Major Indian commercial airlines are facing the brunt of supply chain issues as shortage of parts, engines and planes lead to lower capacity deployment. The hardships befall the airlines just at winter schedule kicked in for Indian airlines, starting 30th October.
“For any industry, capacity deployment is a key parameter for its fixed cost absorption. Supply chain issues for aircraft, leading to their non-availability for flying, will lead to under absorption of capacity, impacting the earnings, given we are in the midst of the winter/festive travel season.”Suprio Banerjee, Vice President and Sector Head, ICRA
Supply chain disruptions have impacted not only smaller operators but also the bigger ones alike. For instance, IndiGo – India’s largest airline with 58% market share – has been compelled to ground over 35 aircrafts i.e. more than 12% of its fleet for at least seven days. On the other hand, GoFirst – a smaller player with around 8% market share – had to ground nearly half its fleet (25 aircrafts) for the same period of time.
The major reason for grounding flights has been the skewed availability of spare parts and engines, which is a result of supply chain disruptions caused by the pandemic first and then the Russia-Ukraine situation. Both are major events that adversely impacted manufacturing lines globally.
“In India, especially for the second half of FY23, there will be an impact due to supply chain issues as aircraft are grounded due to lack of engines and a significant slowdown in new deliveries, which is impacting all airlines. But, the impact of delay in supply of new deliveries can bring some demand and supply stability, which in the current adverse cost environment, may be positive in the short term, especially over the next 6-9 months.”Kapil Kaul, CEO and Director, CAPA India
According to Kaul, airline operators around the world are facing both supply chain and non-supply chain issues. Shortage of labor has been deemed as the most prominent non-supply chain issues, especially in Europe and North America. Indian operators Air India, Vistara, IndiGo, and SpiceJet have opted to lease aircraft to meet short to medium-term capacity needs. While IndiGo is adding three B777 wide-body aircraft on wet lease, Air India has chalked out a 15-month plan where it will receive 30 aircraft on lease.
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According to IndiGo, they are working with their OEM partners to get possible solutions to the disruptions, in order to ensure that business is not impacted. said the aviation industry continues to face significant supply chain disruptions. “The endeavour is to minimise the adverse economic impact resulting from this global disruption,” an IndiGo spokesperson said. IndiGo has resorted to lease extensions for slowing down redeliveries, exploring wet lease options and exploring reinduction of aircraft into the fleet.
Vistara recently opted for a wide-body B787 on lease to address international capacity needs due to a delay in new B787 delivery. However, it cancelled planned Frankfurt flights as the leased aircraft is yet to be delivered. SpiceJet has also received regulatory approval for wet leasing five Boeing 737 Max planes for up to six months.
It should be noted that while leasing an aircraft is a short-term solution for these airline operators, it comes with its own challenges. Not only is the interior configuration very different from what an airline already operates, but more importantly, leasing requires commercial negotiations and technical inspections.
“There are also challenges during aircraft rotation, as one day you may get 288 seats and 305 seats on another, and engine support also needs to be considered.”Campbell Wilson, CEO, Air India
According to experts, this winter is going to be harsh for airlines as supply chain issues will continue to damage operations, and eventually revenues, considering the fall of the rupee and inflated jet fuel prices. However, with no other options in sight, operators are looking at bandaging their wounds with a mix of leasing and better coordination with OEMs, in order to minimise grounding of aircrafts.