Airlines may face $50 billion worth financing challenges on fleet expansion; here’s why

By: | Published: August 6, 2018 12:32 PM

Even though demand is on an upward trend in the country’s aviation sector, operators face challenges when it comes at fleet expansion.

Positive market conditions have led Indian carriers to place bets on expansion on an unprecedented scale, with as many as 723 aircraft ordered since 2014 and more orders expected, CAPA report said. (Representational image)

Even though demand is on an upward trend in the country’s aviation sector, operators face challenges when it comes at fleet expansion. The airlines functioning in India require huge capital worth $50 billion to take the scheduled delivery of ordered planes over the coming nearly ten years, PTI reported citing a report by Sydney-based aviation think-tank Centre for Asia Pacific Aviation (CAPA).

“Positive market conditions have led Indian carriers to place bets on expansion on an unprecedented scale, with as many as 723 aircraft ordered since 2014 and more orders expected,” CAPA report said. Out of the order of 1,055 aircrafts, around 100 planes are to be delivered to the carriers every year for the coming 5 years, CAPA report said. It requires $50 billion of financing to support projected deliveries until 2027, report added.

Even though aviation sector has recovered marginally in the past, various challenges are still plaguing its health. “On the cost front, Indian carriers pay some of the highest fuel taxation in the world and also incur taxes on aircraft leases. While on the supply side, infrastructure and skills shortages (particularly commanders) are potential constraints on growth,” PTI reported citing CAPA report.

In the last three years, India’s domestic market has grown at around 20 percent.

Meanwhile, the demand for air travel continued to be higher in June as airlines reported over 18% jump in passenger traffic. According to the DGCA, domestic air passenger increased to 11.32 million, compared with 9.56 million in June 2017.

The top five carriers – IndiGo, Jet Airways, Air India, SpiceJet and Go Air – flew with passenger load factor (PLF) between 79.5% and 93.3% during June. Low-cost airline SpiceJet continued to remain in pole position among all key scheduled carriers on the PLF front at 93.3%. Mumbai-based Go Air recorded a load factor of 88.6%, followed by market leader IndiGo (88.3%), Air India (80.9%) and Jet Airways (79.5%). Tata Sons’ JVs Air Asia and Vistara recorded an occupancy of 89.6% and 86.4% respectively on their flights during the last month.

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