IndiGo is expected to launch an order for 200-250 new A320


IndiGo is expected to launch an order for 200-250 new aircraft at the Farnborough Air Show in July and possibly conduct an IPO later in the year, says aviation consultancy CAPA. There was no confirmation from IndiGo on either a new order or going public though many media reports have earlier speculated on the airline wanting to raise money by offering shares to the public next year. IndiGo is the only profitable airline in India but CAPA notes that its profitability is dwindling in the face of increasing competition.

Sources tell us IndiGo currently has 78 aircraft and expects to complete delivery of 100 aircraft, part of its first Airbus order, before March 2015. It will then begin taking deliveries of the second aircraft order which is for 180 aircraft and expects to complete this in the next 5-7 years. So will it really need to place another large order next month, specially since the domestic aviation market has not exactly been on fire recently.

CAPA said in a report this evening that IndiGo is expected to continue to outperform the market "although very intense competition has significantly reduced its profitability and termed its result in FY14 as "below earlier expectations. The timing is approaching to leverage this achievement and an IPO is likely in FY15, possibly in the third quarter. If it proceeds it is expected to be the largest ever aviation IPO in India. CAPA estimates that IndiGo could raise $350‐400 million from the flotation."

The IPO may be preceded by the large aircraft order, which will make a strong statement about its future growth.

In the 12 months ended 31‐Mar‐2014 domestic traffic in India increased by 5.2%. CAPA has estimated only marginally higher growth in FY15 at 6‐8%. There may be a further downward impact on this projection should there be a sharp increase in oil prices due to the increase in conflict in Iraq.

International traffic growth, which increased 8.3% last year, is expected to strengthen to around 10% in FY15.

Here are the other predictions/estimates by CAPA:

1) Airlines' viability will continue to face pressures as costs are expected to increase while yields are likely to remain soft with new entrants coming into the market. Combined airline losses are expected to reach $1.3‐1.4 billion in FY15. In the last seven years accumulated losses have reached $10.6 billion.

2) Several incumbent carriers are in a precarious financial position with average cash balances equivalent to less than three weeks revenue. Airlines, other than IndiGo, will require $1.6 billion of funding this year just to sustain their business models. The prospects for further direct investment in airlines remains very uncertain in the current climate;

3) A combination of mounting loans and relatively high local interest rates has drawn full service carriers into a debt trap. In FY14 their interest expenses were equivalent to 13.2% of their top‐line revenue;

In such a depressing market, IndiGo seems to be the only bright spot.

- FirstBiz

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