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Posted January 24, 2012 9:42 AM
By Rob Morris

Should we be Worried about Kingfisher Airlines?

News services have been alive in the past few days and weeks with concerns over the future of Kingfisher Airlines, culminating with reports that the Indian Directorate General of Civil Aviation (DGCA) has issued an audit of the airline indicating that it should be wound up. Although this seems unlikely in the immediate future, reports continue to surface of concerns over the airline’s financial health and it does seem likely that some element of fleet downsizing will be necessary over the next few months to support the airline’s survival.

According to the Ascend Online Fleets database Kingfisher currently operates a fleet of three Airbus A319, 21 A320, eight A321 and five A330 aircraft alongside a regional fleet of two ATR42s and 23 ATR72s. In addition the airline holds firm orders for 68 A320s, 15 A330s, five A350s and five A380s. There was also an order for 38 ATR72s but ATR reported earlier this week that it has removed those commitments from its orderbook, describing the airline as an “unreliable customer”. So should we be concerned that a failure of the airline might create an immediate capacity surplus at a time of general market uncertainty for the global airline industry?

Looking first at the operating fleet, all 37 aircraft are owned by a diverse group of operating lessors including AerCap, Air Lease Corporation, AWAS, Aviation Capital Group, BBAM, BOC Aviation, DAE Capital, ILFC, Pembroke Group, RBS Aviation Capital and Volito Aviation Services. The single-aisle exposure is greatest at ILFC with six A320s and one A321, and AWAS with one A320 and four A321s but no single lessor currently carries significant exposure in the event of a sudden airline failure. A quick check of current aircraft availability advertised in the Airfax monthly newsletter shows there are presently 23 A319s, 23 A320s and seven A321s offered for near term sale or lease. Although the addition of the entire Kingfisher single-aisle fleet to this inventory would be an unwelcome event, the numbers do not appear significant enough to make an impact on the market by themselves. The position is similar with the A330-200s with three aircraft currently leased from DAE Capital and two from Pembroke Group. A330-200 availability is currently very limited with only one aircraft offered for lease in June this year, so the industry should have no problem with absorbing this additional capacity if it were to arrive on the market.

The backlog may appear more of a problem for Airbus, but the database indicates that only three of the A320s are scheduled for delivery in 2012 and with no serial number allocations yet evident, production is possibly not scheduled as yet. So Airbus should have no issue with reallocating these slots, particularly in view of their current backlog which today still includes another 1,560 A320 aircraft (excluding NEO variants) of which 341 are scheduled to be delivered in the remainder of 2012. The remainder of the A320 backlog is scheduled from 2013 through to 2018, so while the loss of these 67 orders would not be welcome, the impact will not be immediate and Airbus will have plenty of time to mitigate the loss of the order. Likewise, the first A330 delivery is not scheduled until 2014,the first A380 in 2017 and the first A350 in 2019, but there would be plenty of opportunity to mitigate these order losses.

On first impressions, the potential failure of an airline of the stature of Kingfisher Airlines may cause concerns in the market and will certainly cause some issues for particular leasing companies in the short-term, yet the longer-term impact on the commercial aircraft supply side does not appear significant.

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Probably should also be worried, and for Jet Airways?

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