The recent decision of the aviation regulator DGCA (Directorate General of Civil Aviation) to ground 11 aircraft - IndiGo's 9 and GoAir's 2 - with Pratt & Whitney (P&W) engines of a particular series has affected India's largest carrier IndiGo in a big way. On Tuesday, the airline had to cancel 47 flights, or about 5 per cent of its total flights per day, causing inconvenience to passengers. The airline was quick to rework its network, and the number of flight cancellations went down the next day.
To counter this problem, IndiGo will have to look for getting aircraft on lease - wet lease or dry lease - depending on the leasing scenario globally. The long-term challenge is to manage the delay in the deliveries of planes from Airbus.
P&W has not given a timeline to resolve the engine issues. Analysts believe that it's going to take months before the problems are fixed. IndiGo had ordered A320neos in two tranches - 180 in 2011 and another 250 in 2015. Indeed, it's relying heavily on A320neos, powered with P&W engines, to expand its operations in domestic and international markets. With delay in future deliveries, IndiGo may have to go slow in network expansion.
The only respite for IndiGo can come from ATR-72 aircraft - owned by the Airbus group - which has been added recently to its fleet. The ATR-72s will be primarily used for regional connectivity scheme (RCS) for which the airline had bid for in recent months.
In a report, Mumbai-based broking firm Edelweiss Financial Services has said that "Pratt and Whitney engine issues will take a while to get resolved and, this will hurt IndiGo in the near term and may lose market share to domestic peers."
In terms of financial and operational performances, IndiGo is going great guns. As of December 31, it had total cash reserves of Rs 13,887.35 crore and total debt of Rs 2,432.63 crore.
In January, IndiGo reported a market share of 39.7 per cent with passenger load factor of 89.7 per cent. Its biggest competitor - Jet Airways - garnered market share of just 16.6 per cent in the same month. Last year, IndiGo had indicated its interest in buying the international operations of the state-run Air India. Now faced with other challenges, it's yet to be seen that whether it will participate in the bidding process for Air India.