Top Airbus A320neo buyer will add new jets to its fleet despite virus

IndiGo, India’s biggest airline, said it will keep adding new aircraft to its fleet even as it can’t give any firm guidance on future capacity growth because of the coronavirus pandemic, which destroyed demand for air travel in one of the world’s fastest-growing aviation markets.

The airline, the world’s biggest customer for Airbus SE’s best-selling A320neo jets, plans to return its entire fleet of 120 older, fuel-guzzling planes to lessors in the next two years, Chief Executive Officer Ronojoy Dutta said in a conference call with analysts and investors after the carrier reported fourth-quarter earnings Tuesday. “Almost all or close to all” of those aircraft will be replaced by new jets, Dutta said, without giving a time frame for that to happen.

“We are in active discussions with Airbus—we will take a large number,” Dutta, who runs the airline operated by InterGlobe Aviation Ltd., said on the call. “It will all depend on the revenue picture and the pricing we get and so forth, but we will take a large number.”

Shares of the company jumped as much as 8.7% Wednesday in Mumbai, their biggest intraday surge in almost two weeks. IndiGo was the best performer on the 28-member Bloomberg World Airlines Index, that tracks the biggest global carriers.

IndiGo joins a small number of low-cost airlines around the world that are keeping growth plans intact. Last week, Ryanair Holdings Plc. Chief Executive Officer Michael O’Leary said that the carrier was planning to rekindle growth by negotiating incentives with traffic-starved airports and betting on the return of Boeing Co.’s beleaguered 737 Max model, which was grounded worldwide following two deadly crashes. Last month, Wizz Air CEO Jozsef Varadi said the carrier plans to take delivery of the hundreds of jetliners it has on order from Airbus.

Others such as Emirates Airline, the world’s biggest long-haul carrier, and Qatar Airways Ltd. have said they will discuss deferring deliveries as it may be several years before demand reaches pre-pandemic levels.

No Guidance

While IndiGo’s pace of inducting new jets may not match the speed at which older planes are retired due to the uncertain demand environment, it is still better placed than peers to withstand the current crisis, analysts at Prabhudas Liladhar said in a research note. A strong balance sheet, industry-leading cost structure and a strong management team will help IndiGo emerge stronger, said the analysts, who maintained their “accumulate” rating on the stock.

IndiGo, which had earlier expected capacity to increase 20% in the year ending March 2021, refrained from giving any guidance as it declared quarterly financial results. It posted a loss of 8.7 billion rupees ($115 million) for the fourth quarter ended March 31, compared with a profit of 5.9 billion rupees in the same period a year earlier.

A nationwide lockdown for about two months “significantly impacted” the company’s profitability, and it has put on hold discretionary expenses and certain capital expenditures, the company said in a statement to stock exchanges.

The carrier will take delivery of 30 A320neos, Chief Operating Officer Wolfgang Prock-Schauer said without giving a schedule. IndiGo added 42 A320neo-family aircraft during the year ended March 31.

Like airlines around the globe, IndiGo saw demand plunge this year as countries imposed border restrictions, holiday makers canceled trips and companies cut back on non-essential business travel. India has allowed a limited number of domestic flights to resume after a two-month nationwide grounding, giving airlines like IndiGo and rival SpiceJet Ltd. a chance to earn some much-needed revenue.

Welcome News

IndiGo’s statement on plane inductions is welcome news for Airbus, the world’s largest commercial aircraft manufacturer, which has slashed its target for production by more than a third and warned of further reductions and job cuts. While a strong domestic market gives Indian carriers a cushion, international travel—a market where IndiGo planned to expand—isn’t showing much in the way of a revival.

The airline is also in talks with an engine manufacturer to settle a dispute, it said without identifying the supplier. IndiGo’s fleet of A320neo jets are powered by Pratt & Whitney, and the engines have suffered repeated glitches in the past few years.