Technical snags, financial woes to hit domestic aviation industry in FY2019: ICRA

The recent grounding of aircraft of the Indian aviation industry has hit its total capacity, resulting in increased airfares and more inconvenience to the passengers, thereby affecting passenger traffic growth. According to Investment Information and Credit Rating Agency of India (ICRA), 98 of the total 670 aircraft in the industry have been grounded. These include 86 aircraft (75% of total fleet) of Jet Airways grounded due to non-payment of lease rentals to the aircraft lessors owing to its liquidity problems, and 12 aircraft (16% of total fleet) of SpiceJet grounded as required by a regulatory directive post technical issues reported with the flight control software of the Boeing 737 Max (B737 Max) aircraft. Elaborating further, Kinjal Shah, Vice President and Co-Head, Corporate Sector Ratings, ICRA, says, “These groundings have impacted ~15% of the total industry capacity. The consequent flight cancellations have resulted in ~30-40% increase in airfares over September 2018 to March 2019. However, India being a high price sensitive market, this has impacted the domestic passenger traffic growth from October 2018 onwards, with the Q3 FY2019 Y-o-Y growth reduced to 12.4%, as against the H1 FY2019 Y-o-Y growth at 19.8%. In fact, the domestic passenger traffic growth in January 2019 reached a 53-month low of 8.9% Y-o-Y, and February 2019 was further lower at 5.6% Y-o-Y. The passenger traffic growth for March 2019 is expected to be lower than that in February 2019. Moreover, these issues have raised concerns on passenger safety.”