India’s airline turbulence will be felt abroad

Jet Airways (India)

17/05/2023 04:51

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Shritama Bose
       MUMBAI, May 17 (Reuters Breakingviews) - Clouds are
gathering over the world’s third largest aviation market.
India’s Go First has gone into bankruptcy – the country’s second
airline to do so since 2019. Its subsequent public and messy
spat with engine suppliers and lessors will have ripple effects
across the industry and abroad.   
    A bonanza of cheap fuel between 2014 and 2018 helped Go, as
well as competitors like $11 billion InterGlobe Aviation’s
IndiGo  INGL.NS  and SpiceJet  SPJT.NS , to expand aggressively.
Daily passenger traffic is soaring but financial stress is
rising because of cutthroat competition, high taxes and airport
charges, and other issues. Rebounding crude prices is hurting
too. In 2019, one-time giant Jet Airways  JET.NS  shut up shop,
following a price war. Aircraft emblazoned with both defunct
companies’ logos are now grounded on Indian airstrips. 
    Go, the country’s third largest airline with a 7% market
share, blames Raytheon Technologies-backed  RTX.N  Pratt &
Whitney’s “faulty” engines. But the ultra-low cost carrier has
posted three consecutive years of heavy losses and delayed
listing plans. It owes some 65 billion rupees ($798 million) to
financial creditors including the Central Bank of India  CBI.NS 
and Deutsche Bank  DBKGn.DE , and more to vendors and lessors.
The sector’s debt including lease costs stood at $12 billion in
the year to March 2023 – at par with overall revenue, per
estimates by rating agency Icra.
    Unhappy lessors are fighting back. A New Delhi tribunal has
barred them from repossessing planes parked with Go, triggering
a legal battle between the carrier and companies including
Sumitomo-backed SMBC Aviation Capital. A global industry
association, Aviation Working Group, has put India on a
watchlist for violating global conventions on repossession of
airplanes. That might raise lease premiums for other airlines to
account for uncertainties around clawing back aircraft in the
country.
    All this threatens to pinch Prime Minister Narendra Modi’s
ambitions to turn India into a global aviation hub. His
administration is building 73 new airports and pushing homegrown
carriers to grab share from Singapore Airlines  SIAL.SI  and
Gulf rivals like Emirates and Qatar Airways on long-haul
flights. More Indians will choose flights over trains and buses:
official estimates expect traffic through the country’s six
largest airports to more than double in the next five years.
    Tata group-controlled Air India bought a record 470 new
aircraft in March and IndiGo, which boasts a 57% share of the
domestic market, is in talks for a 500-jet purchase. The trouble
at Go may not put them off but it promises some extra turbulence
ahead.

    Follow @ShritamaBose on Twitter

    CONTEXT NEWS
    India's Go Airlines, also known as Go First, said on May 15
it needed an emergency arbitration in its dispute with engine
maker Pratt & Whitney to be enforced in Delaware to prevent it
from going out of business, Reuters reported, citing court
filings. Go had first approached a district court in Delaware to
enforce an arbitration order made in Singapore in March, which
ordered Pratt to assist the airline and to supply spare engines.
    The carrier was granted bankruptcy protection on May 10 by a
tribunal in New Delhi, which imposed a moratorium on the
recovery of planes and other assets. The company blamed Pratt
for its financial woes, arguing the U.S. firm supplied “faulty”
engines and failed to replace them on time.
    An Indian bankruptcy tribunal has reserved its judgment on a
plea by aircraft lessors including Sumitomo-backed SMBC Aviation
Capital to withdraw the moratorium granted to Go Airlines, local
news channel CNBC-TV18 reported on May 15. It is likely to
deliver its verdict on May 22, the report added.
    Global aircraft leasing watchdog Aviation Working Group has
put India on a watchlist with a negative outlook, saying it
failed to comply with international aircraft repossession norms
after Go First was granted bankruptcy protection, Reuters
reported on May 12.

 (Editing by Robyn Mak and Thomas Shum)
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