Airlines use sale-and-lease route to shore up resources

The increasing competition in the Indian aviation market is forcing airlines to come up with newer concepts for shoring up their resources. With the advent of low-cost carriers in the country, airlines have tried using a host of avenues including lower operating costs, higher inflight sales and sale of aircraft space for advertising to shore up their bottomlines.

Even as the returns from these initiatives have not been satisfactory for want of adequate response, airlines are now targetting what was previously seen as a major cost centre, namely aircraft purchase. Airlines are now looking at making money out of their aircraft purchases by entering into a sale and leaseback arrangement.

So what is a sale and lease back arrangement? Industry watchers say that it is an arrangement in which the air carrier which has already placed orders for aircraft decides to sell them to a buyer before taking the delivery and the buyer — which generally is an aircraft leasing company — leases the property back to the airline.

''In today's competitive aviation market, having a large fleet size helps airlines in spreading their operating costs. Airlines in India are realising that and are furiouusly working towards expanding their fleet. However, airlines encounter the problem of raising capital for such programmes. The sale and leaseback allows the carriers to make full use of the asset while not having capital tied up in the asset. It also helps them in making money which can be deployed for operational purpose,'' an aviation analyst said.

Carriers like Jet Airways, Air Deccan and SpiceJet have used the path of the sale and lease back arrangement while airlines like GoAir and the newly launched IndiGo are reportedly contemplating a similar move.

The trend was started by Jet Airways which managed to make a profit of Rs 270.64 crore by entering into a sale and lease back arrangement for five aircraft in 2005-06. With the airline planning to add close to six aditional aircraft every month in this financial year, it is looking at getting a sale and leaseback arrangement for four aircrfat this year too. At the end of the last financial year, the airline had 19 owned and 34 leased aircraft.

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