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Akasa Air, backed by Rakesh Jhunjhunwala, to partner with Griffin for sale, leaseback of Boeing 737 Max aircraft

Portland: Akasa Air's Boeing 737 Max plane at the Boeing production facility in the USA's Portland as it gets ready for delivery. (PTI Photo) (PTI05_23_2022_000132B) (PTI)Premium
Portland: Akasa Air's Boeing 737 Max plane at the Boeing production facility in the USA's Portland as it gets ready for delivery. (PTI Photo) (PTI05_23_2022_000132B) (PTI)

Billionaire stock trader Rakesh Jhunjhunwala and former Jet Airways CEO Vinay Dube co-founded Akasa Air, a prospective ultra-low-cost Indian airline.

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Akasa Air has signed a contract with Irish leasing company Griffin Global Asset Management for Sale and Leaseback (SLB) of five Boeing 737 Max aircraft, a statement said on June 9. Under the sale and leaseback model, the airline - founded by Billionaire stock trader Rakesh Jhunjhunwala and former Jet Airways CEO Vinay Dube, sells its planes to a leasing company and then leases them back. This frees up the cash that the airline has spent in buying the aircraft.

On November 26, 2021, Akasa Air agreed to buy 72 Max planes from Boeing, just three months after the Directorate General of Civil Aviation (DGCA) gave the planes the go light. The first Max aircraft is expected to arrive in June, and Akasa Air plans to begin commercial flight operations in July. The airline received the no-objection certificate (NOC) from the Ministry of Civil Aviation in August 2021 to launch commercial flight operations.

Akasa Air said on May 23 that its first aircraft - expected to be delivered to the airline by mid-June - was being given final touches at the Boeing Portland facility in the US. said in a release that it was on track to launch its commercial operations by July.

According to a press statement, the airline - backed by ace investor Rakesh Jhunjhunwala - wants to operate 18 aircraft across internal routes in the country by the end of March 2023, with a concentration on metro to tier II/III towns. The business agreed to a $9-billion deal with Boeing in November 2021 for 72 Boeing 737 Max jets in two variants—the 737-8 and the high-capacity 737-8-200.

The fuel-efficient CFM LEAP B engine will power these planes. The 737 MAX is one of the strategic factors that will give Akasa Air a competitive edge in its dynamic home market, the airline said.

A statement by Griffin Global Asset Management said that it was "pleased to announce the mandate for Sale and Leaseback of five Boeing 737-8 aircraft with Akasa Air, a new airline based in India".

Commenting on the contract with Griffin, Vinay Dube said, “We are pleased to have Griffin as our partner in growth as we embark on our aviation journey. The high degree of confidence and endorsement from the Griffin team is a testimony to Akasa Air's robust and sustainable future."

What is Sale and Leaseback?

Sale and Leaseback, a basic financial transaction, is a type of leasing mechanism that is used in a unique way. The ideal method of using an asset without having to own it is to lease it. In a lease, the lessee does not own the asset; instead, they have the right to use it for a specific length of time and pay for it.

Sale and Leaseback allows companies to sell an asset and then re-lease it. As a result of the transaction, a seller can use the asset without owning it while also releasing the capital that the asset has been holding.

Sale and Leaseback, often known as junk financing, involves removing an asset from the lessee's books and receiving upfront cash that can be used to pay down existing debts. As a result, the lessee's existing lines of credit are not affected.

Businesses can use Sale and Leaseback deals to get finance for an amount that corresponds to the asset's fair market value, which may be significantly higher than its book value. In India, there may be tax ramifications. However, by allowing a high-cost debt to be substituted with a low-cost lease duty, Sale and Leaseback may provide a financial gain.

(With PTI inputs)

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