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Air India flight 104 departs for Delhi from Washington Dulles (Photo: James Dingell)

India Seeks to Create Domestic Aircraft Leasing

India is undoubtedly a large and growing aviation market. A liberalized approach to aviation and the country’s strengthened economic position in the world has helped it become one of the fastest-growing markets, doubling in the past seven years. This fast-paced growth is expected to continue as more and more of the country takes to the skies. Annual growth is expected to be close to 17 percent.

Growing Number of Passengers and Planes

In 2008, the number of air passengers was around 117 million, and today it is around 440 million. This has led the Indian government to consider changes to aviation laws that may actually be beneficial for the industry, such as removing a high tax on aviation fuel. In addition, foreign direct investment rules may be revisited, though exact details are scant at the moment.

Aviation Minister Hardeep Singh Puri told Parliament that this high growth could eventually see the number of aircraft flying for Indian airlines reach 2,000, a significant increase over the 600 aircraft currently in Indian airline fleets.

The Need for Domestic Financing

This has pushed the government to focus on domestic aviation financing to help the industry grow. Currently, around 80 percent of aircraft operated by Indian carriers are leased compared to the global average of 40 percent.

This asset-light model of operation by Indian airlines has worked well so far for most. Easy credit along with low-interest rates have made for a flourishing market for aircraft leasing. Though the market is getting a bit tougher, the recent demise of Jet Airways has sent shudders down the spines of aircraft lessors.

This also comes at a time of global uncertainty, Brexit, trade wars and general slowdowns in economies across the globe. This all has impacts on leasing costs and with fluctuating foreign exchange rates, it’s becoming more expensive for Indian airlines to finance aircraft with foreign lessors. Changes in foreign exchange rates would result in airlines paying more for aircraft since the leases are usually denominated in a foreign currency.

This is of particular importance in the Indian aviation industry where profit margins if they exist, are generally razor thin. Increased costs can eat away at the smallest of profits and push an airline into the red.

To manage the huge growth expected in the industry, the Indian government is looking to establish domestic aviation financing. The significant risks and downsides of heavily leased aircraft fleets aside, the country is trying to create a self-reliant aviation industry that will be able to fund purchases and lease aircraft locally. This will work to insulate Indian airlines from significant foreign exchange fluctuations and other factors.

This in theory if coupled with the sale and leaseback model, a transaction in which an airline purchases an aircraft then sells it to the lessor and then leases it back,  should help Indian airlines grow and maintain a relatively young fleet but it will come at the cost of a highly leveraged asset-light operation which could result in the airline over time paying more for an asset than outright purchase. In addition, if an airline is facing financial difficulties aircraft can quickly be repossessed as was seen with Jet Airways which had its aircraft repossessed and flying for SpiceJet and Vistara a few weeks after repossession.


  • Hemal Gosai

    Hemal took his first flight at four years old and has been an avgeek since then. When he isn't working as an analyst he's frequently found outside watching planes fly overhead or flying in them. His favorite plane is the 747-8i which Lufthansa thankfully flies to EWR allowing for some great spotting. He firmly believes that the best way to fly between JFK and BOS is via DFW and is always willing to go for that extra elite qualifying mile.

Hemal Gosai

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