NEW DELHI: The Sale and Leaseback (SLB) model used by airlines Global fundraising could suffer serious damage in India afterwards Go ahead used the voluntary insolvency Route to prevent unpaid lessors from repossessing their aircraft.
Top officials at leading aircraft and leasing companies say Go First’s example will result in aircraft risk premiums being given to desi airlines. And airlines deemed to have “bad credit” could be given two choices: pay a higher lease price and keep the SLB value, or keep current lease rents with a lower SLB value.
Airlines in India, starting with IndiGo, have successfully used this avenue to generate funds. Depending on the customer’s creditworthiness and the size of the order, airframe and engine manufacturers offer a discount on the list price of their offer.
“For an Airbus A320/Boeing 737 Max, the SLB value can range from $3-4 million for start-ups or financially weak airlines and $8-9 million for creditworthy companies,” said a senior official of an Indian company Airline.
“After the Go First case, the SLB value for Indian airlines could drop by 5-10%. Newly established or weak balance sheet airlines may opt for higher lease rents to make money on this route. Established, strong providers may opt for a lower SLB to prevent higher rents. When you multiply SLB success per aircraft by order size, the success can be big,” said an industry insider.
The Asia branch of the International Society of Transport Aircraft Trading (ISTAT) is currently meeting in Bangkok where lessors are discussing the impact of the go-first case on aircraft leasing to Indian airlines. Prior to this case are leases for a Airbus A320neo or Boeing 737 Max was about US$3.5 lakh and widebody 10-12 lakh per month for airlines with “good credit”.
“The ability for lessors to repossess their assets promptly and predictably when defaults and bankruptcies occur, in accordance with India’s international contractual obligations (under the Cape Town Convention), is essential for future access to capital on best terms for… Indian airlines,” said Jeffrey Wool, secretary-general of the Aviation Working Group, which brings together the world’s leading aviation lessors, banks and manufacturers, told TOI.
Top officials at leading aircraft and leasing companies say Go First’s example will result in aircraft risk premiums being given to desi airlines. And airlines deemed to have “bad credit” could be given two choices: pay a higher lease price and keep the SLB value, or keep current lease rents with a lower SLB value.
Airlines in India, starting with IndiGo, have successfully used this avenue to generate funds. Depending on the customer’s creditworthiness and the size of the order, airframe and engine manufacturers offer a discount on the list price of their offer.
“For an Airbus A320/Boeing 737 Max, the SLB value can range from $3-4 million for start-ups or financially weak airlines and $8-9 million for creditworthy companies,” said a senior official of an Indian company Airline.
“After the Go First case, the SLB value for Indian airlines could drop by 5-10%. Newly established or weak balance sheet airlines may opt for higher lease rents to make money on this route. Established, strong providers may opt for a lower SLB to prevent higher rents. When you multiply SLB success per aircraft by order size, the success can be big,” said an industry insider.
The Asia branch of the International Society of Transport Aircraft Trading (ISTAT) is currently meeting in Bangkok where lessors are discussing the impact of the go-first case on aircraft leasing to Indian airlines. Prior to this case are leases for a Airbus A320neo or Boeing 737 Max was about US$3.5 lakh and widebody 10-12 lakh per month for airlines with “good credit”.
“The ability for lessors to repossess their assets promptly and predictably when defaults and bankruptcies occur, in accordance with India’s international contractual obligations (under the Cape Town Convention), is essential for future access to capital on best terms for… Indian airlines,” said Jeffrey Wool, secretary-general of the Aviation Working Group, which brings together the world’s leading aviation lessors, banks and manufacturers, told TOI.
