IndiGo, GoAir finances to be hit: 70 flights cancelled after A320 grounding

The impact of the inability to add new A320 neo planes on IndiGo's market share is likely to be minimal, since no rival carrier has any major expansion plan

IndiGo and GoAir cancelled another 70 flights on Tuesday -- a day after the airlines had to ground 11 planes following the aviation regulator's order on this -- because of a recurring malfunction in engines. The airlines said the affected passengers would be accommodated in other aircraft, though a change in schedule was likely.
 
The problem stems from a component in certain engines manufactured by Pratt and Whitney (PW), which can show early signs of wear, and is located in an area that must withstand high pressure.
 
A senior airline official said the grounding was taking a toll as the airlines had very little scope to alter their network, since they had taken the planes into consideration while making the schedule. “There will be cancellations till the start of a new schedule on March 25. We have a large network and multiple flights from one point to another, so we can accommodate the passengers in other planes. Necessary information is being shared with affected flyers,” a senior IndiGo official said.
 
PW has said that the issue will be resolved only by the end of June. “The corrective action has been approved and we have already begun to deliver production engines with the upgraded configuration. We are working to mitigate the situation by the end of the second quarter,” the engine manufacturer said in a statement.
 
The impact of the inability to add new A320 neo planes on IndiGo’s market share is likely to be minimal, since none of the rival carriers have any major expansion plans. Closest competitor SpiceJet’s planned induction of Boeing 737 Max was slated for August. GoAir being a much smaller player was also likely to see less impact on its market share, but would face a delay in commencing international operations, which was scheduled to start last year.

IndiGo now plans to become aggressive in the secondary lease market. A senior IndiGo official said the airline is planning to induct around 40 planes in the next one year, including 25 A320 ceos and 15 new ATRs.
 

The slowdown in IndiGo’s capacity addition has caused its domestic market share to fall to 39.4 per cent in December 2017, against 40.4 per cent in November 2016.
 
However, according to analysts tracking the sector, the two airlines will face the pressure of grounding in the near term as there will be constraint in capacity addition.
 
Analysts expect the disruption will affect  IndiGo and GoAir’s finances as it would be forced to go for short-term lease of old aircraft to maintain target of capacity induction, which would lead to higher expense. Short-term leases are costly and the maintenance cost is also higher compared to new planes. Airbus has already stopped the delivery of A320 neo models fitted with PW engines.
 
“The problem could become much bigger if the engine supplier cannot find a quick fix as the delivery schedule of future A320 neo aircraft could be affected,” Ansuman Deb of ICICI Securities said in a research report.
 
IndiGo’s dependence on short-term lease of old planes from the secondary market has gone up significantly since the technical problems of the engines persists. Till date in 2017-18, IndiGo has inducted 24 aircraft from the secondary market, compared to 13 new planes.  Frequent engine failures led to grounding of the fleet for a prolonged period of time and also caused delays in aircraft deliveries for IndiGo. “The older planes could result in slightly higher ownership costs, though it is likely to be compensated by suppliers. Given the lead times in such leases, any significant delays in inducting the A320neos could force IndiGo to wait longer to recoup its lost market share,” SBI Caps wrote in a research report on March 12.