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Indian aviation sector soars with 1,700 new aircraft orders despite challenges: ICRA

In a significant development for the Indian aviation industry, a robust order book of 1,700 aircraft has been secured, marking a noteworthy expansion over the current fleet size, which stands at just over 600.

The major contributors to this surge in orders include prominent airlines such as Indigo, Air India, and Akasa Air. However, the actual delivery of these aircraft is anticipated to be gradual, spanning the next decade, and may face challenges due to current supply chain issues faced by both aircraft and engine Original Equipment Manufacturers (OEMs), according to findings by ratings agency ICRA.

Despite these challenges, ICRA projects a promising outlook for the domestic air passenger traffic, estimating it to surpass pre-Covid levels in the fiscal year 2024, reaching an estimated 150-155 million passengers. International air passenger traffic for Indian carriers has already exceeded pre-Covid levels in the fiscal year 2023 and is expected to surpass the peak of the fiscal year 2019 in the current fiscal year.

The industry has witnessed improved pricing power, evident in enhanced yields and the spread between revenue per available seat kilometer for airlines. This positive trend can be attributed to a 15% decline in aviation turbine fuel (ATF) prices and relatively stable foreign exchange rates.

However, the sector has not been without its challenges, as engine failure issues and supply chain disruptions have led to the grounding of at least 154 aircraft for select airlines, impacting overall industry capacity. Recent concerns related to powder-coating in engines are expected to lead to additional grounding of aircraft in the fourth quarter of the fiscal year 2024.

This grounding is likely to result in higher operating expenses, with increased charges and a surge in lease rentals due to substitute aircraft being taken on spot leases to offset the affected capacity.

Additionally, the replacement with older generation aircraft may lead to lower fuel efficiency, adversely impacting the airlines’ cost structures and potentially resulting in increased airfares.

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