Home >Companies >News >Airlines renegotiate contracts with vendors to cut, defer costs

Cash-strapped Indian air carriers are revisiting aircraft lease rental agreements to improve their bottomlines. The airlines have been affected by the over two-month-long suspension of operations and see a further impact on revenues with services resuming with just a fraction of capacity and extremely low passenger load factors.

Some airlines have approached lessors seeking a deferment on rentals and also a substantial reduction in rental costs and have got concessions, as per industry experts.

In several instances, carriers have been allowed to partially delay payment by anywhere between three to eight months, an aircraft lessor said on condition of anonymity.

“The situation remains grim for airlines across the world and Indian carriers are no exception," said a senior official of a global aircraft leasing firm. “This is an extraordinary situation and everyone needs to be cognizant of the challenges faced by the sector."

Aircraft lease rentals comprise about 15% of a carrier’s operating costs. As this is paid in dollars, it is subject to currency fluctuations.

IndiGo, which is operating at 20% of capacity, has got about 50% relief on supplementary rentals as a large part of its fleet is grounded. Supplemental rent is collected during the term of the lease by leasing companies to cover the cost of maintenance. “Supplementary rentals are purely driven by the amount of flying that you do. So, if we are not flying, supplementary rentals don’t accrue," chief financial officer Aditya Pande said last week.

SpiceJet has also negotiated leasing costs. “Lessor payments, which form the bulk of our fixed costs, have been mutually deferred and waived," the company said recently.

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