Flight disruptions credit negative, may hit IndiGo financially: Moody's

Flags financial damage from revenue loss, compensation, DGCA fines

Taking cognisance of the crisis at IndiGo, global rating agency Moody’s today said severe disruptions in flight operations are credit negative for the Indian private airline. It could face significant financial damage from loss of revenue due to flight cancellations, refunds and compensation to affected customers, along with potential penalties imposed by the Directorate General of Civil Aviation (DGCA), the agency said.

 

This follows a week-long period of IndiGo reporting massive delays and cancellations of its flights caused by a mix of regulatory changes and weather conditions that exacerbated the company’s lapses in planning, amid a peak winter schedule for the airline.

 

Moody’s, in a statement, said that on December 5, India’s aviation regulator, the DGCA, provided a temporary exemption to InterGlobe Aviation Limited (IndiGo) (Baa3 stable) from the requirements of its new regulations on flight duty times for pilots.

 

It also warned that the DGCA’s show-cause notices to IndiGo’s chief executive officer and its chief operating officer could ultimately affect continuity of senior leadership at IndiGo. Recent flight disruptions underscore significant lapses in planning, oversight and resource management by IndiGo because the new regulations had been known to the industry for more than a year, Moody’s said.

 

The airline’s lean operations, which provide cost efficiencies in stable times, lacked the resilience needed for this change in regulations, leading to the need for a system-wide reboot that led to cancellation of around 1,600 flights on December 5, it said.