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Business News/ Companies / Airbus delivery delays hit aviation firms’ plans
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Airbus delivery delays hit aviation firms’ plans

Timely induction of A320neo planes is critical for IndiGo and GoAir as they seek to expand their market share

IndiGo president Aditya Ghosh was looking at the induction of A320neos as a springboard to reach the next level of growth.Premium
IndiGo president Aditya Ghosh was looking at the induction of A320neos as a springboard to reach the next level of growth.

IndiGo and GoAir, the Indian low fare airlines that are buying fuel-efficient aeroplanes from Airbus SAS, are staring at uncertainty as the European plane maker has informed them about potential delays in the delivery of its A320neo planes.

The timely induction of these fuel-efficient planes are critical for GoAir and IndiGo as they seek to expand their market share in Asia’s third-biggest economy where air passenger traffic is growing at more than 20%.

IndiGo is the largest and most profitable airline in India, run by InterGlobe Aviation Ltd, while GoAir is a low-fare airline promoted by the Wadia Group and run by Go Airlines (India) Ltd.

On Saturday, IndiGo said the delivery of the first fuel-efficient Airbus A320neo has been delayed and there could be additional delays, citing “industrial reasons" at Airbus.

“At this time, IndiGo does not have clear visibility of its future A320neo delivery schedule and the potential for additional delays exist. We are looking at mitigating the potential shortfall in capacity through other options," IndiGo said in the statement.

GoAir has also confirmed about potential delays.

“We have been informed by Airbus that there might be a minor delay in delivery of A320neos. The aircraft engine combination is fully certified. GoAir flight schedules will not be impacted," a GoAir spokesperson said.

GoAir was supposed to have 26 Airbus A320neos by end of 2017.

According to a presentation by IndiGo in October, IndiGo was supposed to take delivery of nine Airbus A320neos by the end of FY2016, 26 A320neos by the end of FY2017 and 53 by the end of FY2018.

In a September interview, Aditya Ghosh, president and whole-time director at IndiGo, had said that induction of A320neos will be a springboard for IndiGo to reach the next level of revolutionary growth.

IndiGo had ordered 100 Airbus A320 aircraft in June 2005, 180 A320neo aircraft in June 2011 and 250 A320neo aircraft in August 2015. Each of these orders were the largest single order of aircraft by number from Airbus at the time of the order, according to Airbus.

GoAir had ordered 72 A320neo planes in June 2012.

With jet fuel in India 60% costlier than in Singapore, local airlines had adopted a strategy of buying up fuel-efficient aeroplanes as jet fuel prices account for more than 45-55% of an airline’s revenue in India.

A 4% reduction in fuel costs adds around 2% to the operating margins of airlines, according to India Ratings and Research.

Airlines are expecting at least 15% savings on fuel cost and this can be extended to 20% through various other fuel-saving measures on A320neos.

“Delay is now known and not unexpected as happens with induction of latest technology but how long is the issue and that will determine its impact on key Neo customers like IndiGo," Kapil Kaul, chief executive officer (South Asia) at consultancy firm Capa Centre for Aviation.

Kaul said the impact on IndiGo and GoAir will depend on the extent of the delay.

“IndiGo is likely to add 55-60 A320neos in next three years and significant delays will possibly defer expansion plans and hence, constraint the near-term business plan. GoAir is expected to have all fleet of 26 new A320neos fleet by March 2017—(this) includes possible replacement of existing 19 aircraft and significant delay could challenge strategic direction," Kaul cautions.

Kaul added that A320neos are expected to exceed performance targets and hence, timely induction is critical for most all Neo customers.

However, Air India Ltd is unperturbed.

The state-run airline has agreed to lease 14 all-economy A320neos from Kuwait’s Aviation Lease and Finance Co. with deliveries scheduled between April 2017 and 31 March 2018.

“The industrial reasons at Airbus are not expected to impact Air India’s plans to lease A320neos. We have also selected CFM International LEAP high-bypass turbofan engines for these 14 planes. The potential delays are for the planes that are fitted with Pratt and Whitney engines," said a senior Air India official, requesting anonymity.

CFM engines are made by a joint venture company of GE Aviation of the US and Snecma of France.

“We are in discussions with our first customers on their delivery milestones and will keep you informed in due time," Airbus said in a statement. “The A320neo has been certified by both EASA (European Aviation Safety Agency) and FAA (Federal Aviation Administration). What counts is that we deliver a service-ready A320neo for our customers."

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Published: 25 Dec 2015, 12:19 AM IST
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