Volaris and Pratt & Whitney Agree on Compensation Amid Engine Inspection Woes

Mexico’s low-cost carrier, Volaris (Y4, México City International), has reached a compensation agreement with engine manufacturer Pratt & Whitney (P&W) for each engine removed from its fleet due to inspections. The negotiations aimed to alleviate the impact of groundings caused by issues with the PW1000G engines on its A320neo Family jets.

Compensation Agreement to Address Fixed Costs

Volaris CEO, Enrique Beltranena, confirmed the agreement with P&W in a filing to the Mexican Stock Exchange on December 5. The compensation deal is designed to address fixed costs associated with the grounded engines during inspections. Beltranena emphasized that this agreement complements mitigation initiatives outlined in their recent earnings call.

Strategic Adjustments Amid Engine Inspections

As a response to the ongoing engine inspections, Volaris reduced its capacity in the Mexican market during November. However, the airline strategically redeployed some capacity abroad, taking advantage of the Category 1 air safety status reinstated by the United States for Mexico. Beltranena stated that this approach aligned successfully with positive demand, consistent with the airline’s full-year expectations.

Preliminary Traffic Results for November

Volaris outlined its preliminary traffic results for November, reporting a 2.2% year-on-year decline in capacity. Despite the capacity dip, the airline experienced a 1.8% increase in load factor, reaching 89.8%. Notably, the United States is one of the five countries served by Volaris, in addition to Mexico.

Impact on Volaris Fleet and Operations

Out of the 119 aircraft operated by Volaris, 45 A320-200Ns, 6 A321-200Ns, and 18 A321-200NX are equipped with PW1000G engines. Currently, 16 A320neo and 3 A321neoNX jets are inactive due to the ongoing inspections. Volaris anticipates that the inspections may extend into 2024 and 2025, with clarity on the long-term impact expected in the first quarter of the year.

Operational Adjustments and Workforce Impact

The airline had previously disclosed operational adjustments due to the inspections, resulting in the laying off of 200 staff. Volaris continues to navigate these challenges with the compensation agreement with P&W providing financial support during the engine inspection period.