Air India to Leaseback Aircraft

Thursday, 23rd January 2014 at 08:30am

To infuse liquidity and stem losses, the state-owned flag carrier, Air India, is selling some of its aircraft and leases them back for its continued use.

This strategy will help the airline subdues losses due to high operating and maintenance costs as it prepares itself for full membership to the global airline alliance this year.

Star Alliance, the largest and the first global airline alliance, has renewed its interest to take in an Indian carrier to complete its global network of the world's largest airlines serving virtually all the major continents in the world.

In December last year, the heavily indebted airline sold a couple of Dreamliners to an aircraft leasing company, Investec. The UK-based firm has leased back the two aircraft to the airline since then. Each aircraft generated $115 million for the carrier (Rs. 713 crore) or a total of $230 million, enabling Air India to gain $30 million as profit.

By January this year, the airline is slated to sell two more of the fuel-efficient new generation aircraft to two Investec and another three to Deutsche Bank AG of Germany.

Air India becomes the third Indian carrier, after Jet Airways and IndiGo, to leaseback its aircraft to obtain cash to finance its debt and stem losses.

The state-owned airline has posted a debt of Rs40,000 crore, including the Rs5,100 it amassed in the last fiscal year. The government has bailed out the airline with the amount of Rs30,000 crore from possible bankruptcy.

It is expected to stem its losses further down to Rs3,900 in the current fiscal year, a far cry from the net loss of Rs7,100 crore it posted during the 2011-2012 fiscal year.

Air India has already taken delivery of 12 of the 27 Dreamliners it ordered in 2006.

It sold five of its wide-body long-range aircraft, a Boeing 777, to Etihad Airways PJSC for $350 million and earned $100 million as a result. The proceeds of the sale were used to finance its debt obligations as well as maintenance costs.

The move by Air India to leaseback its aircraft is just part of its strategy to improve its financial health in order to ease its way to full membership in Star Alliance this year.

The airline's entry to Star Alliance was temporarily put on hold in 2011 reportedly due to its failure to meet the minimum requirements. It had paid €10 million to the alliance as membership fee.

Once the airline is officially admitted as full member, Flying Return members will get to enjoy expanded benefits as they will have the chance to earn points if they fly with any of the 29 member airlines anywhere across 1,328 destinations in 195 countries.

Air India has a current fleet of 100 aircraft, 38 of which are wide-body and 62 are narrow-body planes.

By: Pete Lee.