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Cautious approach towards Indian carriers by leasing cos: CAPA

Major aircraft leasing companies and financers have started adopting a cautious approach towards Indian carriers, with some even threatening to pull out of India, it said.

New Delhi: The court battle among airport operators, tax authorities and Kingfisher Airlines' lessors over repossession of its planes may have a negative impact on other Indian carriers leasing aircraft from global leasing companies, a leading aviation consultancy firm has said.

Major aircraft leasing companies and financers have started adopting a cautious approach towards Indian carriers, with some even threatening to pull out of India, it said.

Keeping this in mind, the Civil Aviation Ministry is contemplating issuing some guidelines to airport operators and government agencies not to hold on to or seize aircraft as security for unpaid dues of an airline, official sources said.

The primary aim of these guidelines would be to prevent foreign lessors from avoiding the India market by telling the airport operators and other agencies not to take aircraft as collateral from an airline company, they said.

In the latest report, the Centre for Asia Pacific Aviation (CAPA) said, "There is a real danger that this (situation) could add a further cost element to the already high-cost operating environment through increased leasing and financing costs. Some lessors and financiers have threatened to withdraw from the market entirely."

The lessors were also contemplating to attach "a higher risk premium to the Indian market amid concerns they will continue to face challenges recovering their assets in the event of a default".

Leasing firms like US-based ILFC and aviation financer Germany's DVB Bank have been the most vocal about the challenges in the market, with both encountering ongoing and costly problems in repossessing aircraft so far operated by Kingfisher, it said.

Some leasing companies, including the German aviation bank, had moved the Delhi High Court, which recently ordered that the lessors had a right over these aircraft. An Airbus A-321 plane of Kingfisher, leased by ILFC, was released after the court order.

The lessors had moved court after the Airports Authority of India seized several aircraft of the liquor baron Vijay Mallya-owned carrier and decided not to release them till Kingfisher cleared its dues.

The current situation presents "potential challenges" for other Indian airlines which rely heavily on financing from foreign banks for purchase and lease of aircraft, the CAPA report said.

"Lessors have also been acting more cautiously in the market, with some reportedly demanding rental payments six months in advance, in reaction to recent market developments."

The "continued delays by the Indian government" to de- register Kingfisher's aircraft since it suspended operations last October was expected to hurt other Indian carriers while "also creating the impression that India is not adhering to the Cape Town Convention, of which it is a signatory", thereby "eroding" their international credibility, it said.

The DVB Bank representatives recently met DGCA chief Arun Mishra here to get the aviation regulator to de-register two Kingfisher planes it had leased, so that the bank could repossess them.

Earlier this week, DGCA deregistered 15 aircraft of Kingfisher to enable the leasing companies to take them back on grounds of default on their lease rentals by the grounded carrier.

CAPA said for Indian carriers which were competing with some of the world's most efficient airlines, the current dispute between lessors and the government could have a real and lasting impact on their bottom-line.

"Already burdened by a host of uniquely unfriendly national and state taxes, India's airlines hardly need the unnecessary added burden of having to pay more for financing their aircraft," it said.