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  • Writer's pictureBailey Miles

Indian Aviation Market Overview

Updated: Jul 7, 2023

AV Analysis Week 27


A regular update where our in house team of aviation experts and ISTAT certified appraisers use our data to analyse values, market movements and notable aviation news.


This week, our Senior Commercial Analyst, Bailey Miles analyses the Indian aviation market looking at airline developments, values, orders, and fleet overviews.


Introduction


This article aims to provide an in depth analysis of India's commercial aviation market, shedding light on the trajectory of Air India from its rise, fall and subsequent resurgence after being acquired by the Tata Group for USD 2.4 bn. Furthermore, it will emphasise the substantial market presence of IndiGo and its pivotal role in driving India's commercial growth. This article will also explore the various challenges confronted by Indian airlines in this dynamic industry.


Indian Aviation Industry Overview


The aviation industry in India, like its global counterparts, navigated a landscape filled with challenges and opportunities three years ago amidst the ongoing pandemic. The Covid-19 outbreak had a profound impact on the industry, resulting in a significant decrease in passenger traffic, revenue, and profitability. This decline could be attributed to widespread lockdowns, travel restrictions, and heightened health concerns. Despite these adversities, the industry displayed remarkable resilience and the ability to rebound as the situation gradually improved.


India is experiencing rapid growth and is emerging as one of the world's largest markets. As per the International Air Transport Association (IATA), by 2030, it is projected to surpass China and the US, becoming the largest market for air passengers. India is actively developing its aviation infrastructure and connectivity. The government has been diligently working towards increasing the number of airports in the country.


As part of their vision, the government aims to raise the number of operational airports to 220 by 2025. To further bolster regional connectivity and offer affordable air travel to the general public, the government has also introduced schemes like UDAN (Ude Desh ka Aam Nagrik) which aims to improve connectivity to remote and regional parts of the country while ensuring affordable air travel. As part of the scheme, almost half of the seats on UDAN flights are offered at subsidised prices, and the participating airlines receive financial support known as viability gap funding (VGF), which is shared between the central government and the relevant state governments. The scheme will run for an initial 10 years with the option to extend thereafter.


The transformation of the Indian fleet has witnessed substantial changes throughout the years, marked by a series of consolidations and bankruptcies that have greatly impacted the Indian aviation sector. However, it is evident that the resurgence of the emerging market is now well underway, as exemplified by the remarkable growth of airlines such as IndiGo and Air India. These carriers are experiencing exponential expansion, signifying a positive trajectory for the industry. On the other hand, India continues to grapple with financial uncertainties surrounding the stability of its aviation market, as well as uncertainties regarding the timing of its ratification of the Cape Town Convention, a key risk mitigant for global lessors and financiers. The country has witnessed several smaller airlines succumbing to pressure from both financial and Original Equipment Manufacturer (OEM) bottlenecks, and lessors have experienced significant difficulties gaining control of their aircraft and repatriating them out of India.


Figure 1: Cumulative Narrowbody and Widebody firmed orders by Indian airlines. The chart includes aircraft that have been delivered


Figure 1 provides a clear illustration of all Indian airlines' fleet regeneration programs, which gained momentum starting in 2014 with the procurement of new technology aircraft through bulk orders. However, it is noteworthy that substantial progress in this program was observed primarily in 2021 when both IndiGo and Air India began placing significant orders for aircraft. The combined backlog of Widebody and Narrowbody aircraft for Indian airlines has now reached an unprecedented 2,161, marking a remarkable milestone in their fleet development.


Indian Airline Market Overview


Go First


In recent times, GoAir, which holds the position as the fourth largest airline in India, encountered the unfortunate circumstance of entering administration. Presently known as Go First, the airline attributed the grounding of 49 of their A320neo aircraft to the engine manufacturer, Pratt & Whitney. This grounding was necessitated by the unavailability of essential parts, and engine functionality issues which rendered them unable to properly service the engines. As a result, the grounding had a substantial impact on their capacity to uphold flight schedules and created a severe bottleneck in their cash flow resulting in falling into administration on the 3rd of May 2023.


According to AviationValues fleet data, Go First initially operated 49 A320neo aircraft, all equipped with Pratt & Whitney PW1127G engines. However, as of the 3rd of May, when Go First ceased operations, they had a total of 28 aircraft either stored or parked. It is evident that Go First has encountered persistent issues with their A320neo fleet, as the number of stored aircraft began to rise significantly from April 2022.

Figure 2: Go First Storage rates of their A320neo P&W powered aircraft. A clear indication that the issues started as early as April 2022.


Go First has recently received a financial boost of USD 51.80 mil through the Indian Emergency Credit line to facilitate the resumption of its operations. However, the airline is still awaiting approval from the DGCA (Directorate General of Civil Aviation) to reactivate its aircraft. If the lending banks' board approves, we may witness Go First activating a few aircraft to commence operations prior to implementing their restart project. This project aims to gradually utilise approximately half of their fleet, incurring an estimated cost of USD 23.5 mil in the initial phase.


Readers familiar with the restructuring and eventual insolvency of Kingfisher Airlines some years ago will naturally see some parallels. Nevertheless, Go First’s owner remains optimistic that insolvency will not occur. If Go First can get their restart program approved, the structure and viability will depend on the trust of its financiers and lessors.


SpiceJet


Struggling SpiceJet, on the other hand, continues to face arbitration with many of its lessors and several other service providers due to delayed payments. Recently last month the UK courts ruled in favour of GASL Ireland Limited relating to a 2017 vintage 737-800 MSN 29670 over nonrental payments and failure to comply with return conditions. The court ordered SpiceJet to pay USD 8.60 mil (USD 4.30 mil per engine) after previously failing to pay the initial USD 5.34 mil back in Feb 2022, another blow for SpiceJet.


The current challenges have rendered SpiceJet in a precarious position. Nevertheless, the airline is resolute in its determination to avoid insolvency and is actively working towards resolving its financial obligations by seeking reconciliation with its providers. However, as depicted in Figure 2, several operating lease contracts for aircraft have been terminated, leading to a decline in SpiceJet's operating fleet since 2021. This development undoubtedly increases the pressure as cash flow dwindles while fines accumulate. The exact duration for which SpiceJet can sustain its operations remains uncertain, but the outlook appears unfavourable.

Figure 3: Stored, parked and active fleet statistics of SpiceJet. The airline has been storing the majority of its fleet from as early as 2019.


Air India


Air India holds the distinction of being India's most renowned and enduring airline, boasting a rich history that extends across a span of over nine decades. Its establishment dates back to 1932 when J.R.D. Tata, an enterprising industrialist, and aviator, founded the airline. At that time, the airline operated under the name Tata Airlines and swiftly grew its reach to encompass significant cities within India and neighbouring nations.


In 2017, the Indian government made the decision to privatise Air India, as a component of its disinvestment policy. Multiple endeavours were undertaken to sell the airline to prospective buyers, yet none of them achieved success due to several factors, including disputes regarding valuation, regulatory obstacles, and prevailing market conditions. Eventually, in 2021, the government declared that it had accepted a bid from Talace Private Limited, a subsidiary of Tata Sons, the original founder of Air India. This agreement represented a momentous milestone, as it signified the historic return of Air India to its origins after a span of 68 years.


According to AviationValues data, Air India presently operates a fleet of 124 aircraft with a Current Market Value of c. USD 3.5 bn. The airline has been actively implementing a fleet renewal program, retiring its older technology aircraft and introducing newer technology assets as part of its regeneration program.


Air India signed a firm order at the Paris Air Show for the 470 aircraft and 70 optional planes from Boeing, including 50 737 MAXs and 20 787 Dreamliners. The 470 firmed order includes 70 Widebody aircraft broken down into 34 A350-1000s and six A350-900s, 20 787 Dreamliners and 10 777Xs. It also includes 140 Airbus A320neo, 70 Airbus A321neo and 190 Boeing 737 MAX Narrowbody aircraft. The order is a great start to its fleet renewal and expansion program under its new owner Tata Sons.

Figure 4: Air India Live fleet numbers. The fleet includes all aircraft that are stored, parked and active.*


*In November 2022 Air India appointed Skytech-AIC to sell its 4 747-400s, these are not included in the fleet total above.


IndiGo Airlines


IndiGo, the largest passenger airline in India, is reported to have 273 live aircraft valued at USD 11.2 bn, according to fleet data from AviationValues. Additionally, they have placed orders for an additional 451 aircraft. Since 2017, the IndiGo fleet has nearly doubled in size, with an average of almost 4 deliveries per month since 2016. The majority of these deliveries consist of A320neo family aircraft. Notably, unlike the other three mentioned airlines, IndiGo experienced fleet growth during the Covid-19 pandemic, as depicted in Figure 3, while the others remained relatively consistent or showed a slight reduction.


IndiGo without a doubt positioned itself as a major player within the commercial aviation industry. Their parent company InterGlobe Aviation Ltd.’s stock hit a 52 week high of INR 2,634.25 on the BSE last week, with a market value of INR 1.01 trillion, which presents a healthy credit rating as many lessors and financiers remain extremely bullish on IndiGo. The new order for 500 large aircraft, signed in Paris at the Airshow this month, signifies IndiGo's pivotal role in propelling the Indian market to new heights.

Figure 5: Fleet growth year on year by 4 of India’s largest Airlines by operational aircraft

Transactions


IndiGo Airlines Sale and Leaseback (S/LB) Transactions


IndiGo play an important role in the S/LB market, they are consistently renowned for bolstering profits through a well oiled sale and lease back program, and with their extensive backlog of 1050 Wide and Narrowbodies. IndiGo will likely turn to the S/LB market for almost all their new deliveries in future. This presents additional opportunities for many of their lessors, but may also heighten the concentration risk of being overly exposed to one carrier, particularly given recent experience in the Indian market.


Based on the AviationValues transaction database, the S/LB trading prices for IndiGo's A321neo aircraft range from USD 57.50 mil to USD 63.00 mil. Lease rates for these aircraft vary from USD 330,000 to USD 450,000 per month. The lowest observed trading price for an IndiGo A321neo, according to AviationValues, occurred in September 2021 when Sky Leasing engaged in an S/LB transaction with IndiGo for MSN 10381, with a trading price of USD 57.50 mil with an initial 10 year lease term at USD 444,000 per month. At the time of sale, AviationValues estimated the Market Value to be USD 58.44 mil.


Get in touch if you want to uncover more of IndiGo’s sale and leaseback transactions using AviationValues Transaction Database.


Conclusion


In conclusion, this article has highlighted the paramount importance of IndiGo and Air India as market leaders in the Indian aviation industry. Both airlines have played pivotal roles in driving the country's commercial growth and have demonstrated their resilience in facing challenges.


IndiGo, with its substantial fleet size and consistent expansion, has positioned itself as India's largest passenger airline. Its firm order for 500 aircraft further solidifies its status as a world class airline and signifies its confidence in the future of the industry. The remarkable growth of IndiGo, particularly in the Narrowbody segment, has contributed significantly to the development of India's aviation market.


Similarly, Air India, after being acquired by the Tata Group, has embarked on a fleet renewal program and has actively worked towards improving its operations. With a fleet of 124 aircraft and ongoing efforts to introduce newer technology assets, Air India has regained momentum and is poised for a promising future.


These two market leaders exemplify the positive trajectory of India's aviation industry. They have not only navigated the challenges posed by the Covid-19 pandemic but have also demonstrated their commitment to enhancing connectivity and infrastructure within the country. The Indian government's initiatives, such as increasing the number of operational airports and implementing schemes like UDAN, further support the growth of the industry.


AviationValues, which offers daily updated values and metrics, provides an excellent tool for analysing the aviation industry. From real-time value fluctuations to comprehensive fleet analytics, we have all your needs covered. Contact us to discover more about the powerful tools available on the AviationValues platform.


Data as of July 2023


Disclaimer: The purpose of this blog is to provide general information and not to provide advice or guidance in relation to particular circumstances. Readers should not make decisions in reliance on any statement or opinion contained in this blog.


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