Air India has written to the Government seeking permission to shift from sale and lease back to outright purchase of the 15 Boeing 787 aircraft that the airline is yet to acquire.

Air India had ordered 27 Boeing 787 aircraft as part of a 68 aircraft deal valued at $11 billion at list price in 2005. Deliveries of the aircraft started in 2006 although the delivery of the Boeing 787 was delayed and it eventually joined in 2012 after a delay of almost four years.

A senior Air India official said that while the sale and lease back for seven Boeing 787 aircraft has been completed the process is under way for the remaining five.

Sale and lease back is a financial transaction where one sells an asset and leases it back on a long term and continues to use it without owning it.

Air India is keen on moving away from the SLB model as globally a new international accounting standard on leases (popularly known as IFRS on leases) may soon get operationalised.

This could make life difficult for lessees like Air India and other airline operators as they will have to disclose the effect of long-term leases in their balance sheets.

So far SLB transactions have essentially been treated as off-balance sheet transactions for lessees, which means the value of the assets and liabilities for the aircraft transaction are not getting reflected in the balance sheets. This in a way does not reflect the true financial position of the lessee, some accounting experts have argued.

Besides, under the SLB route the aircraft will have to be redelivered under redelivery conditions which may cost $ 20 to $ 25 million for a wide body aircraft at the end of a typical lease which is ten to 12 years whereas under the purchase option the airline retains the aircraft and no redelivery cost is involved and the airline has the ownership of the aircraft and its residual value and can use it for some more years where the ownership cost is almost nil, the official said.

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