CAN RATES GO LOWER?

aircraft. Even with the A320neo, B737 MAX, E-Jets E2 and CSeries on the market, narrow-body lease rates were recovering from their 2013 lows by last year. Today, for regional airlines wanting to access Tier-II and Tier-III cities with smaller jet equipment, the strong US dollar, inventory of aircraft available for lease, and market rates still aren’t conducive to attracting new regional entrants as the Ministry of Civil Aviation is hoping. sourced prices) show how smaller aircraft with their lower operating costs command premium monthly rents. Lease prices are a function of supply, demand and aircraft age. Since a lessor’s portfolio of airplanes can be placed anywhere around the world, they often seek the most creditworthy, reliable prospects that are operating in a stable environment. Leased aircraft are unique assets. Their mobility allows the lessor to go where there is opportunity and to price monthly rents accordingly. Carriers with weaker financial footings and poor track records will find their lease rates incorporate an element of risk should they fail. Lessors then incur repossession and remarketing expenses.

In this cycle of continued growth in passenger enplanements and fuel price volatility, new, leased aircraft are in demand. Consumers have become more sophisticated and expect newer-technology airplanes, which they often equate with safety. The expanding fleets of India’s main domestic carriers reflect the trend to new equipment. Any acquisitions of very old, low-rent, over-capacity jets by regional airlines would be incompatible with the drive for greater efficiency in such a competitive domestic landscape.

Regional carriers in India may not have much bargaining power in this upward-moving market where lease rates for new aircraft are not heavily discounted. Short-term gain renting big, old, cheap airplanes may incur long-term pain when the price of fuel inevitably rises or the rupee slides against the US dollar.