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Investors, including scheduled banks, are winging their way to the aviation sector in a show of confidence in its growth prospects.
According to the Reserve Bank of India, 40 scheduled banks have cumulatively doubled their lending to the aviation sector in January at ₹45,076 crore, as against ₹23,407 crore three years ago.
Investments from other sources stood at ₹27,824 crore in January 2023, up 62 per cent year-on-year, and continued to rise gradually during FY24. Industry analysts attribute this surge in investments to the following factors, among others.
Focus on MRO
A key area of investment is in maintenance, repair, and overhaul (MRO) facilities.
Air India, for instance, is establishing a joint venture MRO facility in Bengaluru with Tata Advanced Systems. The ₹1,300-crore investment signals a shift towards in-house maintenance capabilities, rather than external service providers, for improved efficiency.
Ameya Joshi, founder of the aviation blog ‘Network Thoughts’, views this as a welcome change. “The spurt in investments for MRO facilities is positive, especially considering similar initiatives by IndiGo,” he says.
“This, along with record aircraft orders and airport expansions, demonstrates a holistic approach to growth, going beyond just acquiring new planes and increasing passengers,” he adds.
Aircraft buys
A significant chunk of credit deployment by Indian carriers is towards new aircraft acquisitions. In fact, the order book for nearly 1,700 new aircraft is more than double the current fleet size of Indian carriers.
Jagannarayan Padmanabhan, Senior Director at CRISIL, says, “The [credit] offtake is primarily to finance new aircraft acquisitions, underlining the growth prospects of the sector and the comfort level of the banks lending to it.”
Passenger traffic
The positive investment climate coincides with a surge in passenger traffic. Domestic air travel is estimated to grow by 8-13 per cent in FY2024, surpassing the pre-pandemic count of 141.2 million passengers in FY2020. International traffic has also exceeded pre-pandemic levels in FY2023, and is expected to peak soon.
Highlighting the improved financial health of the aviation industry, Subrato Banerjee, Vice President and Sector Head at rating agency ICRA Ltd, says, “The industry has witnessed improved pricing power, as reflected in an increase in yields, and thus the spread between revenue per available seat kilometre (RASK) and cost per available seat kilometre (CASK) for the airlines. This is expected to remain favourable, aided by a decline in aviation turbine fuel (ATF) prices and the relatively stable foreign exchange rates. The industry is thus estimated to report a significantly lower net loss of ₹3,000-4,000 crore in FY2024 and FY2025 compared to ₹17,000-17,500 crore in FY2023.”
Flight path ahead
While delivery timelines for new aircraft may be impacted by supply chain challenges, the overall outlook for the Indian aviation industry remains optimistic. This boom is expected to contribute significantly to the nation’s economic development and create new job opportunities in various spheres.
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