The Indian aviation sector had a fairly smooth ride in 2023, albeit with some turbulence. The year was marked by achievements such as the soaring passenger traffic, and record aircraft orders from major players like IndiGo and Air India, but it also saw the grounding of the Wadia group-backed GoFirst due to engine troubles, similar technical concerns at IndiGo, financial and legal hurdles at SpiceJet, and pilot-related issues at the nascent Akasa Air.
IndiGo, India's largest airline by market share and fleet size, had a momentous year. The airline kickstarted 2023 by becoming the first in the country to boast a fleet of 300 aircraft in January. Later, it achieved another milestone by inducting two widebody aircraft on wet lease from Turkish Airlines, complete with IndiGo's livery – a first for the airline. The company's expansion was further underscored by its record-setting order of 500 A320 family aircraft from Airbus at the Paris Air Show, marking the largest deal in commercial aviation history. This growth was mirrored in its network expansion, reaching 85 domestic and 33 international destinations. IndiGo also distinguished itself by operating more than 2,000 daily flights, a first in Indian aviation, while maintaining healthy profits for four consecutive quarters.
Despite these successes, the year wasn't without its challenges. The airline faced technical issues with Pratt & Whitney engines, leading to the grounding of 40 aircraft in the first half and an anticipated 30 more in the fourth quarter of the financial year. To mitigate this, IndiGo is extending current leases and acquiring additional aircraft. Looking ahead to 2024, the airline expects to welcome a new aircraft every week. However, it must navigate hurdles such as high aviation turbine fuel (ATF) prices and the ongoing impact of the grounded aircraft, which pose significant challenges for the upcoming year.
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2023 was also a landmark year for Tata Sons-backed airlines Air India and Vistara. Air India embarked on a major transformation, unveiling a new brand identity and replacing the iconic Maharaja logo. This change was part of a comprehensive overhaul, highlighted by an order of 470 aircraft from Airbus and Boeing. Additionally, the competition watchdog approved the merger of Air India and Vistara, setting the stage for a major full-service carrier in India.
Air India faced its share of challenges as well, including passenger misconduct incidents, fines from the Directorate General of Civil Aviation (DGCA), and frequent technical issues, particularly on international flights. However, despite these setbacks, the airline expanded its routes, adding and resuming several international destinations. A historic moment came later in the year when Air India began receiving aircraft from its massive order, including the first Airbus A350-900 widebody aircraft, a first for Indian aviation. During the year, the Tata Group also merged low-cost carrier Air Asia India with Air India Express under a new brand identity. Looking ahead to 2024, it's set to be a year of fleet expansion for both the full-service and low-cost arms of the Tata Group's aviation ventures.
The year was not as memorable for the Wadia Group-backed GoFirst. In May, the airline announced voluntary insolvency driven by increasing losses due to delays in the delivery of Pratt and Whitney's engines, which substantially affected the airline's operations. As the year progressed, GoFirst encountered severe operational difficulties, with 50% of its fleet grounded – a dramatic increase from 7% in December 2019 and 31% in December 2020. The financial impact was significant, with the airline accruing losses around ₹10,000 crore. The dire situation led to an uncertain future for its thousands of employees, with many leaving due to unpaid salaries, reducing the staff to approximately 100-200 people, including a smaller number of pilots.
The airline also has substantial debts, owing over ₹11,000 crore to banks and lessors. This has led to complex legal proceedings at the National Company Law Tribunal (NCLT). Despite lessors filing for de-registration requests with the DGCA, their efforts to repossess aircraft are affected by ongoing legal cases. Throughout the year, there were moments when the airline appeared on the verge of resuming operations, even conducting test flights, but these hopes were fleeting.
Naveen Jindal's Jindal Power (JPL) initially showed interest by submitting an Expression of Interest (EOI) for the airline, but later retracted it. The Wadias, the primary backers of GoFirst, have shown no interest in reclaiming the airline, and the deadline for submitting EOIs has now passed. The resignation of CEO Kaushik Kona added to the airline's woes.
However, there appears to be a new glimmer of hope. Ajay Singh-backed SpiceJet, and SkyOne have both expressed interest in GoFirst. They have approached the resolution professional with requests to extend the lapsed EOI deadline. Meanwhile, GoFirst has prolonged the suspension of its flight operations until February 4, 2024, leaving the airline's future uncertain.
For SpiceJet, the year was dotted with hits and misses. In the early months, the airline faced a significant financial scare, exacerbated by the ongoing issues of grounded aircraft. Legal entanglements were also a constant, with ongoing cases involving aircraft and engine lessors in the NCLT and Delhi High Court. The airline's priorities were focused on managing these challenges, which included arranging finances and forming new partnerships with engine and aircraft lessors. Efforts were also directed towards reactivating its grounded fleet.
The latter part of the year, however, marked a turning point. Financial support began flowing in, starting with a ₹500 crore investment from the airline's promoter, Ajay Singh. A major financial breather came in December 2023 when its board green-lit a substantial fundraising initiative. It managed to secure ₹2,250 crore from 64 entities.
As part of its plan to acquire GoFirst, the airline laid out a strategic plan to raise ₹2,241 crore in two phases to purchase, with the first tranche of ₹1,591 crore planned by June 2024 and the second tranche of ₹650 crore by June 2025. This acquisition, if successful, could significantly bolster SpiceJet's fleet and market position, potentially increasing its market share to an impressive 25%, a move that would reshape its standing in the Indian aviation sector.
For India's newest aviation player, Akasa Air, the initial journey was relatively smooth until it hit a significant obstacle. Celebrating its first anniversary in August, Akasa Air had an impressive start, becoming the fastest airline globally to amass a fleet of 20 aircraft within its first year of operations. This rapid expansion made it eligible to commence international flights, an endeavor that is already in the planning stages.
However, just as things seemed to be progressing smoothly, the airline faced a major setback when around 43 pilots, constituting nearly 10% of its entire workforce, abruptly resigned. These departures, believed to be due to poaching by other airlines, caught Akasa Air off guard. The airline sought intervention from the Ministry and the Directorate General of Civil Aviation (DGCA), but their request for immediate action couldn't be fulfilled.
The situation escalated as the mass resignation violated DGCA norms, leading to legal actions in both the Delhi and Bombay High Courts. Akasa Air pursued legal recourse against the pilots for breach of contract, seeking substantial compensation for the disruptions caused. This exodus of pilots raised concerns about the airline's operational stability, with fears of potential shutdown if such exits persisted. As a result, about 18% of the 3,500 scheduled flights were canceled, significantly impacting the airline's growth trajectory.
Fortunately for Akasa Air, the Delhi High Court intervened, affirming the DGCA's authority to act against pilots who fail to adhere to Civil Aviation Regulations (CAR). This decision offered some relief to the airline, which now considers the issue a thing of the past and is focusing on its future. With plans for expansive growth and a triple-digit aircraft order, Akasa Air seems back on track to expand its foothold in the aviation industry.
Outlook for financial year 2025
ICRA projects 8-14% growth in domestic traffic momentum in FY25 with the potential for grounding of 20-24% industry capacity. This will lead to increased lease rentals, damp leases and increased lease rates, lower fuel efficiencies. "Couple of airlines saw shutdown in recent past. There is a higher credit risk for Indian aviation." Kinjal Shah, VP & Co-Group Head - Corporate Ratings, ICRA told CNBC-TV18.
Heading into 2024, the Indian aviation sector faces several challenges, with elevated Aviation Turbine Fuel (ATF) prices, supply chain disruptions, a depreciating rupee against the US dollar, and the ongoing impact of grounded aircraft being the primary headwinds. The Center for Asia Pacific Aviation (CAPA) forecasts a concerning scenario with up to 200 aircraft potentially grounded by the end of the current financial year.
Despite these challenges, 2024 also holds promise for the sector. Major airlines like IndiGo, Air India, and Akasa Air are expected to receive a continuous influx of new aircraft, boosting operations and capacity. SpiceJet, too, is expected to follow through on its pending orders with Boeing, which could further strengthen its fleet. There is also hope that GoFirst will resume operations and rejoin the skies.
(Edited by : Shweta Mungre)
First Published: Dec 29, 2023 3:34 PM IST
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