A host of start-up airlines in India, including those waiting to launch, plan to buy aircraft — whether new or second-hand — as they struggle against soaring lease rentals and a scarcity of turboprop planes and jetliners.
To illustrate, the average monthly lease for a pre-owned (aged below 15, as per the Directorate General of Civil Aviation’s stipulation) 72-seater ATR72-600 turboprop aircraft is $90,000, while it is $2,75,000 for an A320neo. Used craft from Indonesia would cost $7 million and $60 million, respectively.
To worsen matters, the dollar-rupee exchange rate volatility, alongside the 4.32 per cent (three-month average) secured overnight financing rate (SOFR), has pushed up leasing costs by 20–25 per cent year-on-year. In contrast, direct orders for aircraft from original equipment manufacturers enjoy 20–30 per cent discount and loans backed by export credit are at sub-6 per cent, with an option for sale-and-leaseback, enabling cash capital infusion for the airline.
New energy
Despite the advantages inherent in aircraft purchase, leasing has dominated the Indian aviation sector, where over 80 per cent of commercial jets are leased, as against 53 per cent globally.
This scenario appears set to change in the case of start-up airlines. Recently, Goa-based regional player FLY91 bought its first ATR aircraft, a 72-seater ATR 72-600, directly from the plant.
Industry insiders attribute this shifting trend to factors ranging from post-Covid supply chain disruptions to GoAir’s troubles with leased aircraft engines and subsequent bankruptcy, and aircraft shortages leading to steep leasing rates as demand from global and domestic carriers surges.
Industry insiders told businessline that high tax rates, including GST and import duties, further make leasing unattractive, even as dollar-denominated payments pose challenges for Indian airlines earning in rupees.
Owned aircraft, on the other hand, offer long-term cost advantages, asset ownership and customisation control.
Tangible asset
“The biggest advantage of owning an aircraft is the direct control one has over maintenance and reserves, which otherwise is a massive direct expense. Also, the asset financing costs are far more efficient as opposed to lessor lease rentals,” says FLY91 MD and CEO Manoj Chacko.
“It also becomes a tangible asset on your balance sheet. However, a deep understanding of the aircraft, finding the right asset and a high-quality maintenance programme are absolute essentials. Also, the airline has to find the right balance of owned-versus-leased.”
Upcoming airline Shankh Air’s Executive Director and Co-founder Anurag Chhabra, too, observes that owned aircraft can improve balance sheets while also enabling easier access to future financing.
“The only option for a newer player remains purchase of aircraft as there is long-term cost advantage, asset ownership for balance sheet strength and customisation and control,” Chhabra says.
Umesh Vankayalapati, MD of TruJet, the airline that’s gearing up for a revival post its shutdown during the pandemic, points to another crucial factor — leasing companies are hesitant to deal with start-ups due to concerns over financial stability. He adds that start-up airlines are looking to buy aircraft to demonstrate their financial viability to leasing companies.
Monetisation
According to Quantace Research Founder Karthick Jonagadla, start-up airlines with strong capital backing can gain a margin edge by owning aircraft.
Owned aircraft can yield a 6-8 percentage point margin advantage over pure-leasing models, he says, capturing tax arbitrage and future ESG-linked capital upside.
“Owning enables airlines to place aircraft in GIFT City SPVs (special purpose vehicles), unlocking a 10-year tax holiday and depreciation benefits. MRO (maintenance, repair and operation services) GST cuts (18 per cent to 5 per cent) and ‘redelivery freedom’ can improve aircraft availability by 8–10 per cent. With newer narrow-bodies retaining 65–70 per cent residual value at year 12, ownership also opens up monetisation via sale-and-leasebacks,” he says.
“In a market projected to need over 2,000 aircraft by 2040, ownership signals long-term confidence, balance sheet strength and flexibility — critical moats in India’s hyper-competitive skies,” Jonagadla explains.
Eye on airworthiness
However, Mark Martin, of Martin Consulting, cautions that buying low-priced second-hand aircraft from the grey market raises questions about an airline’s financial strength and sustainability, especially when coupled with its reluctance to disclose its source of funds as part of stringent KYC norms.
He emphasises the importance of strict compliance with regulations, including source of funds and promoter credibility, to maintain India’s airworthiness standing.
“Today, we can’t afford to repeat a 1992 East West Airlines situation where India became a dumping ground for garbage and junk aircraft that the world did not want any more. The DGCA should immediately check such airlines to ensure India’s airworthiness standing does not drop with the import of aircraft with corrosion, accident and incident history,” Martin says.