ICRA keeps aviation sector outlook negative, sees up to 38,000 crore loss in FY27

Rating agency ICRA has projected a net loss of ₹360-380 billion in FY2027 for the aviation industry, and maintained a negative outlook amid higher aviation turbine fuel prices, rupee depreciation and disruptions caused by the West Asian conflict.

ICRA expects domestic air passenger traffic to grow 3-6% in FY2027, while international passenger traffic for Indian carriers is projected to decline 3-6%.

The agency said the continued aircraft deliveries are expected to push up lease rentals and are likely to weigh on airline profitability.

The Indian aviation industry is estimated to have reported a net loss of ₹280-300 billion in FY2026.

ICRA said the negative outlook reflects an expected weakening of the revenue due to higher ATF prices, restrictions on the availability of certain international airspaces since February 28, 2026, following the escalation of the West Asian conflict, and continued depreciation of the rupee against the US dollar.

Domestic air passenger traffic stood at 121.3 lakh in August 2026, down 6.3% from 129.5 lakh in the year-ago month. However, traffic rose 1.1% sequentially from 120 lakh in July.

Capacity deployment by airlines was around 86,760 departures in August, 2.8% lower than a year earlier but 5.5% higher than July, supported by seasonal demand for festive and leisure travel.

Domestic passenger traffic during April-August 2026 stood at 667.9 lakh, a year-on-year decline of 1.1%. In FY2026, domestic passenger traffic had grown 1.2% to 1,674.2 lakh.

International passenger traffic for Indian carriers, which grew 3.9% to 350 lakh in FY2026, declined 20.9% year-on-year during April-August 2026 due to disruptions caused by the West Asian conflict and elevated ATF prices.

Prices for domestic operations in September 2026 were ₹6,280 per kilolitre higher than in August and 33.4% above September 2025 levels.

Fuel accounts for 30-40% of airline operating expenses, while 35-50% of airline costs are dollar-denominated, including fuel, aircraft lease rentals and maintenance expenses.

ICRA said any significant pass-through of higher operating costs through airfares could weigh on passenger traffic, particularly in a relatively subdued demand environment.

A prolonged or further escalation of the West Asian conflict could pose downside risks to traffic growth, yields and profitability amid elevated fuel prices, airspace restrictions and inflationary pressures, it added.

The industry also continues to face supply-chain challenges related to Pratt & Whitney engine failures. As of March 2026, engine failures and supply-chain issues had resulted in 99 aircraft being grounded for select airlines, equivalent to 11-13% of the total industry fleet.

The aircraft-on-ground situation had improved from 20-22% of the fleet in September 2023, but international capacity rationalisation following the West Asian conflict pushed the level to 19-20% as of August 2026.

The government approved the ₹5,000-crore Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 for the aviation sector in May to address near-term liquidity pressures.

The scheme provides 90% credit guarantee coverage and allows eligible scheduled passenger airlines to borrow up to 100% of peak working capital utilised in the fourth quarter of FY2026, subject to a cap of ₹1,500 crore per airline.

As of July, applications worth ₹2,530 crore had been made under the scheme, with sanctions/disbursements of around ₹920 crore, largely driven by SpiceJet and Akasa Air.