Mumbai: Nirvan Veerasamy, 53, managing director at aircraft leasing company Veling Ltd of Mauritius, fears the firm may have to bear some of the debt burden of Kingfisher Airlines Ltd, to which it has leased two turboprop planes. Lessors are being prevented from repossessing their aircraft on the basis that Kingfisher may have outstanding airport and other dues, he said in an interview, explaining why this will affect the aircraft leasing industry in India. Edited excerpts:

What is your exposure to the Indian aviation market?

We started by working for others in re-marketing their aircraft and we arranged the lease of seven CRJ aircraft to the then Sahara Airlines and the lease of a number of engines to airlines in India. We were also instrumental in selling aircraft owned by Singapore Airlines in a complex transaction, whereby the aircraft whilst on lease to Air India were sold to another party with a lease attached....

We have also leased up to five A310-300 aircraft to Air India, three of which we took back, converted into freighters and leased them onward to Deccan 360, the now defunct cargo airline based in Bangalore. The company has since grown and we have progressed to now purchase our own aircraft and grow our balance sheet and business...We also have two turboprop aircraft that were purchased new in 2007 and have been on lease to Kingfisher Airlines.

Has the situation at Kingfisher Airlines resulted in lease rentals shooting up or making the process more complex?

Airline difficulties and airline defaults are part and parcel of the business of leasing aircraft....As a responsible lessor, we have always stood by our customers and will do what it takes to accompany and assist our business partners in a difficult moment, with the knowledge that this is the best long-term course of action.

This is exactly what we have been doing with Kingfisher Airlines since the very beginning of its difficulties. Within this framework, we have to ensure that our actions are also in the best interests of our shareholders, colleagues and stakeholders. For example, in the case of Deccan 360, we had no choice but to terminate the lease, take back the aircraft, re-market the assets and take the necessary steps to recover the dues. This is the not so nice but an inevitable part of the business.

What stops you from repossessing planes if an airline defaults on payments?

Our most important cause of concern is the fact that a number of lessors are being prevented from repossessing their aircraft on the basis that KFA (Kingfisher Airlines) may have outstanding airport and other dues. As a lessor with assets in India, I am of course very worried about this development. In my view, it is an extremely dangerous road to be engaged on and I would find it unacceptable that such debt is transferred to a lessor under the perception that such party will have sufficient funds to buy peace and tranquillity. Such an action would, to say the least, be totally unfair business practice.

What are the ramifications of such issues in India?

In the long term, it will have a catastrophic effect on the business of aircraft leasing in India. Let me elaborate with a simple analogy. If I were to place my funds in a bank, the underlying fact would be that I can remove my funds from that bank at any time necessary. The same goes for assets that are placed in India. An aircraft lessor will lease its aircraft only on the knowledge that the aircraft may be removed quickly and efficiently when the need arises. In our business, such a need arises precisely when there is an airline default...Today, we have moved to an environment whereby a lessor may not be able to take back its aircraft before stepping into the shoes of a defaulter and paying that debt.

The long-term effect of this, for all leases in India, is that it substantially increases the risk associated with aircraft leases. As such, India as a market becomes less interesting compared to other developing markets such as Middle East, China and South-East Asia. Transaction will be priced higher and in some instance, I can see lessors demanding a repossession risk insurance, a high-cost product which will inevitably be passed on to the airline, further increasing its costs of operations.

What is the future of the Indian aviation market?

India is, of course, a huge and growing market and it is very much a compelling market which few lessors would want to exclude themselves from. However, India is an unusually complex market. The current market situation continues to be extremely challenging. The financial situation of a number of airlines is probably one of the biggest worries. This is, in itself, ironic since one would think that such difficulties would further open the demand for aircraft leases.

However, the difficulties of airlines is transmitted to leasing companies in the form of more difficult aircraft financing as banks and other financial institutions take a more conservative view of the transactions. Perhaps the most important of them all is the financial situation of the national carrier. Until and unless a permanent and sustainable solution is found for Air India, the Indian airline industry is unlikely to be able to unleash and develop to its real potential.

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