Leasing remains the dominant method for airlines to acquire aircraft. This is especially true for Indian airlines.
Up to 80 percent of the current commercial aviation Indian fleet is leased. Compare this to the global average of around 41 percent.
The reasons for this are due to an asset-light model, cash-flow considerations and also the favourable financing climate. Until recently, credit markets were very liquid with low-interest rates, high competition and high demand. This made for an attractive financing environment where airlines were able to have banks, lessors and even manufacturers compete and get extremely good financing offers.
However, this may not be the case for long. Interest rates are rising with LIBOR up 26 percent, geopolitical dynamics are more complex than ever (Brexit, the situation in the Middle East, the slowdown in key Latin American economies and the US-China trade tensions), currency fluctuations are at an all-time high and there is consolidation in the lessor markets as well. All of this combined is making for a tighter financing environment going forward.
The players in the aircraft financing and leasing market continuously evaluate risk and the risk premium for Indian airlines is trending higher. This comprises of default risk, a country’s acceptance of the Cape Town Convention (which provides remedies for default), and also precedence.
01/08/19 Satyendra Pandey/CNBC TV18
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Up to 80 percent of the current commercial aviation Indian fleet is leased. Compare this to the global average of around 41 percent.
The reasons for this are due to an asset-light model, cash-flow considerations and also the favourable financing climate. Until recently, credit markets were very liquid with low-interest rates, high competition and high demand. This made for an attractive financing environment where airlines were able to have banks, lessors and even manufacturers compete and get extremely good financing offers.
However, this may not be the case for long. Interest rates are rising with LIBOR up 26 percent, geopolitical dynamics are more complex than ever (Brexit, the situation in the Middle East, the slowdown in key Latin American economies and the US-China trade tensions), currency fluctuations are at an all-time high and there is consolidation in the lessor markets as well. All of this combined is making for a tighter financing environment going forward.
The players in the aircraft financing and leasing market continuously evaluate risk and the risk premium for Indian airlines is trending higher. This comprises of default risk, a country’s acceptance of the Cape Town Convention (which provides remedies for default), and also precedence.
01/08/19 Satyendra Pandey/CNBC TV18
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