IndiGo Turbulence: Moody's Notes Negative Credit Impact Amid Operational Disruptions

IndiGo is facing potential financial setbacks after disruptions leading to flight cancellations and refunds, as noted by Moody's. The airline's operational inefficiencies and regulatory challenges have affected its performance, prompting a negative credit outlook despite maintaining its Baa3 rating fundamentals.

In a recent assessment, global credit rating agency Moody's highlighted that the ongoing disruptions at InterGlobe Aviation Limited, commonly known as IndiGo, are considered "credit negative." The airline is reportedly facing substantial financial challenges due to flight cancellations, refunds, and compensations to affected passengers, alongside possible penalties from the Directorate General of Civil Aviation (DGCA).

Moody's has revised IndiGo's issuer category score for human capital, reducing it from 3 to 4. This change reflects the detrimental effect of slower recruitment on its operations. Despite the absence of employee unions, IndiGo's pilots, represented through larger pilot associations, wield significant collective bargaining power, according to the rating agency's statement.

IndiGo's Baa3 rating fundamentals remain intact, bolstered by its commanding market share, low air travel penetration in India, robust macroeconomic growth, and sustainable long-term leverage below 3.5x. However, its profitability is expected to suffer in the fiscal year ending on March 31, 2026. Adding to the pressure, the DGCA issued show cause notices on December 6 to IndiGo's CEO Pieter Elbers and COO Isidro Porqueras, potentially jeopardizing the continuity of senior leadership. Amid regulatory shifts, IndiGo has struggled to maintain operational flexibility, resulting in around 1,600 flight cancellations on December 5 alone. November also saw a drop in on-time performance from 84% to 68%, with over 1,200 cancellations. Nevertheless, the airline announced operational improvements, claiming to operate over 1,800 flights on December 8 with an enhanced on-time performance of 91% across its network, a significant increase from previous figures.

(With inputs from agencies.)