Jefferies assigns an ‘underperform’ rating to IndiGo; projects a 13% stock decline

Radhika Bansal

17 Mar 2023

According to brokerage firm Jefferies, IndiGo, which currently enjoys a dominating position in the fast-expanding aviation market, is likely to experience difficulties in the medium term as new and established operators add capacity in the LCC (low-cost carrier) segment.

Even though decreased fuel prices might offer some short-term comfort, Jefferies predicts that this would certainly lead to earnings challenges. The firm has downgraded the stock to a "underperform" rating and lowered its target price to INR 1,615, which is a 13% decrease from the stock's current market value.

There is no chance of missing out on traffic growth because of the huge aircraft orders currently being placed in the sector. The overhang of a stake sale by a co-promoter is also a worry, according to Jefferies.

Jefferies assigns an ‘underperform’ rating to IndiGo; projects a 13% stock decline

ALSO READ - Rakesh Gangwal & family divested a 2.74% stake in IndiGo for INR 2,004.77 crore

IndiGo co-promoter Rakesh Gangwal, who holds a 37% stake in the company, including affiliates, had announced his intention to leave the board and gradually divest his holdings over five years starting in 2022. He has already sold around 7% of his holdings in the past six months, and the ongoing periodic sales are expected to weigh on the stock, analysts say.

IndiGo's current market share is around 56%, with the company consistently trying to increase its domestic market share by focusing on on-time performance, competitive pricing, and cost-cutting strategies. Over the past decade, the competitive landscape has also worked in its favour, with full-service airlines pursuing strategies that were not in line with the expectations of price-sensitive customers.

In the past, airlines in India have focused on lower pricing to increase demand and gain market share. However, full-service airlines, such as Jet Airways and Kingfisher Airlines, lost market share and eventually failed. Meanwhile, no-frills airlines, such as Air Deccan, SpiceJet, and IndiGo, emerged as early players in the market.

Recently, after being taken over by the Tatas, Air India has announced plans for separate brands for no-frills and full-service operations. New entrant Akasa also follows a low-price strategy, while SpiceJet is eyeing a revamp, following targeted fundraising.

ALSO READ - From A350s to B777Xs, Air India finalizes the Historic 470 Aircraft deal with Airbus & Boeing

Despite the seemingly large combined market share of IndiGo and Air India, increasing competition is imminent as most players, new and old, adopt similar low-price strategies to capture market share.

ALSO READ - IndiGo reportedly in talks with both Boeing & Airbus for around 500 aircraft

Following Air India's recent large aircraft order, the industry's total order book has expanded to 1,250-1,300 planes, almost double the current fleet of approximately 700 planes.

ALSO READ - Indian carrier expected to order over 1,100 planes

This suggests that the industry may witness low to mid-teen capacity addition over the next decade, although near-term supply-chain challenges may provide some protection, the Jefferies report added.

In an extreme downside scenario, Jefferies expects the IndiGo stock to fall 35% amidst a higher-than-expected increase in competition, which is likely to result in a sharp decline in yields. Passenger volume growth is also likely to be under threat due to an urban slowdown.

"Resultant operating EBITDAR should see an EBITDAR CAGR at 41% over FY23 to FY25. We value IndiGo at 6x Mar-25E EBITDA to arrive at a profit target of INR 1,200,” it said.

ALSO READ - IndiGo is “back with a bang” with several incoming international flights

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GMR Group in talks with lenders to refinance debt for Goa & Hyderabad airports for USD 4 billion

Radhika Bansal

17 Mar 2023

According to those with knowledge of the situation, the GMR Group has started negotiations with lenders to refinance the about INR 4,000 crore in debt that the two operating subsidiaries that manage the airports in Hyderabad and Goa owe.

A portion of the debt raised for the expansion of the Rajiv Gandhi International Airport in Hyderabad would be refinanced with the help of INR 2,500 crore, which will go to GMR Hyderabad International Airport Limited (GHIAL). The remaining INR 1,500 crore would be used to refinance the debt of GMR Goa International Airport Ltd (GGIAL), the company in charge of running the recently opened Manohar International Airport in Mopa, north Goa. According to the aforementioned sources, it is unclear if the borrowing will take the form of bonds or bank loans.

GMR Group in talks with lenders to refinance debt for Goa & Hyderabad airports for USD 4 billion

Flights started at Mopa airport in January. Phased operations have begun at a new Hyderabad airport terminal. That prompted rating agencies to issue a favourable outlook for both units in recent weeks with project execution risk declining. Crisil upgraded the credit rating of GGIAL earlier this month to BBB+ from BBB- with a stable outlook.

"Rating action is on account of the commencement of airport operations and traction of traffic operations, leading to reduction of implementation and offtake risk," a Crisil note said. Similarly, ICRA reaffirmed the credit rating of GHIAL at AA with a positive outlook earlier this month. "GHIAL has started opening the new terminal in a phase-wise manner from Q2 FY2023, thereby reducing the project execution risk substantially," it noted.

Rating agencies have also taken a favourable view of the companies in light of the GMR Group's track record in operating airports such as the country's busiest one in New Delhi. In the case of Mopa airport, Crisil highlighted demand risk due to this being the coastal state's second one. The Dabolim facility, 60 km away, continues to operate.

"This exposes GMR Goa to competition risk for passenger volumes and hence can impact demand and pricing for non-aero and commercial property revenue streams," the rating agency noted. In the case of Hyderabad airport, there is continued project offtake risk as it's in the middle of a massive expansion to increase capacity from 12 million to 34 million passengers a year, ICRA noted.

The company has USD 300 million of bond repayments due in April 2024 and another debt maturing in February 2026. In December, GHIAL had partially refinanced its USD 300 million, 5.375% notes with domestic non-convertible debentures of INR 1,150 crore at a lower rate of interest with a tenor of 10 years, as per the March 1 ICRA noted.

A subsidiary of GMR Airports Limited and a step-down subsidiary of GMR Airports Infrastructure Limited, formerly known as GMR Infrastructure Limited (GIL), GMR Hyderabad International Airport Limited (GHIAL) announced that it had effectively raised funds on March 13, 2023, through the issuance of 10 years Listed, Rated, Redeemable, Secured Non-Convertible Debentures (NCDs) for INR 8.40 billion through a private placement. On BSE Limited, the NCDs will be listed.

(With Inputs from The Economic Times)

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Boeing & Airbus increasingly looking to India for highly-skilled, low-cost engineers

Radhika Bansal

17 Mar 2023

Boeing Co. and Airbus SE are increasingly looking to India for highly-skilled, low-cost engineers to meet a boom in demand for aircraft and expand their manufacturing presence in the world’s fifth-largest economy.

Airbus plans to hire 1,000 people in India this year out of 13,000 globally. Boeing and its suppliers, which already employ about 18,000 workers in the nation, have been growing by some 1,500 staff every year, the US jet manufacturer’s India head Salil Gupte said in an interview.

With about 1.5 million engineering students graduating annually, India is a rich source of talent for plane makers facing record orders from airlines as travel surges again after the Covid pandemic. Boeing can hire an engineer in Bengaluru, India’s southern tech hub, for 7% of the cost of a similar role in Seattle, according to salary data compiler Glassdoor.

The country has Boeing’s second-biggest workforce worldwide, Gupte said. “Companies come to India for the incredible talent in innovation, not just in technology and software, but also in hard engineering and increasingly in manufacturing,” he said at the Aero India show in Bengaluru last month.

Boeing and Airbus increasingly looking to India for highly-skilled, low-cost engineers

Alongside the hiring push, Boeing and Airbus are also establishing some production in India, which is pitching itself as a less politically fraught alternative to China.

ALSO READ - Boeing & GMR collaborate to build freighter aircraft conversion line in Hyderabad

Boeing signed a partnership with GMR Aero Technic Ltd. on March 10 to convert passenger jets to freighters in the southern Indian city of Hyderabad, where it already has a facility making vertical fins, which stabilize planes. The plant, employing over 900 engineers and technicians, also produces Boeing AH-64 Apache helicopter structures, including fuselages for customers worldwide.

Airbus has also been touting India’s manufacturing prospects as it hires in the country. In October, Prime Minister Narendra Modi attended a ceremony in his home state of Gujarat to mark the start of construction of a facility where Airbus Defence & Space SA and a unit of local conglomerate Tata Group will make C-295 transport aircraft for the Indian military.

ALSO READ - From A350s to B777Xs, Air India finalizes the Historic 470 Aircraft deal with Airbus & Boeing

The nation is an emerging market for sales, with the revitalized Air India making a blockbuster order for 470 aircraft last month, split between the planemakers.

“The time is right for India to turn into an international hub,” Airbus Chief Executive Officer Guillaume Faury said at the time of the aircraft order. “India is well on its way.” A vast pool of educated, English-speaking talent adds to India’s appeal as a hiring ground.

ALSO READ - Airbus CEO meets PM Modi; plans to deepen industrial presence in India

Airbus employs more than 700 people at an engineering center in Bengaluru, and over 150 others in customer services there as well as in the capital New Delhi. India has a “unique ability” to support the company with its skilled manpower, an Airbus representative told Bloomberg, adding that hiring in the country was “not really” coming at the cost of jobs in other locations.

ALSO READ - Boeing India to open its second-largest Engineering & Technology campus near Bangalore Airport

A Boeing representative said the planemaker leverages India’s talent for engineering, technology and research and development. The company has said it plans to hire 10,000 people globally this year after adding nearly 15,000 in 2022, with a focus on engineering and manufacturing.

Still, the Seattle Times reported last month that Boeing will cut about 2,000 jobs, mainly in finance and human resources, but without specifying where. Some of those jobs are being outsourced to Tata’s consulting arm in India.

Gupte defended Boeing’s focus on India hiring, saying a bigger workforce there will help increase jobs in the US. Expanding manufacturing and innovation capabilities in the country will attract more customers and drive up demand for Boeing’s products, spurring employment, he said.

ALSO READ - India becomes Boeing’s largest site outside the US in manufacturing and labour

Boeing tests some of its latest manufacturing technologies in India before rolling them out in US factories, which helps improve production efficiency, according to Gupte, who is based in Delhi. Boeing said in February it is investing INR 2 billion (USD 24 million) in a logistics park in India that will initially cater to local airlines and then a larger network of customers in the region. The planemaker will also set up a support center with dozens of employees for airlines near Delhi.

ALSO READ - Boeing launches Global Support Centre and new Logistics Centre in India

Companies have for decades looked to India to outsource jobs, from trade settlements to travel bookings. The country is home to about 40% of so-called global capability centers that provide tech, engineering and IT support, according to HSBC Holdings Plc.

More recently, there’s been a shift to higher-skilled work for multinationals, including research and business development. The availability of workers in India at “competitive global costs makes offshoring of certain production processes a very real possibility,” said Ravi Srivastava, director of the Center For Employment Studies at the Institute of Human Development in Delhi.

Israel Aerospace Industries, which has worked with partners in India for three decades on air and missile defence systems, drones, satellites and other equipment, is among companies in the sector joining the hiring spree. “I’m amazed by the talent you find here in India. We are hiring new talent all the time,” Danny Lauber, chief executive officer of Israel Aerospace’s India unit, said in an interview. “I have worked in many places around the world, but I haven’t seen such a strong universe of resources.”

ALSO READ - Government encourages Airbus and Boeing to set up final assembly lines in India

(With Inputs from Bloomberg)

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Shirdi Airport to get a new terminal building, apron for INR 527 crore

Radhika Bansal

16 Mar 2023

The Maharashtra Airport Development Company Ltd (MADC), which operates Shirdi airport, has started building a new apron at the airfield due to the huge surge in passenger traffic. To update the current facilities, land marking and testing are now being done.

If finished, the new apron area at Shirdi airport should be bigger and able to hold more aircraft. Three ATR72 and one A320 can fit in the current infrastructure, which measures 225 M x 105 M.

The number of planes that will be parked has not been disclosed by the MADC, which oversees Shirdi airport.

The managing director of MADC and vice-chairman Deepak Kapoor tweeted, "New Apron marking and testing work in ongoing at Shirdi Airport."

An anonymous MADC official added, "After the apron area is entirely finished, we will have an indication of how many aircraft will be occupied.

Aircraft are parked, loaded or unloaded, refuelled, boarded, or maintained in the airport apron area. The apron is not typically accessible to the general public, and a permit can be needed.

Apron areas designed for parking aeroplanes are referred to as aircraft stands.

The MADC has published a tender for the construction of a new integrated passenger terminal facility at Shirdi in addition to the apron. The company that purchases the rights will have two years to build the terminal, which is anticipated to cost 527 crores.

Only 300 passengers can be accommodated at once in the terminal as it is. After Mumbai, Pune, and Nagpur, the airport, which opened in October 2017, is the fourth-busiest facility in the state.

Nowadays, Tirupati, Hyderabad, Bangalore, Chennai, and Delhi are all accessible from Shirdi Airport. The airport handles 64,000 travellers each month.

The usage of the apron may be managed by an apron management service (apron control or apron advisory) to ensure user coordination when the aerodrome control tower does not have control over it.

The tower or ground control, as well as airline handling agents, receive this information from apron control, which assigns aircraft parking stands (gates). Also, it authorises vehicle movement outside of painted road markings, if such movement would obstruct an aeroplane in taxi.

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IAF earmarks 39 military airfields & 9 ALGs for civil aircraft

Radhika Bansal

16 Mar 2023

The Indian Air Force earmarked 39 military airfields and nine Advance Landing Grounds for use by civil aircraft said IAF on Tuesday.

"IAF has earmarked 39 military airfields and 9 Advance Landing Grounds for use by civil aircraft. This Joint User Airfield scheme now gives access to areas that were earlier considered remote," said Indian Air Force.

The 39 airfields from where civilian flights now operate include Agra, Adampur, Allahabad, Awantipur, Bareilly, Bagdogra, Bhuj, Bidar, Car Nicobar, Chandigarh, Gorakhpur, Gwalior, Jammu, Jaisalmer, Jodhpur, Jorhat, Kargil, Leh, Pune, Silchar, Srinagar, Tezpur and Thanjavur. The nine ALGs, in turn, include Along, Walong, Tawang, Ziro and Mechuka in Arunachal Pradesh.

https://twitter.com/IAF_MCC/status/1635486555354861570

In June last year, IAF announced the handing over of around 40 acres of defence land to the Airports Authority of India to develop civil terminals and necessary infrastructure at seven locations to facilitate the Regional Connectivity Scheme (RCS) in tune with the UDAN (ude desh ka aam nagarik) policy. These airfields are Bagdogra, Darbhanga, Adampur, Utarlai, Sarsawa, Kanpur and Gorakhpur.

The IAF has been providing MoCA with an airport apron wherever it is not available, as well as its own areas for parking and other facilities. Moreover, wherever MoCA does not have dedicated civil terminals, IAF, in coordination with the Airport Authority of India, facilitates access of passengers to the air force station from where they subsequently board flights.

Defence Ministry signed a contract for the procurement of six Dornier-228 aircraft for the Indian Air Force (IAF) from Hindustan Aeronautics Limited (HAL) at the cost of INR 667 crore.

ALSO READ - Indian Air Force procures 6 HAL Dornier aircraft for INR 667 crore

Meanwhile, the Defence Ministry signed a contract for the procurement of six Dornier-228 aircraft for the Indian Air Force (IAF) from Hindustan Aeronautics Limited (HAL) at the cost of INR 667 crore.

The aircraft was used by IAF for Route Transport Role and communication duties. Subsequently, it has also been used for training transport pilots of the IAF.

The present lot of six aircraft will be procured with an upgraded fuel-efficient engine coupled with a five-bladed composite propeller. The aircraft is ideally suited for short-haul operations from semi-prepared/short runways of the North East and island chains of India. The addition of the six aircraft will further bolster the operational capability of the IAF in remote areas.

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Fuel tank problem could delay B767 freighter deliveries

Jinen Gada

16 Mar 2023

A quality issue with the coating on fuel tanks appears to be delaying new deliveries of B767 - 300Fs, including 58 767-based KC-46 air-to-air refuelling tanker aircraft.

The coating of the centre-wing tank structure, if poorly applied, can flake off and block fuel filters, preventing fuel from reaching the engines, according to a report.

The report notes that the supplier for the 767-300F’s centre wing tanks had switched from Pennsylvania’s Triumph Group to French company Daher last year and had not performed relevant tests on the coating. More than 12 aircraft in Boeing’s inventory could be affected, impacting aircraft deliveries, says the report.

So far this, Boeing has yet to deliver a 767, with some 100 on order. These include 27 for FedEx and another 27 for UPS, as well as 58 refuelling tanker aircraft for the US Air Force.

In July, September and November last year, Maersk Air Cargo took delivery of three 767-300Fs.

Boeing support and services senior brand manager Jim Proulx told the long waiting list for Boeing 767 variant aircraft “should not be understood as a list of delayed deliveries”, and that Boeing would simply deliver the planes “when we get around to it”.

He added: “Through Boeing’s standard process, a quality issue was identified on some 767/KC-46 tanker components. We are continuing to work through our process with our supplier, regulator and customers to resolve the issue.

“We will deliver airplanes as we complete rework and we are not changing our overall delivery plans for the year. Our engineering analysis to date is that the issue is not an immediate safety or flight concern.”

Fuel starvation, as it is known, has been attributed as the cause of many aviation accidents, including British Airways flight 38, which fell short of a runway at Heathrow after ice crystals blocked fuel lines on a B777. Fortunately, all 152 passengers and crew survived, though the plane was written-off.

With inputs from theloadstar.

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