Mumbai: India’s cash-strapped airlines are looking at raising funds by selling planes, engines and slots at airports and see a huge opportunity in leasing planes to tide over the crunch.
Revenue from traditional sources such as passenger and cargo traffic is no longer enough, especially when the airlines are expecting a combined loss of Rs9,840 crore for the fiscal ending March.
Desperate measures: The New Delhi airport. Besides leasing and selling planes, some airlines are also selling engines and slots at airports to tide over the credit crunch. Harikrishna Katragadda / Mint
The country’s second largest private airline, Kingfisher Airlines Ltd, says it can earn around $100 million by selling its aircraft delivery slots alone.
The airline, which has reduced 21% of its flights resulting in nine surplus planes, is in talks with aircraft makers Airbus SAS and France’s ATR to delay deliveries. It has already sold three of five yet-to-be-delivered A340 planes to Nigeria’s Arik Air for an undisclosed sum.
When Kingfisher Airlines acquired Deccan Aviation Ltd and its low-fare carrier Air Deccan in mid-2007, it had at least 100 aircraft lined up for delivery.
SpiceJet Ltd, a Delhi-based low-fare carrier, made a profit of Rs43.4 crore in the quarter ended December by selling engines and leasing them back. Over the past two years, the airline sold nearly all its planes and leased them back.
“Though we are making small profits out of this, this is not our main line of business. This is safe way of generating cash during?troubled?times,”?said?a?senior SpiceJet executive, who did not want to be identified. “There is no risk of increasing lease rentals considering the slowdown.”
Mahantesh Sabarad, an analyst with Centrum Broking Pvt. Ltd, said sale-and-lease-back deals can only be a temporary arrangement. “The proposition of aircraft leasing was born out of necessity. Certainly this is not sustainable business for airlines as it will provide them revenue stream only for a few months,” he said. “But it is always better to fetch some money rather than keeping a plane idle after making huge losses on certain routes.”
For instance, Jet Airways (India) Ltd, the country’s largest private airline, lost Rs44.8 crore in the December quarter on account of the airport and lease rentals it had to pay for its decommissioned aircraft.
“We have been able to place out our excess capacity, and as of now we have leased out five of our wide-body aircraft. Over the next few months, we expect to place out another four aircraft,” said K.G. Vishwanath, senior general manager (investor relations), at Jet Airways. “As a strategy, we have been selling and leasing back four-five B737 aircraft every year and we will continue doing that over the next one-two years as well.”
Jet Airways is leasing to Oman Air two Airbus A330-200 aircraft for six months each, starting May. It will have operational control of the aircraft and be responsible for their maintenance.
By April, the airline will have nine aircraft on wet lease.
Typically, an airline earns $2-2.2 million a month on leasing a wide-body aircraft on such terms, known as wet lease. If the deal doesn’t include maintenance, the rate is $1-1.2 million a month. Known as dry leases, these deals are usually for 18-24 months.
Jet also has plans for more sale-and-lease-back deals, including for wide-body planes such as A330s. A typical sale-and-lease-back agreement for an A330 aircraft fetches about $21 million in profits. Jet has leased five wide-body planes on these terms.
But is there a market for such deals? The airlines think so. “Still, quite a lot of airlines or leasing companies are looking for aircraft. The A330 is an attractive option given that the A350 programme has been deferred,” Vishwanath said. “The market has softened a little bit due to the crisis but for good aircraft, the market is still very good.”
Jet Airways had to discontinue its Amritsar-London flight from 1 December and its Mumbai-Shanghai-San Francisco flight from 13 January. “This will help us reduce losses on the international operations and also help release these surplus aircraft,” Jet said in a statement on 16 January.
The airline incurred losses of about $9 million in the December quarter on its Shanghai-San Francisco route and $3.5 million on its Amritsar-London route.
On the other hand, by selling a slot in Heathrow Airport, which it was using for its Amritsar-London service, the airline made $4.3 million.
National Aviation Co. of India Ltd, that runs Air India, is also exploring sale-and-lease-back deals in addition to selling some of its older planes.