Budget 2021

Why the push to make India an aircraft leasing, financing hub is a significant step

Ashwini Phadnis New Delhi | Updated on July 07, 2019

The Budget announcement to unveil measures for aircraft financing and leasing activities in the country could help India enter an exclusive multi-billion dollar club into which China recently made an entry.

At present, like their global counterparts, airlines in India lease the aircraft that they operate. The leasing is done from tax havens around the world, but mostly from Ireland. While leasing an aircraft ensures that an airline does not take on a huge financial burden on its balance-sheet, it has its own challenges.

The biggest challenge of leasing is that the deal is structured in foreign exchange and any fluctuation in forex affects the airline’s operations as it usually has to pay more for leasing the aircraft.

If the leasing companies are set up in India and lease rentals are in rupees, valuable foreign exchange can be saved and used for other useful purposes.

Entering aircraft financing and leasing activities will mean that aviation companies in India will be in a better position to manage their costs.

Vision 2040 for the Civil Aviation sector in India, a joint study by FICCI and KPMG which was released earlier this year at the Global Aviation Summit, pointed out that currently there are around eight aircraft leasing companies which have assets of $10 billion with most being headquartered in Ireland. It added that China has successfully been able to create a local aviation leasing industry with strong support from its government and government-owned banks.

“India will establish its own aircraft leasing industry which may handle almost 90 per cent of aircraft being ordered in India by 2040. India’s tax structure and repossession processes will be equally or more attractive than those in leading global jurisdictions,” the document said.

Experts’ take

L Badri Narayanan, Partner, Lakshmikumaran & Sridharan Attorneys, said by undertaking aviation financing in India, apart from creating jobs, it is expected that Indian financial SEZs can develop further and cater to this area.

Kinjal Shah, Vice-President and Co-Head, Corporate Sector Ratings, ICRA, felt that steps to develop India as a hub for aircraft financing and leasing activities are positives as these will provide access to the much needed capital.

Published on July 07, 2019

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