Indian aviation sector needs ₹22,500-crore equity infusion to stay afloat: ICRA

The aviation industry will need an equity infusion of approximately ₹22,500 crores over the next three years to stay afloat, according to the credit rating agency ICRA.

Excluding state-run Air India, the domestic aviation industry is expected to report a net loss of ₹1,500 crores, with a total debt of ₹7,000, for FY20. The two listed airlines, IndiGo and SpiceJet, together with lost ₹1.8 crores per day in the first half of the fiscal. However, this is lower than the ₹5.5-crore per-day reported in H1 FY19, said ICRA.

In 2019, the impact of the rupee decline, global economic slowdown, acute cash crunch, and taxes on jet fuel caused several Indian airlines, including full-service ones, to go belly up. Air India, which has a debt book of over ₹60,000 crores, is up for grabs. Furthermore, low-cost carriers IndiGo and GoAir were seen struggling with engine issues, and SpiceJet is waiting for clearance of the B737 Max aircraft.

According to the ICRA report, since many of the industry players have weak balance sheets, and with continued losses in the near term, the industry would need an equity infusion of over ₹22,500 crores over the next three years.

Quarterly performance
Kinjal Shah, Vice-President, and Co-Head, Corporate Sector Ratings, ICRA, said: “On the back of higher yields due to capacity constraints, the domestic airlines witnessed improved profitability during Q1 FY20. However, pressure on yields and increased maintenance costs and foreign exchange losses (including on financial leases) impacted the profitability of the industry during Q2 FY20.”

Furthermore, many domestic airlines are focussing on expanding on international routes. ICRA thus expects domestic passenger traffic growth in FY20 to be 4.5 percent lower, after five years of double-digit growth.

Improvements in core growth drivers like economic environment, tourism demand, and regulatory support are essential for improved passenger traffic growth, said ICRA. Though there have been steps towards improving airport infrastructure, the pace of implementation remains a key concern, it added.

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