” CAPA had said in its India Mid-Year Outlook 2023.
According to analysts and industry experts, this additional pressure of supply chain issues will further add to the woes of airlines already reeling under the volatility in fuel prices and rupee depreciation.
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The supply of aircraft, leased aircraft, engines, and spare parts were first hit by the COVID-19-induced lockdowns worldwide. This had played havoc on manufacturing lines and then the airlines had to contend with the slowdown because of the Ukraine war. Experts believed that it will take at least 1-2 years for this to be fully back on track.
Supply chain issues could also lead to liquidity problems for some carriers as the income from sale and leaseback financing may be less than planned, CAPA India said. Delay in fuel-efficient new aircraft deliveries will also lead to higher maintenance costs on older aircraft in the fleet, it contended.
Indigo operations disrupted
The operations of IndiGo, which has a 57.7 percent market share and 279 aircraft in its fleet, and is the world’s 7th largest in terms of daily departures, face a lot of disruption even if one aircraft is grounded. For it operates more than 1,600 daily flights connecting 74 domestic and 26 international destinations.
The airline has also reported its third straight quarterly loss at ₹1,583.3 crore in the September quarter.
The company is worried about supply-chain disruptions, high fuel prices and exchange rate volatility but said it was optimistic about returning to operational profitability in the current quarter. Pieter Elbers, chief executive, IndiGo, said during the post-earnings conference call that one of the key after-effects of the pandemic in the aviation industry has been the supply chain disruptions in aircraft manufacturing and subsequent shortage of spare engines.
“This has affected our operations because of grounding of aircraft and has impacted our ability to fully deploy capacity productively,” he added.
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Induction of wide-body aircraft, lease extensions
To ensure they can service their short-to medium-term capacity needs, IndiGo, which largely operates narrow-body planes, carrying 180-200 passengers, has decided to go in for wide-body aircraft. It will induct three B777 planes on a wet lease to service the India-Turkey route. Wide body planes can seat 300-350 passengers and can help to solve their immediate capacity needs.
The airline is planning to adopt other measures like slow down its re-deliveries via lease extensions and evaluate wet-lease options under regulatory guidelines. They are bullish on the market opportunities and will continue to add flights in existing and new markets, said the company.
Airlines adopt lease-based approach
Meanwhile, other airlines are also turning to leasing to add capacity rather than waiting for new aircraft. Air India, Vistara, and SpiceJet have also opted to lease aircraft in the short and medium term.
Air India has chalked out a 15-month plan to receive 30 aircraft on lease.
Aircraft leasing to cater to capacity shortfall also has its challenges as it requires commercial negotiations and technical inspections. Moreover, the configuration of the interiors is different from what one operates. There are also practical issues during aircraft rotation.
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Costs mounting up
Meanwhile, however, the costs are mounting for these airlines. The delay in delivery of new fuel-efficient aircraft, which are 16 per cent more fuel efficient, will lead to more expenses for IndiGo on overhauling and maintaining older aircraft. Fuel expenses for Indigo rose to ₹6,257.9 crore in the September quarter from ₹1,989.4 crore in the year-ago. It also suffered forex loss of ₹1,201.5 crore.
The next 6-9 months are likely to be turbulent for the aviation sector because of the high cost of fuel, high-interest rates, high inflation, and continuing geopolitical tension.
