Chasing 100 million passengers, IndiGo needs wet leases as P&W issues continue to haunt

This is not the first time that IndiGo has relied on a wet lease.

IndiGo has received approval to induct 11 A320 aircraft for the upcoming peak winter season. For an airline which has a razor-sharp focus on consistency and has built its entire model on “customers know what to expect”, this shift is not an easy one — where the cabin crew primarily would comprise foreign operator's fleet and the colour scheme and seats would not be standardised. Dire times require unusual solutions and the current times are one of those for the airline.

After the initial euphoria around the airline not being affected by the latest Pratt & Whitney (P&W) issue came the bad news that engines the world over will see checks over the next couple of years. The latest in the series of issues with P&W since induction has meant that the airline is left with no choice if it has to capitalise on the peak traffic season and also maintain its growth guidance.

Also read: P&W's engine issues will affect some of our aircraft as well, says IndiGo CFO Gaurav Negi

This is not the first time that IndiGo has relied on a wet lease. The airline operates two B777-300ERs wet leased from Turkish Airways. Both these aircraft carry over 500 passengers and are painted in IndiGo livery — a rare thing when it comes to wet-leased operations.

Wet-lease operations are generally done in dire times and this time around — having 40 planes grounded is dire enough to justify. The wet leases will cover some capacity that may go out due to additional groundings if needed. This comes at a time when Air India Express, the low-cost subsidiary of Tata-backed Air India, is all set to get into an induction spree of its own.

For an airline as brand-conscious as IndiGo, the P&W saga has forced it to operate planes that are not in full IndiGo colours for the second time. The first was in 2017 when it wet-leased planes from Lithuanian carrier Small Planet. This time around, the leases are from another Baltic state — Latvia, with the carrier being Smartlynx, which has subsidiaries in other countries in Europe. The aircraft are older and will be consuming more fuel — a tough task in the current high-price environment yet the only measure available.

What is a wet lease?

A wet lease is an arrangement where the operator takes care of Aircraft, Crew, Maintenance and Insurance (ACMI) with the local operator. In this case IndiGo will take care of every other expense including fuel. Typically, the routes are fixed for wet-leased aircraft. A form of wet lease, often referred to as damp lease, is more prevalent in India where the cabin crew belongs to the local operator while the pilots belong to the leasing airline.

As these leases are more expensive, it needs to be seen how the airline has decided to fund them. Does it expect incremental revenue to take care of higher cost and is okay to have lesser margins but be profitable at a higher revenue? Or is it getting a portion of the leases being compensated from the engine manufacturer or complete funding is being provided by the engine manufacturer? IndiGo has been silent about the compensation since 2016, citing contractual clauses around confidentiality.

A320ceo coming to the rescue

As the airline started facing delays from Airbus for the delivery of A320neo, IndiGo had to extend the lease for its aircraft, thus having the aircraft in its fleet for more than 6 years – its much touted norm. This delay also led to the airline going ahead with a lease from Tiger Air for a bunch of older A320s as a stop-gap arrangement. As the delays further increased and deliveries tapered down, the airline looked to fill the void with A320s with CFM engines, which were not part of the fleet until then with even the Tiger Air aircraft being powered by IAE engines.

The airline has given guidance of an increase of 25 percent capacity in Q2-FY24 (current quarter) compared to the same period last year. This is a 6 percent increase in capacity (by ASK, or Available Seat Kilometres) sequentially. The airline is also aiming to achieve 100 million passengers this financial year. With the next lot of A320neo family aircraft of IndiGo being powered by CFM engines and supply chains stretched, the airline is falling back on the A320ceo — an aircraft that would have been out of its fleet completely had it not been for the engine troubles.

Tail note

IndiGo has a long way to go to have all its P&W GTF powered A320neo family aircraft being released from the fleet. With no clarity yet on the engine removals for the next set of issues, IndiGo will have to look at capacity enhancement in multiple ways with wet lease being one of them.

Post pandemic travel has been on a high and airlines have been struggling to operationalise more planes. The engine issues just add to the long list of problems affecting the industry with no end in sight.