Tuesday, March 13, 2018

Why aviation regulator DGCA's diktat on A320neo jets will not impact IndiGo's near-term profitability

New Delhi: India’s aviation safety regulator, the Directorate General of Civil Aviation (DGCA), is often criticized for being tardy in decision making. However, in the case of the latest engine trouble with the Airbus A320neo aircraft, the regulator must be commended for taking swift decision to ground 14 jets belonging to two different airlines. Yes, this will lead to many flights either getting cancelled or clubbed, and cause significant inconvenience to passengers even as capacity expansion plans of IndiGo and GoAir are already impacted due to engine issues with this aircraft. Analysts at brokerage Edelweiss said in a note this morning that the grounding of 11 IndiGo aircraft by the DGCA will mean it cedes market share to rival SpiceJet as near term capacity addition plans will also suffer.

The trouble is with the Airbus A320neo aircraft fitted with a particular series of Pratt & Whitney (P&W) engines. Those with even one P&W engine featuring a seal, found to cause vibrations, are no longer allowed to fly. A Bloomberg report said ‘unilateral’ action by the DGCA in grounding the aircraft is at odds with the European Aviation Safety Agency (EASA), the primary regulator for Airbus planes, which repeated its guidance that the jets are safe if they have a single affected turbine. The Indian move comes after three in-service shutdowns of aircraft with one PW1100 engine featuring the seal, two of which occurred in the past week.

As a result of the aircraft on ground (AOG), IndiGo has cancelled 47 flights this morning from destinations such as Delhi, Mumbai, Chennai, Kolkata, Hyderabad, Bangalore, Patna, Srinagar, Bhubaneswar, Amritsar, Srinagar and Guwahati.

This is less than the number of flights initial estimates has suggested would be cancelled, at anywhere between 70-80 flights. But still, these cancellations will lead to some disruption for domestic air travelers, especially since the peak summer rush is just around the corner. At least four in 10 domestic flyers choose IndiGo so the disruption for this airline and its passengers will be more than for GoAir. Vistara, which also flies A320neos, has not been affected because its aircraft are not fitted with the affected P&W engines.

The DGCA has, in a statement, squarely blamed P&W for the groundings, saying “P&W in its latest communication has also not given any firm commitment as to when the issue on the engine post serial number 450 will be resolved and informed that all the affected engines will be replaced by early June 2018. There is no concrete proposal in place to address the issue.”  The regulator said three instances of in-flight shutdown of engines were seen recently: GoAir flight from Leh on 24 February, IndiGo flight from Mumbai on 5 March and then the IndiGo flight from Ahmedabad on 12 March. These prompted the DGCA to order the groundings.
But P&W said: “We are working closely with our customers to minimize disruption. The corrective action has been approved and we have already begun to deliver production engines with the upgraded configuration. We are working to mitigate the AOG situation by the end of the second quarter.”
13/03/18 Sindhu Bhattacharya/First Post