Aircraft Leasing – Why Indian Companies Shy Away From Being The ‘Lessors’?

Aircraft leasing services in India have become increasingly popular in recent years due to the ever-growing demand for air travel and advancements in technology. With a vast network of airports in the country and an increasing number of flyers, aircraft leasing companies are playing a significant role in keeping the aviation industry in India operational.

In this article, we will explore what aircraft sale, purchase and leasing are, why they are essential, the current state of aircraft leasing in India, the future of the aircraft leasing market in the country and what keeps the Indian companies from entering the leasing markets as Lessors.

What are Aircraft Leasing Services?

Aircraft leasing services refer to the process of leasing aircraft from a leasing company rather than purchasing it. By leasing an aircraft, airlines can operate their flights without the need to invest a significant amount of their capital into purchasing the aircraft or take on the financial risks that come with owning an aircraft. The leasing agreement between the leasing company and airline typically covers the aircraft’s maintenance, insurance, and other related costs.

Aircraft leasing services are available in two main types- operating lease and finance lease. In an operating lease, the leasing company retains ownership of the aircraft, and the lessee only utilizes the aircraft for a specified period. The lessee pays a monthly rental fee for the usage of the aircraft, which typically lasts for five to seven years. At the end of the lease period, the aircraft is returned to the leasing company. In a finance lease, the lessee is responsible for the maintenance and insurance of the aircraft during the lease period, and the aircraft’s ownership transfers to the lessee after the lease period ends.

Why are Aircraft Leasing Services Essential?

Aircraft leasing services are essential because they provide airlines with the means to operate their flights without the high capital expenditure required to purchase an aircraft (See Fig 1 above). The aviation industry is a capital-intensive industry, with the cost of purchasing a single aircraft ranging from tens of millions to hundreds of millions of dollars. For airlines, investing such a large amount of capital into an aircraft can put undue financial pressure on the airline, especially when considering that the aircraft’s useful life can span a few decades. Due to this, leasing an aircraft can be an attractive option for airlines as it eliminates the high initial costs associated with purchasing an aircraft.

Furthermore, the leasing company is responsible for the aircraft’s maintenance and insurance, reducing the operational costs that airlines typically incur. This allows airlines to focus on their core business activities, such as marketing, ticketing, and customer service.

Some well known Aircraft Leasing Companies from around the world:

State of Leasing Services in India

The Indian aviation industry has seen significant growth in recent years, with the number of passengers increasing from 61 million in 2010 to approximately 200 million in 2018, according to the Directorate General of Civil Aviation. With such growth, the demand for aircraft has risen, and so has the need for aircraft leasing services.

Presently, there are several aircraft leasing companies operating in India, offering a range of services to airlines, including operating and financial leasing. The major players in the Indian aircraft leasing market are leasing companies from Ireland, the USA, and the UK, with barely any domestic players.

One of the prominent leasing companies operating in India is BOC Aviation, which is a subsidiary of the Bank of China. The company has a fleet of over 500 aircraft and offers airframe and engine leasing services to airlines worldwide. Another major player in the Indian market is SMBC Aviation Capital, which is based in Japan and has a fleet of over 700 aircraft. Other leasing companies operating in India include GECAS, FLY Leasing, and CDB Aviation.

The Indian government has also taken steps to encourage the growth of the aircraft leasing market. In 2016, the government introduced a policy to make India a hub for aircraft leasing, providing tax incentives to leasing companies and allowing the leasing of aircraft registered overseas with certain conditions. But the question remains – Are these measures enough to encourage a home grown (Indian) company to venture into the big league and be able to compete with the likes based, for example, in Ireland.

Future of the Aircraft Leasing Market in India

The future of the aircraft leasing market in India is promising, with the country expected to be one of the fastest-growing aviation markets in the world. According to a report by the International Air Transport Association, India is forecasted to have 278 million air passengers by 2025, making it the third-largest aviation market globally. The increasing demand for air travel and the government’s initiatives to promote the aircraft leasing market will undoubtedly provide significant opportunities for aircraft leasing companies in India. However there remains a general lack of interest amongst the domestic companies from entering the fray and be the Lessors in the Leasing Market.

Why Indian Companies Shy Away From Entering The Aircraft Leasing Market

There could be a number of reasons why Indian companies largely refrain from entering the leasing industry. Some of these possible factors are:

1. Lack of expertise: Aircraft leasing is a specialized and complex business that requires extensive knowledge and experience of the aviation industry, finance, legalities, and regulations. This expertise seems lacking in Indian companies.
2. High capital requirements: Aircraft leasing companies require significant amounts of capital to buy or lease aircraft as the costs in Fig 1 reflect. This can be a barrier to entry for Indian companies that may not have access to the necessary funding or may face challenges getting financing at competitive rates.
3. Market dynamics: The aircraft leasing industry is dominated by a few major players who have established themselves as leaders in the market. It can be challenging for new entrants to gain market share and compete with these established companies.
4. Risk factors: Investing in aircraft leasing involves a significant degree of risk, including potential bankruptcy of lessees, changes in market demand, and fluctuations in exchange rates. These risks may deter Indian companies from entering this market.

Overall, while Indian companies may still have the potential to enter the aircraft leasing industry, there may be several challenges and considerations that need to be addressed before they enter this business.

In conclusion, aircraft leasing services are essential to the aviation industry, providing airlines with the means to operate their flights without the high capital expenditure required to purchase an aircraft. The current state of aircraft leasing services in India is growing, and the future of the aircraft leasing market in India is expected to be promising. With the government’s support and the increasing demand for air travel, the Indian aircraft leasing market holds significant opportunities for both domestic and international leasing companies.

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