Airbus delay wipes US$1.2b off India's biggest airline

[NEW DELHI] InterGlobe Aviation Ltd shares fell by the most on record, shaving US$1.2 billion off the company's market value, after the operator of India's largest airline said it had to lease used planes while waiting for the new single-aisle model from Airbus Group SE.

The airline, IndiGo, is in discussions with Airbus and engine manufacturer Pratt & Whitney about the A320neo, President Aditya Ghosh told analysts in a conference call Thursday.

He said IndiGo is leasing as many as 22 used planes while the newer model is delayed.

Airbus delivered its first A320neo to Deutsche Lufthansa AG in a quiet ceremony earlier this week after an engine glitch had delayed handover of the fuel-efficient plane.

Airbus had planned to deliver its new single-aisle aircraft last month to Qatar Airways Ltd., which balked after issues were detected at the last minute in software used by the Pratt & Whitney engines.

IndiGo also was scheduled to take delivery of the A320neo last month, but said Airbus was unable to keep to the schedule for "industrial reasons."

"Delay in delivery of Airbus A320neo is going to impact the future growth of the airline," Mumbai-based B&K Securities said in a note.

"These short-term leased aircraft will impact the expense for the airline in the near term."

IndiGo shares fell 19.2 per cent to 968.30 rupees in Mumbai, the most on record since InterGlobe Aviation's initial public offering in November, compared to the 2 per cent rise in the benchmark Sensex Index.

Second biggest carrier Jet Airways India Ltd fell 6.3 per cent, while smaller rival SpiceJet Ltd. lost 5 per cent.

RECORD PROFIT

Sean Lee, an Airbus spokesman in Singapore, said the planemaker is in discussions with its early customers to finalise the delivery schedule for the A320neo. He didn't comment specifically on IndiGo.

"We have delivered our first A320neo to Lufthansa this week and are in discussions with our other early customers to finalise their delivery schedules," he said in the e-mail.

InterGlobe Aviation reported Thursday that profit rose 24 per cent in its fiscal third quarter as IndiGo benefited from lower fuel prices and higher traffic.

Net income for the quarter that ended in December rose to 6.57 billion rupees (S$138.7 million) from 5.32 billion rupees a year ago, the company said in a statement. It was the carrier's first quarterly earnings report since the November IPO.

IndiGo and other Asian airlines are reaping the rewards of the lowest oil prices in about a decade, which have helped them cut expenses and offer cheaper tickets. Rising incomes in the world's fastest-growing major economy are boosting passenger numbers for IndiGo, one of the largest customers for Airbus's single-aisle planes.

"Lower fuel prices enabled us to lower our fares to our customers, further stimulating market demand and increasing the propensity of people to travel," IndiGo President Aditya Ghosh said in Thursday's statement.

IndiGo's fuel costs for the quarter declined 20 per cent to 11.7 billion rupees, while the number of passengers jumped 28 per cent to 8.33 million. IndiGo had local market share of 36.7 per cent last year. InterGlobe Aviation's stock is still up 27 per cent since the company raised about 30 billion rupees in its public listing.

Fuel makes up about half of the total expense for Indian airlines. Limited hedging at local carriers means they're better-placed than their Asian peers to take advantage of a fall in oil prices. The retail price of jet kerosene in New Delhi fell to 39.9 rupees a liter on Jan 1 from 52.4 rupees a year ago, according to data from Indian Oil Corp.

In August, IndiGo firmed up an order to buy as many as 250 A320neos from Airbus. The purchase was Airbus's biggest order by number of planes and had a list value of US$26.6 billion. In January 2011, IndiGo agreed to take 180 Airbus planes valued at $15 billion, at the time the largest deal in commercial aviation history.

India was the world's fastest-growing aviation market last year, expanding more than 20 per cent, according to the International Air Transport Association. In comparison, passenger traffic in China grew at about 10 per cent and by less than 5 percent in the US, IATA said in a December presentation.

That growth has lured Singapore Airlines Ltd. and AirAsia Bhd. to start Indian units in recent years. Indian carriers will need 1,740 new planes valued at US$240 billion over the next 20 years, according to Boeing Co.

BLOOMBERG