Plane Engine recall means clipped wings

India‘s airlines are increasing capacity at their fastest rate as the aviation industry globally grapples with one of its biggest engine recalls. US aerospace manufacturer Pratt & Whitney may have to inspect over 1,000 of the geared turbofan engines that power Airbus A320neo for metal contamination. This will ground hundreds of Airbus aircraft at any given point over the next three years. As a result, airlines are scrambling to make up for idling capacity. Most of these options are more expensive, like taking used aircraft with older, less fuel-efficient engines on lease. Yet, demand for aviation after the pandemic is outstripping capacity addition across the industry, more so in growth markets like India, where airlines earlier this year placed orders for 1,000 aircraft with Boeing and Airbus.

Ambitious fleet acquisition plans by Air India and IndiGo in the world’s fastest-growing aviation market face shortages of pilots, airport infrastructure and aircraft. They also do not have adequate in-house aircraft repair and maintenance facilities, making them dependent on overworked third-party service providers. IndiGo has a third of its Airbus A320neo fleet grounded, and Go First has filed for bankruptcy protection citing halt in supply by Pratt & Whitney, a claim the engine manufacturer contests. A previous instance of safety audit after failures of these engines had choked up domestic airline capacity and caused a spike in airfares.

On its part, Airbus is sticking to its delivery schedule over the next couple of years, thereby soaking up supply of new engines. This adds pressure to the market for spares. Aircraft manufacturers are benefiting from demand in India where airlines have front-loaded orders at the beginning of an aviation upcycle. Indian airlines are now shopping for a broader spectrum of aircraft with more engine choices. This should limit the downside of product recalls. Further fleet diversification will accompany carriers increasing their international operations, which provides support to operating margins.