After 5 years, IndiGo’s bottom line flashes green for September quarter

InterGlobe Aviation, the parent company of IndiGo, on Friday reported a consolidated net profit of Rs 188.9 crore in the second quarter of 2023-24, on the back of steady demand and expansion of the flight network.

This is the first time in five years that the airline has posted a net profit for the second quarter, typically considered a lean period for domestic aviation companies due to decreased travel activity. In Q2FY18, the airline had reported a net profit of Rs 551.5 crore, whereas for Q2FY23, it incurred a loss of Rs 1,583 crore.

IndiGo carried 26.3 million passengers in the September quarter, observing 33.4 per cent year-on-year (Y-o-Y) growth. Its load factor also increased from 79.2 per cent a year ago to 83.3 per cent.

 During the investor call in the evening, Chief Financial Officer Gaurav Negi, however, informed that more IndiGo planes powered by Pratt and Whitney (PW) engines are expected to be grounded from January 2024 onwards due to the new “powder metal issue”.

In July, PW identified a rare powder metal defect, which required accelerated inspections of 200 engines by mid-September as it could cause component cracking. In September, PW expanded the estimate to include 600-700 engines on Airbus A320neo jets, necessitating lengthy quality inspections from 2023 to 2026.

Asked about how many IndiGo planes are expected to be grounded from Q4 onwards due to the powder metal issue, Negi replied: “It is very difficult to estimate right now as we await the service bulletin (from PW) that will give us a better picture. Once it comes, we will work out what the impact is, and then we will communicate.”

He further said the number of groundings due to an older issue is in the 40s, and the groundings due to the powder metal issue would be an “incremental number”.

IndiGo, which has around 160 PW-powered aircraft in its fleet, has been dealing with the issue of grounded planes for the past several years due to the “older issue” with PW’s geared turbofan engines. IndiGo’s total fleet size currently stands at 334 aircraft.

IndiGo’s Chief Executive Officer, Pieter Elbers, assured analysts during the call that the company would live up to its capacity guidance given earlier this year due to its “mitigation measures”. He said: “You may recall, at the beginning of this year, when the number of groundings was significantly less as compared to what we have today, we had given a capacity guidance in the north of the mid-teens. If you see, we are comfortably reaching those numbers today.”

Negi listed a number of “mitigation measures” that the company has taken to deliver its planned capacity growth and cater to the robust demand. These include retaining 14 A320ceos in the fleet, extending and re-inducting 36 aircraft, executing damp leases on two wide-bodies flying on the Istanbul route, and also executing damp leases on 11 additional aircraft that will start operating this month.

He further said: “Additionally, we are executing (leasing) 12 additional A320ceos from the secondary market with deliveries expected from January 2024 onwards. Apart from this, we will keep on exploring additional capacity from the secondary market. With these mitigation initiatives, we reiterate our financial year 2023-24 capacity growth guidance of north of mid-teens and we also remain confident of meeting our long-term capacity guidance.”

The CFO said IndiGo recently received communication from PW on the powder metal issue. “Globally, we understand, a large number of engines are being removed for shop visits between 2023 and 2026 and a majority of these incremental engine removals are planned in 2023 and early 2024… Current estimates indicate that these accelerated inspections and incremental shop visits will further adversely impact our operating fleet from Q4 onwards. This will lead to a higher number of groundings.”.

 He mentioned that PW estimates that the inspection of all the engines to be recalled will take 250-300 days.