IndiGo Order Boosts Confidence in Indian Air Transport

Neelam Mathews
Aug 18 2015

                   IndiGo now operates close to 100 A320s. (Photo: Neelam Mathews)

Investor confidence in the troubled Indian air transport sector appears poised for a boost with budget airline IndiGo’s plans to raise $400 million in an initial public offering (IPO) following its order for 250 A320Neos. Delivery schedules call for those airplanes to arrive in India between 2018 and 2025.

In the past nine years since its launch, IndiGo has ordered 530 A320-family jets. It expects to become the second carrier to receive the A320Neo from a batch of 180 it ordered in 2011, after Qatar Airways takes its first in December this year.

“IndiGo’s IPO helps re-rate the sector and is a reflection of what can be achieved by budget GoAir and SpiceJet, and even Jet Airways,” Kapil Kaul, South Asia CEO of Sydney-based Center for Aviation told AIN. Kaul said he expects IndiGo’s fleet size to touch “225 to 250 aircraft by 2025.” IndiGo CEO Aditya Ghosh refused to commit to a figure, however. “It is difficult to answer how the market grows…If it moves at a faster pace, more airplanes will be required in ten years,” he said. “However, this creates stability and growth for the next decade in a highly volatile [environment].”

While ruling out an immediate plan for a long-haul service, Ghosh added that IndiGo will look at converting orders for some A320s to 230-seat A321neos for high-density routes.

While ‘C’ checks remain three years away for the Neos, Ghosh said the company’s maintenance planning has proved a key element in its success. The airline has already signed contracts directly with Pratt & Whitney for engines, Air France for components and with Honeywell for APUs.

Maintenance, repair and overhaul (MRO) contracts with SriLankan Airlines, which has performed ‘C’ checks for IndiGo for the past few years, get renewed based on the number of checks rather than on the calendar. “SriLankan realized first thing about the customer was that it was in the habit of growing fast,” quipped Ghosh.

“They [SriLankan] have been doing extremely well with us [and] we will continue to work with them for the moment. We are sure they will expand capability…[However], we hope India will have a facility that factors in cost levels,” he added. At present, high taxes in India make MRO services 35 percent more expensive than the cost of sending aircraft abroad for checks.

Confidence in the growth of the carrier seems apparent. “We don’t rule out IndiGo launching a long-haul subsidiary in the future,” said Kaul. “We also see an IndiGo brand across borders, whether it be a franchisee or a joint venture.”

India’s aviation saw a 21-percent growth rate in the first half of the year, when domestic airlines carried more than 45 million passengers, compared with 37.63 million during the same period the previous year, according to regulator Directorate General of Civil Aviation.