CAN LEASING BE MADE MORE AFFORDABLE?

Ministry of Civil Aviation Secretary R. Choubey recently called for greater participation from policy makers and users to promote MRO services, offer training, and provide more attractive leasing packages that could spur new initiatives for improved regio

AS ANY START-UP AIRLINE can attest, a war chest of cash is an essential thing to have on the company’s checklist prior to the first flight. Notwithstanding the expenses associated with launching service and day-to-day operations, a huge cash outlay for initial deposits and predelivery payments for the purchase of a fleet of new aircraft isn’t always an option. Without a previous track record or sterling credit history, a carrier’s inability to qualify for traditional financing or its reluctance to assume the risk of asset ownership means that leasing is often the most economical and sensible alternative, even in today’s low interest rate environment. REVENUE IN RUPEES. EXPENSES IN DOLLARS. The Ministry of Civil Aviation Secretary Rajiv Choubey’s call for lower aircraft lease rates is likely a consequence of the country’s chroni- cally low domestic airfares that generate the lowest revenue per passenger-kilometre compared to local yields in Japan, Indonesia, Australia and Malaysia, according to first-quarter 2016 IATA data. Reducing the cost of leasing aircraft would certainly benefit fledgling regional airlines yet rentals are commonly paid in US dollars or euros. The strength of those currencies against the rupee poses a real challenge for carriers to earn sufficient revenue to cover not only the monthly lease expense, but other dollar-based costs as well, like fuel. Given the number of new aircraft and seats to be added by AirAsia, IndiGo, SpiceJet and Vistara, it’s unlikely that domestic airfares will rise any time soon. If fares won’t go up, operating costs must come down. SUPPLY, DEMAND, TIMING AND TECHNOLOGY. Anticipating the need to replace the world’s ageing narrow-body fleet, aircraft lessors went on a shopping spree between