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

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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.

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