Domestic airlines are beginning to find operating flights on leased aircraft a tad worrisome as a weak rupee has made rentals the fastest-growing expense item for them.
Among listed airlines, Jet Airways’ lease rentals grew nearly 32% to R364.48 crore in the first quarter of fiscal 2013-14 even as all other expenses, apart from employee costs, came down. Low-cost competitor SpiceJet, which recently embarked on a sale-and-lease back model, also faced a 12% increase in lease rentals during the quarter and ended up paying R219.79 crore compared to R196.25 crore in the same quarter last year.
Sources in the aircraft-leasing industry say that for unlisted airlines such as IndiGo and GoAir, the increase in lease rentals is anywhere between 15% and 20%. “Aircraft lease rentals are typically paid in US dollars, so with the rupee falling, the overall outgo for the airlines is increasing,” said a senior official from a US-based aircraft lessor. “The whole notion that sale and leaseback model leads to profitable operations is no longer the case because of the weak rupee. When operating on a sale and leaseback model, an airline needs strict control over costs, but with fuel still hovering at around 45% of Indian airlines' operating costs, sale and leaseback is becoming difficult to manage.”
Aircraft lease rentals, which were only about 6% of Jet Airways' total expenses in the first quarter of fiscal 2012-13, have risen to nearly 10% in the first quarter of fiscal 2013-14. For SpiceJet, aircraft lease rentals are nearly 15% of the total expenses compared to 12% in the same quarter last year.
Out of the 343 planes of scheduled passenger carriers in the country, 212 are being operated on lease. IndiGo, for example, operates completely on a sale and leaseback model wherein it sells-off the aircraft to lessors and immediately leases them back. Wadia-group promoted GoAir follows a similar model and Jet Airways started its sale and lease back programme a couple of years ago to bring in funds and reduce the high cost of debt.
Due to spiralling lease costs, officials in the aircraft leasing industry and