Grounding 200 aircraft to have minimal impact on passenger traffic: Report

The likely grounding of 200 aircraft by March next year will have minimal impact on air passenger traffic, according to a report.

Air passenger traffic is expected to reach about 375 million passengers, 1.09 times of pre-pandemic levels, in the current fiscal, the report by credit ratings agency CareEdge said.

Research and advisory firm CAPA India had late last month said Indian airlines fleet continues to be severely constrained and close to 200 aircraft may go out of operations by the end of FY24 due to supply chain issues and maintenance purposes.

"Despite the projection of around 200 aircraft being grounded by March 2024, the impact on traffic is expected to be minimal, at 3-4 per cent," CareEdge Ratings Director Maulesh Desai said.

 

This is attributed to the extension of wet leases and an increase in passenger load, he said.

Noting that passenger traffic will reach new heights in the next fiscal, with a healthy Compounded Annual Growth Rate (CAGR) of 14 per cent from FY23 to FY25, the ratings agency said the forecast for the current fiscal is based on the robustness of domestic traffic and a complete recovery in international traffic.

Furthermore, leverage for Public Private Partnership (PPP) airports is projected to improve in FY24, supported by buoyancy in passenger volumes and the anticipated tariff hike for certain airports.

"We also expect a likely increase in non-aeronautical revenue per passenger by 1.4 times in FY24 compared to pre-Covid levels of FY19 for PPP airports, driven by an increase in transaction value per passenger," Desai added.

Over time, there has been a noteworthy decrease in the delay of tariff order issuances within existing PPP concessions, reflecting a favourable regulatory environment for the airport sector, the ratings agency said.

"CareEdge Ratings believe that establishing parity in tariff computation method for major and non-major airports is essential to reduce delays following the privatisation of non-major airports," CareEdge Ratings Associate Director Palak Vyas said.

The Airports Economic Regulatory Authority has approved a significant increase in the Regulatory Asset Base to support capacity expansion and efficiency enhancements, as per the ratings agency.

"This increase pertains to seven tariff orders issued to PPP airports in the last two years, which bodes well from a credit perspective," said Vyas.

However, AERA has "deferred" about 12 per cent of the approved aggregate revenue requirements to the subsequent control period in these orders. "This deferral may dilute the cash flow cushion in the initial years," he noted.