IndiGo Slumps Most in Two Months Over A320neo Jet Engines

  • Cooling issue with Pratt engine to hurt low-cost model: Ghosh
  • Short-term leasing of used jets to add to expenses: brokerage

InterGlobe Aviation Ltd., the operator of India’s biggest airline IndiGo, slid the most in two months after President Aditya Ghosh told analysts that a cooling issue faced by some engines powering the A320neo jets has the potential to hurt the carrier’s low-cost model.

Shares of the company fell 4.7 percent to 1,025.30 rupees in Mumbai, their biggest decline since March 9. The stock has dropped 17 percent this year compared with a 2.6 percent loss for the benchmark S&P BSE Sensex.

The budget airline, which has placed an order with Airbus Group SE for 430 of its fuel-efficient single-aisle A320neo jets, has faced delivery delays for the first batch of the aircraft as engine maker Pratt & Whitney grapples with a technical issue. IndiGo will consider switching to rival CFM International Inc.’s power plants for later orders, Ghosh told analysts on Friday. The carrier is set to take delivery of 24 jets with Pratt engines by March, 2017, he said.

The A320neo program has been disrupted because under certain conditions the Pratt & Whitney engine requires a delay to start up so the engines can reach the right operating temperature. IndiGo, which was supposed to receive the A320neo in December, added the first plane only in March and failed to meet its target of nine for the fiscal year that ended that month.

“This engine cool-down issue slows the engine start process and impacts our ability to turn the aircraft around quickly, which is an essential part of our low-cost business model,” Ghosh said in the call.

IndiGo chose Pratt for the first 150 of the aircraft it ordered from Airbus, Ghosh said on the call. The airline, which took delivery of its fourth A320neo on Friday, said it has seen fuel savings of 13 percent. Pratt has said it is introducing hardware and software fixes for the “teething issues.”

"We are honored to secure IndiGo’s order for 150 aircraft with geared turbofan engines," Sara Banda, a Pratt spokeswoman, said by e-mail on Friday. "We fully expect to compete for follow-on orders. When the time comes, we will compete aggressively to win that business."

IndiGo has also taken used jets from other airlines to compensate for the delay in taking A320neo aircraft, which will impact its expenses, Mumbai-based brokerage B&K Securities India Pvt. said in a research note dated April 29.

Citibank cut its target price on the stock by 100 rupees to 1,100 rupees, and said workers IndiGo hired ahead of the A320neos added to its expenses, outpacing capacity addition.

The carrier based in Gurgaon near New Delhi reported a net income of 5.79 billion rupees ($87.3 million) in the quarter through March, beating the 5.27 billion-rupee average of estimates compiled by Bloomberg.

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