Mumbai: In the latest in a series of efforts to reduce mounting losses from high jet fuel costs and intense competition, airlines in the country have started terminating leases on planes, pruning fleet size in one instance by as much as 15% in the past two months, industry executives say.
Low-fare carriers such as SpiceJet Ltd and Wadia Group’s GoAirlines (India) Pvt. Ltd, which runs GoAir, are returning their planes to lessors, executives at both the airline firms said.
Two other airlines—Deccan Aviation Ltd, which runs Simplifly Deccan and is merging with Kingfisher Airlines Ltd, and InterGlobe Aviation Pvt. Ltd that runs IndiGo—are also considering fleet pruning plans, according to one Mumbai-based analyst tracking aviation firms who asked not to be identified as she is not authorized to speak with the media. Executives of Deccan and IndiGo did not respond to calls for comment on Monday evening.
State-run National Aviation Co. of India Ltd, or Nacil, which runs Air India, has also decided to surrender its leased planes, as reported by Mint on 18 August. The airline will return six A310 aircraft, one Boeing 747 and five A320 planesto lessors during the year in an attempt to reduce lease rentals.
Clipped wings: SpiceJet is returning two planes to its lessor, Bancock and Brown Aircraft Management Llc., in its bid to cut operational costs. (Reuters)
Typically, an airline pays around $350,000, or Rs1.53 crore, a month for a mid-sized Boeing B737 plane, which has a listed price of $70 million.
Domestic airlines scrapped at least 2,000 flights a week in July, nearly one-fifth the number they operate, by grounding planes or sending them for maintenance and paint jobs earlier than scheduled to tackle shrinking passenger numbers in the July-September lean season.
A senior SpiceJet executive, who spoke on the condition of anonymity, confirmed that the airline was returning two planes to its lessor, Bancock and Brown Aircraft Management Llc., or BBAM, which manages the world’s fifth largest commercial jet fleet.
“This will help us freeze our total fleet at 17. This will not only reduce operational cost but also help us save lease rentals,” he added.
Over the past three years, through two different transactions, SpiceJet sold 20 of its Boeing B737 planes to BBAM and took them back on lease. This sale-and-lease-back method has helped SpiceJet generate significant revenues.
“Now, with the current turmoil in the market, we have decided to return two planes to BBAM. There is no penalty for these,” the SpiceJet executive said.
The India representative of an international aircraft leasing company said returning a plane before the end of the lease period is a costly option, though domestic carriers prefer it under the current circumstances. “But it is always better to free the airline from lease rentals rather than make defaults in payments to the lessor,” said another aviation expert with a domestic brokerage. Neither the representative nor the aviation expert at the brokerage wanted to be named.
Mumbai-based GoAir is returning two planes to lessors and adding two this year as per its original fleet acquisition plan.
“GoAir follows a flexible fleet induction plan. We are adding two planes in July-September and another two in May and June 2009. By the end of fiscal year 2009, GoAir will boast a fleet of six brand new aircraft,” GoAir chief executive officer Edgardo Badiali said in an email.
“There is no denial to the problem the industry is facing today, but we do not foresee a major impact,” he added.
The number of people travelling by air in the country has fallen 12.65% from a year ago to 3.09 million in July, marking the sharpest fall in air passengers in the four years since India’s aviation boom started in the summer of 2004. In June, the total number of people travelling by air was 3.53 million.
Domestic carriers, which are expecting a combined loss of $2 billion this financial year, are also deferring deliveries of planes from manufacturers, grounding aircraft and postponing purchases.
“The steep fall in capacity induction in the domestic airline industry is happening for the first time in a decade,” said a senior executive with Jet Airways India Ltd who did not want to be identified. “The airlines, in various ways, have withdrawn 12-15% capacity in July.”
The analyst first quoted added that airlines, especially low-fare carriers, are being forced to return planes to lessors as they have no other choice as passenger demand declines. “When you suddenly talk about 10% growth instead of 40%-plus growth, it makes sense to return the planes,” she said. “Other carriers are also expected to follow suit.”