New Delhi: As India's aviation regulator DGCA on Thursday allowed operations of Boeing 737 MAX planes, which were banned two years ago following two deadly crashes of this model, broking firm ICICI Securities in a report predicts that the resumption of MAX operations aircraft will increase the available cost-efficient supply for Indian skies.
Directorate General of Civil Aviation has allowed the operation of Boeing MAX aircraft to resume services in India upon satisfaction of applicable requirements for return to service. Among Indian airlines, SpiceJet, the sole operator of the aircraft in India, had taken 13 MAX deliveries before flying restrictions were laid on the aircraft.
"The expected reduction in aircraft count within the Indian system due to financial strain of weaker Indian airlines leading to payment failures have not happened materially barring some sporadic news of aircraft withdrawals by lessors. Hence, airlines have been able to get payment holidays, restructured lease tenures and lessors have not been able to put the traditional hell or high water' payment clause. Now, we believe that the resumption of MAX operations aircraft will increase the available cost-efficient supply of Indian skies," said brokerage firm ICICI Securities.
SpiceJet had on 26 August announced that it has entered into a settlement with Avolon, a major lessor of MAX aircraft, paving the way for the airline's 737 MAX aircraft to start to return to service. The airline had said that it expects to start operations of MAX aircraft around the end of September 2021 subject to regulatory approvals.
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The brokerage firm said even after SpiceJet's settlement with Avolon, the balance sheet remains the major concern in their view. "The company has continued to factor Rs 1.4bn in the other income every quarter towards Boeing compensation. We believe the cumulative amount towards expected Boeing compensation of Rs 1.4 bn till Q1FY22 remains a major issue between Boeing and SpiceJet. The monetisation of cargo remains a lever for recapaitalisation," added ICICI Securities.
On August 26, DGCA rescinded its order grounding the Boeing 737-8 and 9 models. Stating the basis for rescission of the particular aircraft, DGCA said, "Based on design changes by M/s Boeing Federal Aviation Administration (FAA) issued an Airworthiness Directive (AD) on November 18, 2020, mandating actions for 737 Max airplanes return to service (RTS). Concurrent with the issuance of the AD, FAA rescinded the Emergency Order of Prohibition. Subsequently, European Aviation Safety Agency (EASA) also issued its own AD on February 17, 2021 which has been mandated by DGCA for compliance on Indian registered fleet."
Notably, worldwide 17 regulators have permitted the operation of the Boeing 737 MAX airplane. A sizeable number of airlines (34) and B737 MAX airplane (345) are operating currently. Indian billionaire, Rakesh Jhunjhunwala, who is planning to launch an ultra-low-cost Akasa airline, is in advanced discussions with Boeing to purchase 737 MAX jets, people familiar with the matter said.
India had barred the MAX 737 from flying to, from, within and over Indian airspace on March 13, 2019. Earlier in April, the country's aviation regulator allowed foreign-registered Boeing 737 MAX aircraft that was grounded in India to be flown out of the country.
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