Low-fare airline SpiceJet Ltd, with some 100 daily flights, plans to sell and lease back all aircraft scheduled to be delivered to the carrier until 2010, in an attempt to offset rising operational costs at the two-year-old airline. SpiceJet has a fleet of 18 Boeing Co. aircraft and expects to add 13 aircraft by 2011, some of which may also be used to start the airline’s international operations to West Asia and South-East Asia, subject to government approvals.
A sale and leaseback agreement typically allows start-up airlines to generate additional capital and is often a stopgap arrangement to project a healthier balance sheet. Under this, SpiceJet gives up ownership of the planes and instead pays a leasing fee, in this case about $400,000 (Rs1.57 crore) a month for a Boeing 737-800 to the company that buys the planes. In the fiscal quarter ended September, for example, SpiceJet earned a profit of Rs20.4 crore from sale of three Boeing 737-800 to leasing companies despite operating losses.
The airline plans to sell and lease back all aircraft scheduled to be delivered to it until 2010
“Today you can lease just about everything,” says Mark Martin, an analyst at consultant KPMG. “Even the manufacturer knows they need to make the acquisition as less (burdensome) as possible. In the long run, a smaller airline rids itself of keeping track of maintenance issues making them leaner. Most of the maintenance is taken care of by the leasing firms that then own the aircraft.”
SpiceJet executive chairman Siddhanta Sharma said the airline hopes to breakeven by the end of this fiscal and would earn an additional revenue, upward of $2.5 million, from selling three of its planes expected to be inducted during the same period. “I think it is a sustainable model,” Sharma said. Depending on the type of aircraft the sales and lease back of an aircraft allows for an airline to earn between $0.5 million to $2 million per aircraft.
Deccan Aviation Ltd-run-Deccan, for example, had been able to cushion high operational costs by selling and leasing back a number of its planes in the four years that it has been operating.
The most recent addition to SpiceJet’s fleet, the Boeing 737-900 ER, fetched the airline about $2 million, according to another senior official who did not wish to be named.
SpiceJet airlines director Ajay Singh said the new aircraft, with a non-stop flying range of at least five hours, may later be utilized to service the Far-East and West Asia once the airline qualifies for international operations. The Boeing 737-900 ER is the only extended range aircraft at the airline.