Indian aviation sector: Can SpiceJet, IndiGo and other Indian airlines afford wet lease aircraft amid inflationary pressure?

India’s aviation sector plans to wet-leasing planes for the winter season, scrambling to get out of the air pockets it has been forced into by the coronavirus-induced crisis, ranging from planes grounded for shutdowns to high fuel prices eating away at its income.

Now that infections have subsided, airlines are said to be looking to go all out, especially in this festive season. On that note, Indian airlines are not ready to sit and wait for the delivery of new planes. Instead, they are wet-lease aircraft to bolster capacity for the winter schedule.

IndiGo, which operates narrow-body aircraft, has signed a wet lease agreement for up to three Boeing 777s to increase capacity on international routes. IndiGo had to make this decision in particular because it was forced to immobilize around thirty planes because the supply of spare engines by the American company Pratt & Whitney was delayed by at least two months.

Rival SpiceJet, on the other hand, has finalized a wet lease agreement for up to seven Boeing 737 Max aircraft from Turkish airline Corendon.

Wet lease is an agreement where the lessor provides an aircraft with crew and maintenance. Airlines fear that if they don’t deploy enough capacity, they risk losing market share, in addition to lucrative slots at airports.

However, this comes at a cost and will further increase airline operating costs, particularly at a time when aviation turbine fuel (ATF) prices and the inflationary environment continue to stifle airline profits. industry. What needs to be watched is whether airlines can afford to increase capacity while they still face various challenges.

SpiceJet has faced a series of safety issues forcing aviation regulator DGCA to ground 50% of its flights. The order has now been extended until the end of summer hours on October 29.

This is just one of the problems for the airline, which reported a loss of Rs 789 crore for the quarter ended June 30. In the same quarter a year ago, it recorded losses of Rs 729 crore. For the full fiscal year 2021-22, its net loss jumped 73% to Rs 1,725 ​​crore from Rs 998.30 crore in the comparable period.

The low-cost airline is also seeking funding and needs around Rs 2,000 crore to navigate safely through turbulent skies. a number of banks have raised concerns about lending to the carrier. However, in what could be a breath of fresh air for the beleaguered carrier, the government has raised the credit limit for aviation players under the popular Emergency Credit Line Guarantee Scheme (ECLGS) to Rs 1,500 crore compared to the existing Rs 400 crore.

Meanwhile, IndiGo, which is the country’s largest airline with a domestic market share of nearly 57% and a fleet of over 280 planes, has also faced several problems.

In 2021-22, IndiGo reported an annual loss of Rs 6,162 crore. He also had to make several “difficult” decisions such as staff cuts and unpaid leave.

IndiGo’s loss amounted to Rs 1,064.30 crore in the June quarter, which however narrowed down from the loss of Rs 1,681.80 crore in the March quarter and Rs 3 174.20 crore in the prior year quarter.

India’s aviation sector still faces two major hurdles: fuel price volatility and a weak rupee that is trading at record highs against its US counterpart. Although the capacity deployment equation in India has been a challenge after the onset of the pandemic, stakeholders are not quite sure about the demand dynamics during the inflationary period.

Credit rating agency ICRA said domestic air passenger traffic in September was estimated at 103 lakh but was 10% below pre-Covid levels in September 2019. airlines in September 2022 was 9% lower than before Covid levels.

The agency predicts that the industry will suffer a net loss of Rs. 150-170 billion this financial year due to high costs.

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