SpiceJet Opts for ‘Sale & Leaseback’ to Grow Fleet
Airline to use this model to stay asset-light, and also because it expects to get good deals in the current market, says CFO Kiran Koteshwar
New Delhi: No-frills Indian carrier SpiceJet will use the ‘sale and leaseback’ route to induct about a sixth of the 275 aircraft it has ordered, sticking to its goal of staying asset-light until the fleet expansion scheduled over the next three years is complete.
“Our strategy is to keep the airline asset-light in the interim period until 2020. As part of that, we will induct about 48 aircraft on sale and leaseback mode. We expect to fetch good deals on the sale and leaseback, as the market is conducive for it,” Spicejet chief financial officer Kiran Koteshwar told ET. The model to be followed for further orders would be decided only in 2020, he added.
In the three years until 2020, the airline has a firm schedule to induct 30 Boeing 737s and 18 Bombardier Q400s out of the ordered 275 aircraft – 225 Boeing 737s and 50 Bombardier Q400s.
In the sale and leaseback model, the air- SpiceJet will induct 275 one-sixth of ordered aircraft over three years Total fleet expansion plan is for 225 Boeing 737s and 50 Bombardier Q400s Analysts say this would be the most feasible option for SpiceJet now AIRLINE SELLS AIRCRAFT AT TIME OF DELIVERY TO LESSOR AT A PREMIUM FROM ORDERED PRICE AND THEN INDUCTS IT ON LEASE line sells the aircraft at the time of delivery to a lessor at a premium from the ordered price and then inducts it on lease.
Analysts say that this would be the most feasible option for SpiceJet now.
“Sale and Leaseback is the most feasible option at this stage, given the complexities and challenges that include finan- cing and those related to ownership structures,” said Kapil Kaul, director at CAPA South Asia. He added that investor appetite for short-term sale and leaseback (6 years like IndiGo) is extremely limited and SpiceJet may go for longer term lease tenures.
“The GST, higher US interest rates that could impact rental P&L, taxation and changes in accounting due to the new Indian accounting standard, however, would bring new dynamics to the sale and leaseback market here,” he further said.
SpiceJet’s decision to induct aircraft on sale and lease back comes amid IndiGo’s announcement to buy outright some of its future planes. SpiceJet has, for the first time since its inception, placed a big order for aircraft unlike IndiGo, which launched the airline with a 100-aircraft order with Airbus.
IndiGo’s chief financial officer Rohit Philip said that the airline will shift to a model of outright purchase.
“Aircraft kept in the fleet for long are better owned than leased as direct ownership leads to cost optimisation,” he said at a conference call after the first quarter results. Analysts have typically attributed IndiGo’s robust earnings and cash-flow also to smartly crafted aircraft orders and sale and leaseback deals. Voluminous orders have given it heavy discounts on asset prices and maintenance rates.