New Delhi: Air India, the national carrier that is in line for a Rs5,000 crore government rescue, will lease out seven of its medium- and long-haul aircraft to improve asset utilization and increase revenues, according to a tender floated by the airline on 1 October.
The state-owned carrier, run by National Aviation Co. of India Ltd, lost around Rs7,200 crore in the last fiscal year after traffic dropped and business-class fliers migrated to other lower-cost options.
Air India and the country’s other full-service carriers are looking for ways to cut losses as fliers opt for low-fare airlines such as IndiGo and SpiceJet, which have made money as the Indian economy revives following last year’s slowdown and scares over swine flu outbreaks that have reined in overseas travel.
“The airlines are desperate, it’s as simple as that,” said a London-based aviation analyst who did not want to be named as he is not authorized to speak to the media. “Unless they find ways to save cash, they won’t have enough money to pay their debts and other bills.”
Jet Airways (India) Ltd, the country’s largest private carrier, has been trying measures such as leasing aircraft and pulling out business-class seats to stay afloat after making losses. It started an all-economy service known as JetKonnect in May in addition to its low-fare JetLite arm.
Kingfisher Airlines Ltd, the country’s second biggest private airline, is also pruning spending—food on low-fare service Kingfisher Red will cost extra starting 10 October, according to the carrier’s website, bringing it in line with the policy on such services. The Vijay Mallya-owned carrier made a loss of Rs1,608.09 crore in the last fiscal year.
Air India, which is struggling with a debt of at least Rs16,000 crore and needs to pay for a multi-billion dollar aircraft order to replace its ageing fleet, will lease out three of its intercontinental Boeing 777-200LR planes, each costing in excess of $230 million (Rs1,092.5 crore now). The lease period will be at least two years starting in the middle of next year, according to a request for proposal posted by the carrier on its website.
Jet had leased several of its Boeing 777 aircraft to West Asian carriers earlier this year, earning at least $2 million in monthly revenues for each of them.
The Air India aircraft, supported by US Exim Bank financing, will be dry leased— that is, without staff—for “preferably 24 months or more” starting mid-2010.
Air India has 20 Boeing 777 planes plying on routes to New York, Tokyo and Paris from India. At least 16 are owned by the carrier while the rest are from leasing firms, executive director Jitender Bhargava said.
The carrier plans to lease out the first Boeing 777s it got, which were inducted into the airline in August 2007, as part of a 111-plane order placed in 2006. These were used to start non-stop flights from New Delhi and Mumbai to New York.
Air India, on a cost-cutting drive since August, has said it is also looking at cancelling or deferring some of its wide-bodied aircraft orders. At least six Boeing 777s are slated to arrive between next year and 2011, but the airline has not formally announced any plans for deferment so far.
“There’s nothing wrong with the aircraft, it’s just very difficult to operate them profitably in the midst of a global recession. Ultra long-haul flying is a mixed bag in terms of financial viability,” said Vikram Krishnan, associate partner at Oliver Wyman, a San Francisco-based aviation consultancy firm.
Demand for such planes is restricted to those expanding currently, such as the Chinese and West Asian airlines.
Carriers including Emirates, Qatar Airways and Etihad have full order books and probably little appetite for additional leased aircraft, while the Chinese are mostly growing domestically for which narrow-bodied aircraft are preferred.
“That leaves a very short list of potential customers,” Krishnan said. “When the Indian economy emerges from the downturn—and the perception among some economists is that it will recover before the US does—Air India could very well require these aircraft.”
“The Exim-backed financing gives them an advantage over the likes of Jet (when leasing aircraft),” said the London-based analyst.
Air India also plans to lease out four Airbus A310-304 freighter aircraft for 18 months or more with immediate effect after it stopped its only international cargo flight in September.