Indian aviation industry's losses expected to widen to Rs 20-30 billion in fiscal 2025: ICRA
In a landscape still reeling from turbulence, the Indian aviation sector is projected to grapple with a net loss of Rs 20-30 billion for fiscal years 2025 and 2026.
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In a landscape still reeling from turbulence, the Indian aviation sector is projected to grapple with a net loss of Rs 20-30 billion for fiscal years 2025 and 2026. This revised forecast, a slight reprieve from previous estimates of Rs. 30-40 billion, still reflects a troubling reality when compared with the Rs 10 billion loss recorded in FY2024, according to the latest insights from the credit rating agency ICRA.
The industry continues to be beleaguered by supply chain disruptions and persistent engine malfunctions, which have collectively hampered operational capacity over the past 18 months. ICRA’s report forewarns that these impediments are likely to persist into the current fiscal year.
“The pace of recovery in industry earnings is likely to be gradual due to the high fixed-cost nature of the business,” ICRA elucidated. The anticipated losses for FY2025 and FY2026 starkly contrast the comparatively modest Rs 10 billion loss of FY2024, driven by mounting pressures on yields as airlines endeavor to maintain adequate Passenger Load Factor (PLF) amidst soaring Aviation Turbine Fuel (ATF) prices.
“Further, the debt metrics for the industry improved in FY2024 due to better profitability and are expected to remain range-bound in the medium term,” ICRA added.
The sector has faced significant setbacks from supply chain issues and persistent engine failures, particularly concerning Pratt and Whitney (P&W) engines supplied across various carriers.
In FY2024, Go Airlines (India) Limited was forced to ground half its fleet due to malfunctioning P&W engines, stalling operations. InterGlobe Aviation Limited (IndiGo) also had to sideline over 70 aircraft by August 1, 2024, due to P&W engine problems, including contamination issues affecting engine components.
“This has led to the grounding of about 134 aircraft across select airlines, representing 15-17% of the total industry fleet as of June 30, 2024, impacting overall industry capacity as measured by available seat kilometers (ASKMs). Considering the global recall of engines by P&W and other existing issues with original equipment manufacturers’ (OEM) engines, the testing by P&W is likely to take longer, around 250-300 days,” ICRA reported, according to a report by Times of India (TOI).
This scenario is anticipated to escalate operating expenses due to the cost implications of grounding, increased lease rentals for supplementary aircraft, and diminished fuel efficiency from older leased aircraft.
“These factors are likely to adversely impact airlines’ cost structures. However, healthy yields, high PLF, and partial compensation available from engine OEMs would help absorb the impact to some extent. In the current fiscal, the industry has also faced challenges related to the availability of pilots and cabin crew, leading to several flight cancellations and delays. Such issues impact capacity availability and add to customer grievances,” ICRA noted.
The financial distress within select airlines is palpable, with some grappling with liquidity issues. Although a few airlines benefit from robust financial backing or support from strong parent companies, others are expected to endure stress in their credit metrics and liquidity profiles, despite marginal improvements over recent years.
In August, the Committee of Creditors (CoC) sanctioned the liquidation of GoFirst following unsuccessful bid attempts. The National Company Law Tribunal (NCLT) has now sought a response from the suspended management of the airline concerning the liquidation petition filed by the resolution professional.
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