The Hindu Business Line : Air India plans to lease out aircraft may not take off

Mumbai, Oct. 13 Cash-strapped Air India wants to dry lease some of its aircraft as part of its effort to rationalise its fleet and make money. Not too many people are sure, though, if the timing is right.

With the aircraft ‘leasing-out environment’ still not looking up, the valuations that Air India may get in this scenario could be much lower, say experts. Normally, the lease rates are about 0.8 to one per cent of the aircraft value, with a two-three month lease rental as security deposit.

But the actual price is negotiated on each deal subject to various conditions.

“A Boeing 777-200 may fetch Air India between $1.9 million and $2.5 million a month (about Rs 10-12 crore),” Mr Arun Narayan, Research Analyst – Aerospace & Defence Practice, Frost & Sullivan - South Asia and Middle East, told Business Line in an e-mail response.

However, it’s “less of a lessor’s market and more of a lessee’s market. So the actual price is likely to be on the lower end of the band,” he said, adding that a Airbus 310 Freighter would fetch the airline much lower, “may be $0.5-1 million a month (about Rs 2-Rs 5 crore).”

Earlier this month, the national carrier had put out expressions of interest for dry leasing seven aircraft of which three were Boeing 777-200 LR (manufactured in 2007) and the balance Airbus 310-304 freighters (made in 1990).

Overcapacity

According to analysts, apart from the fact that market conditions are not ideal, airlines have lower negotiating power as they are not professional leasing companies such as GECAS or ILFC.

When the global economic recession hit air traffic growth, airlines globally embarked upon reducing capacity. However, India was slow to react and is still reeling under the effects of overcapacity. According to industry estimates, there is still 20-25 per cent overcapacity in the Indian skies.

It is only recently that even Jet Airways leased out nine aircraft comprising seven Boeing 777s and two Airbus 330s. The company plans to lease out three more Boeings in the near future.

Jet earns $19.4 million (Rs 91 crore) a month from the nine planes leased out of which the Boeing 777s contribute to a lion’s share of $15.4 million (Rs 72 crore) with the Airbus 330s taking up the rest.

The airline has 86 aircraft in its fleet and plans to go in for more Airbus 330s in the current market scenario, which are more cost-efficient compared with Boeing 777. It is also going slow on future deliveries and expansions.

Order intact

However, Air India’s order of 111 aircraft remains intact. The carrier says that a bulk of the order is towards replacement of its older fleet. It will also be using brand new Boeing 777s on all long haul routes for the upcoming winter schedule. Incidentally, the Boeing 777’s running cost works out to approximately $13,000 an hour, while that of the Airbus 330 is $9,000.

Air India has taken delivery of 64 aircraft so far. This includes nine B777-300 ERs, eight B777-200LR, 15 each of A321 and A319 aircraft, besides 17 B737-800 aircraft for Air India Express. The entire order will be delivered during 2011-2012.

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