As India’s airline industry digs itself deeper into debt buying planes worth billions of dollars and selling tickets for just a few rupees, those who are financing part of the expansion are getting worried.
companies and banks that provide leases to the loss-making airline industry concern—repossessing an aircraft on which payments have been missed in India. “It’s not that there aren’t any laws,” said Tejpreet Chopra, the chief executive of General Electric Commercial Finance in India. “But, these haven’t been tested in court.”
GE Commercial Aviation Services, a subsidiary of GE Commercial Finance, which leases about 20 airplanes to airlines in India, is confident about the market, but concerned about its profitability, said Chopra.
The laws have changed since the mid–1990s, when an international financier tried to repossess planes from the now-defunct East-West Airlines. The court-case dragged for almost a year, according to newspaper reports then, and hinged on whether the owner of the aircraft or the airline was responsible for the lakhs of rupees raked up in airport charges when the plane wasted on ground. Current laws say the airline, not the aircraft owner, is responsible.
For international financiers such as Macquarie Aircraft Leasing ServicesRoyal Bank of Scotland, those laws make all the difference. When airlines default on leases—running up to $400,000 (Rs1.76 crore) a month for an Airbus A320, and $180,000 a month for the smaller regional jets—the financiers need to be able to repossess their planes to the next client fast. That process is not always smooth. A recent Macquarie repossession in Italy ran into delays when different airports said they needed to get paid before the plane could leave the country.
“I would rate India as among the more difficult places to move your planes out efficiently,” said a senior Macquarie executive. Macquarie owns about 125 aircraft, of which it currently leases two to Indian companies, and expects to lease many more in the future.
India’s private airlines and state-owned domestic carrier Indian, lost a combined total of $250 million in 2006, according to industry estimates, and might double that this year. Of the three publicly-held airlines, Jet Airways, Deccan Aviation-owned Air Deccan, and SpiceJet, none has defaulted on payments. It is impossible to know if any privately-held airlines have defaulted on payments.