New Delhi: Indian aviation cheerleaders: Meet the pragmatism of the guys writing the cheques.
At a crowded AeroIndia in Bangalore last week, civil aviation minister Praful Patel told an audience of aviation professionals that in the next 10 years, India’s airlines could buy up to $75 billion (Rs330 lakh crore) worth of planes. Boeing estimates that it could take twice as long—20 years.
But aviation financiers across the world aren’t exactly lining up to grab huge chunks of that pie. With the hindsight and wisdom gained over watching markets fluctuate across the world, they are keeping their eyes on the very near future of two, maybe three, years down the line.
“In a business as volatile as aviation, who knows where things will be 20 years from now,” said Tejpreet Chopra, CEO of General Electric Commercial Finance in India. “Realistically, in the next five years, maybe we could double our presence in the country.”
Airlines generally finance only a fraction of their acquisitions at a time; so the market for financing in India right now is limited to aircraft deliveries scheduled for the next year—together worth about $1 billion.
Right now, GE, through General Electric Commercial Aviation Services (GECAS), has partially financed less than 20 aircraft in the country—Chopra won’t say exactly how many—but it is one of the two biggest aircraft financiers in the world. Chopra’s restraint is understandable: In the late 1990s, as the aviation economy in East Asia collapsed, he was in charge of moving GE’s airplanes from faltering companies to other parts of the world.
At the same time though, aviation financiers see opportunities in India, which they are approaching carefully. In the next five years, India’s airlines could take delivery of up to 350 new aircraft, orders for which have already been placed. A few of those planes have already been financed, because airlines tend to work out financing for planes in small batches, only few months before their deliveries.
There is no Indian bank or financier providing funding for aircraft purchases, and airlines have to look abroad for the huge amounts of money required to make fleet additions. Besides GE’s airline lending arm, the Royal Bank of Scotland, a major global financier; Australia-based Macquarie Bank; and the Los-Angeles based International Finance and Lease Corp. are the major international financiers, all of whom have some presence in India.
Although cautious, these financiers are making sure that they are closely involved with many of these deals, which just this year could cross over $1 billion.
The state-owned domestic carrier, Indian, for instance, will receive about 43 Airbus aircraft in the next few years. This week it announced financing of about $500 million from Germany-based KfW IPEX-Bank, a smaller player in the airline financing market, for 10 of those planes.
Also, officials from the Royal Bank of Scotland—including Simon Hanson, the head of the bank’s aviation finance for India—spent the week working out a yet-to-be announced deal with Air Deccan. Hanson declined to comment.
The German IPEX-bank, which has previously given loans to Indian (formerly known as Indian Airlines) in the 1980s, sees the current loan as just the beginning. It wants to see its portfolio in India to grow to about $3 billion in the next three years, said Christiane Laibach, head of aviation finance for the bank.
“We have already closed a couple of transactions the last two years and are engaged in talks with a number of airlines to explore possibilities for future co-operation,” she said in an interview from Frankfurt.
Air India, which has placed an order for 68 Boeings, has arranged financing for about $1.4 billion of the $7 billion bill from the US-Exim bank, said S. Venkat, the finance director for the airline. The Indian government acts as a guarantor for the loans of its state-operated airlines.
“When compared with private airliners it certainly is easier and cheaper,” he said. “It gives us a full spread of the loan as a result of the government backing.”
Right now, private airlines, even the relatively younger ones, are finding airline financing in India somewhat easy, which is a reflection of current market conditions.
“The market right now is pretty hot actually,” said Bruce Ashby, the chief executive of IndiGo airlines, which has ordered 100 Airbus A320s, and will be taking delivery of the eighth plane in March. “There’s a fair amount of lease money floating around out there.” Ashby wouldn’t specify which banks lent to IndiGo.
The generous lending environment could change quickly, he said, if the aviation market takes a downturn, something that he himself has experienced during his many years at US Airways.