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Delay in Neo delivery hurts IndiGo

IndiGo ordered for Neo aircrafts from Airbus in August 2015. The deal is estimated to be worth Rs 165,000 crore. The Neo aircrafts are expected to cut down costs and thereby making IndiGo, the most economical passenger carrier in India. But due to the delay in delivery, after an over-subscribed IPO IndiGo stock is in the red.

Delay in Neo delivery hurts IndiGo

Currently IndiGo has 94 neo aircrafts in its fleet. The same was expected to touch 111 in FY16. But with delay in delivery, revenue is expected to be impacted per aircraft and it also means higher costs to achieve similar growth rates. Even though FY16 impact is expected to be less, the same kind of trend continuing in the next financial year would hurt financials of FY17 and FY18.

When IndiGo ordered for around 250 Neo aircrafts from Airbus, the already economical airline carrier was expected to be even more economical compared to its competitors. This paved way for an over-subscribed IPO in November 2015 as well. But the delay in delivery has now pulled down IndiGo’s stock down to 5.56 per cent. From 18 December to 20 December, the stock lost around 9 per cent.

What makes Neo so special?

Designed by Airbus, Neo aircrafts are the most fuel efficient aircraft because it has similar sub-systems as A320s and currently forms a major part of IndiGo’s fleet. Lower fuel consumption means lower maintenance costs.

Currently IndiGo has 94 neo aircrafts in its fleet. The same was expected to touch 111 in FY16. But with delay in delivery, revenue is expected to be impacted per aircraft and it also means higher costs to achieve similar growth rates. Even though FY16 impact is expected to be less, the same kind of trend continuing in the next financial year would hurt financials of FY17 and FY18.

Already deliveries for Boeing and Airbus are full until 2020. Therefore, in order to reap the benefits of an over-subscribed IPO more, IndiGo should manage to get the deliveries of Neo aircrafts sooner in order to save itself from the sluggishness ahead.

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