Sputtering engines at IndiGo
InterGlobe Aviation Ltd’s flight would face some disturbance in FY24. InterGlobe runs IndiGo, India’s largest airline by market share. Pratt & Whitney engines are facing a ‘powder metal’ issue, and 600-700 engines are being removed worldwide for inspections.
Owing to this, IndiGo estimates its grounded aircraft to be in the mid-30s in the March quarter (Q4FY24). This would be over and above the already grounded aircraft, taking the total count to roughly 75, or about 22% of IndiGo’s fleet as on 30 September. IndiGo is attempting to mitigate the issue by executing and extending leases.
Indeed, it is commendable that the airline has stuck to its capacity growth guidance of more than 15% in FY24. Capacity here refers to available seat kilometres. “Perhaps this is an indication that mitigation measures would be sufficient to cover additional groundings," said Jinesh Joshi, an analyst at Prabhudas Lilladher.
Crucially, a higher number of grounded aircraft means an increase in expenses without incremental revenue. Thus, one needs to watch out for any dent on the margins given the potential rise in costs. An increase in leases would result in higher rental expenses.
Moreover, the leases executed by IndiGo are for older generation ceo (current engine option) aircraft, which are less fuel efficient. Investors will watch out for the extent of compensation from Pratt & Whitney. “Original equipment manufacturer compensation may be tied to costs incurred on the grounded aircraft and also partly to the revenue lost during the period (details aren’t clear to us)," said a report by Jefferies India dated 8 November.
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