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Last Updated : Dec 05, 2019 08:06 AM IST | Source:

IndiGo working on the NEO engine issue, says capacity and revenue could be hit this FY

"Expect a YoY capacity increase of 15-20 percent in Q4 FY20 and 22-23 percent in FY20," the airline said.

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IndiGo has said that it is working with engine supplier Pratt & Whitney and aircraft manufacturer Airbus to acquire sufficient spare engines and 'mitigate the risk', after industry regulator DGCA asked it to replace engines of its A320Neo aircraft.

The DGCA, in multiple communications, asked the country's largest airline to replace all unmodified engines in the Neo aircraft. The regulator had also asked the airline to ground one aircraft with the unmodified engine, for every addition of a plane with the modified engine.

The directive came after multiple incidents of engine snags of the Neo aircraft, raising a security scare. IndiGo has 98 A320 Neo aircraft in its fleet.


Consequently, the engine modification and resultant grounding of aircraft is "likely to have an impact on future capacity," the airline said in a presentation to investors earlier this month.

"Expect a year-on-year (YoY) capacity increase of 15-20 percent in Q4 FY20 and 22-23 percent in FY20," IndiGo added. This capacity growth guidance is against the earlier outlook, in which the airline targetted a 30 percent increase in capacity.

At the same time, the low-cost carrier said that it has completed the regulatory directive to operate only those Neo aircraft which have one modified engine if another engine has accumulated more than 2,900 hours.

Revenue headwind

In the second quarter ended September 2019, losses at IndiGo had widened to Rs 1,062 crore, from Rs 651.5 crore loss in the same quarter last fiscal.

The fall in profit was accentuated by mark-to-market (MTM) losses of Rs 428 crore on capitalised operating leases, and higher maintenance cost of Rs 319 crore.

For the third quarter, the airline said that its profit before tax will be similar to the corresponding quarter last year. Profit before tax in the third quarter of FY19 was Rs 190 crore.

"Despite the MTM hit on capitalised lease liabilities, we expect our profits to be similar to Q3 FY19 in Q3 FY20," the airline said in the presentation.

Listing out the revenue headwinds for the present fiscal, IndiGo said multiple factors, including pilot shortage, the NEO issue and uncertainty around the slots and bilateral rights that belonged to Jet Airways, could lead to lower utilisation. But it clarified that these headwinds are "like to disappear by summer 2020."

The airline's employee cost in the present fiscal's second quarter rose by 25.5 percent, mainly due to the 600 additional pilots it hired post the grounding of Jet Airways.

The Naresh Goyal-founded airline had suspended operations in April this year. The airline's slots and bilateral rights were distributed to its peers, including IndiGo, SpiceJet and Vistara.

IndiGo added that its maintenance cost will remain at 'elevated levels' till 2022, when the older CEO generation of Airbus aircraft will be replaced by the NEO line.

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First Published on Dec 5, 2019 08:06 am
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