Moody’s Call IndiGo Fight Cancellations ‘Credit Negative’, Says Firm Will Face Financial Damage

Moody’s cited IndiGo’s “significant lapses in planning, oversight and resource management” as the primary cause.

The disruptions and cancellations in IndiGo flights due to airline’s failure to plan for aviation regulations communicated to industry more than a year in advance could result in financial damage from loss of revenue as well as potential penalties for cancellations, Moody’s Ratings said on Monday.

PTI quoted a note by Moody’s stating that the disruptions are “credit negative” for the airline. “Despite temporary reprieve, failure to effectively plan for new aviation regulations is credit negative.”

The flight cancellations started on December 2. The disruptions, which took place amid peak winter schedules, caused over 1,600 flight cancellations on December 5, after similar operational issues in November left more than 1,200 flights grounded. Over 500 flights were cancelled on Monday.

“The disruptions are credit negative because IndiGo could face significant financial damage from loss of revenue because of flight cancellations, refunds and other compensation to affected customers, along with potential penalties imposed by DGCA,” Moody’s said.

It further stated airline’s “significant lapses in planning, oversight and resource management” as the primary cause while pointing out that the regulations were communicated to the industry more than a year in advance.

“The airline’s lean operations, which provide cost efficiencies in stable times, lacked the resilience needed for this change in regulations, leading to the need for a system-wide reboot that led to cancellation(s),” Moody’s said.

“We have downgraded IndiGo’s issuer category score for human capital to 4 from 3, reflecting the adverse impact of slower hiring on the airline’s operations. Although IndiGo does not have employee unions, its pilots, through broader pilot associations in India, possess significant collective bargaining power. IndiGo’s governance issuer category score of 3 for management track record captures management’s lack of judgment and preparedness for the impending regulatory changes,” it said.

Moody’s further stated that there will be some reputational damage for IndiGo, which may hurt the company, especially in its code-sharing arrangements.

“However, quantitative impact of the disruption remains uncertain at this point as the scale and profitability of IndiGo’s operations evolve following adjustments to comply with FDTL regulations,” the rating agency added.