Delhi International Airport Limited (DIAL) is a joint venture between GMR Group (54%), Airports Authority of India (26%), and Fraport AG (10%) and Eraman Malaysia (10%) (Mint file)
Delhi International Airport Limited (DIAL) is a joint venture between GMR Group (54%), Airports Authority of India (26%), and Fraport AG (10%) and Eraman Malaysia (10%) (Mint file)

Decline in passenger traffic to hurt Delhi airport's credit metrics

  • Passenger traffic at Delhi's Indira Gandhi International Airport declined 12.7% during May 2019 against a year ago
  • Although financial projections had factored in a slowdown in traffic growth in fiscal 2020, a more severe-than-expected downturn will put pressure on the airport's revenue: Moody’s

Mumbai: ​A recent decline in passenger traffic at the Delhi airport will hurt its credit metrics amid expansion plans at the country's busiest airport, US-based financial services firm Moody’s Investors Service said in a report on Thursday.

Passenger traffic at Delhi's Indira Gandhi International Airport (IGIA) declined 12.7% during May 2019, compared with the same period in the previous year, according to the latest data from the Airports Authority of India (AAI).

"The decline in traffic is credit negative for DIAL (Delhi International Airport Limited) because most of its revenue – outside of income from land monetization and rental – is linked to passenger and aircraft movements at the airport," Moody’s Investors Service said in its report on DIAL.

Although financial projections had factored in a slowdown in traffic growth in fiscal 2020, a more severe than expected downturn will put further pressure on the airport's revenue, the report said adding, "Our base case scenario assumes that the downward pressure on DIAL's passenger traffic will gradually dissipate in the remaining months of fiscal 2020 and for passenger traffic to grow at a high-single digit percentage annually over the next 2-3 years."

Delhi International Airport Limited (DIAL) is a joint venture between GMR Group (54%), Airports Authority of India (26%), and Fraport AG (10%) and Eraman Malaysia (10%).

The report from Moody’s Investors Service said the decline in passenger traffic at the Delhi airport was primarily driven by the suspension of Jet Airway's operations on 17 April, which reduced the available seat capacity in the market and drove fare prices higher.

"In the fiscal year ended in March 2017, Jet Airways served 18% of the domestic passengers in India and 14% of the international market," the report said adding that a slowdown in global GDP (Gross Domestic Product) growth and the grounding of Boeing 737-Max 8 aircraft globally since March 2019 may have also contributed to weakening passenger numbers.

"Our base case scenario assumes that the downward pressure on DIAL's passenger traffic will gradually dissipate in the remaining months of fiscal 2020 and for passenger traffic to grow at a high-single digit percentage annually over the next 2-3 years," the report added.

Stating that DIAL's credit metrics are already expected to be at the lower end of the range, considered appropriate for its rating, because of additional debt incurred to fund its major expansion programme, Moody’s Investors Service said that its base case assumption states that tariffs will remain at around the current low level.

"As such, any further weakening will lessen the airport's capacity to preserve its credit profile while undertaking a debt-funded 98 billion expansion to IGIA (Indira Gandhi International Airport) in the next three years," the report said.

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