Kingfisher episode may make leasing tough, costlier
Vendors to which Kingfisher owes money are preventing leasing firms from repossessing aircraft
P.R. Sanjai
Updated: Wed, Oct 31 2012. 11 55 PM IST
Mumbai: Kingfisher Airlines Ltd’s
inability to pay aircraft lessors may queer the pitch for other
airlines seeking to lease planes, and make the process costlier. Four
executives from as many leasing companies said they have been unable to
repossess aircraft because other vendors to which the grounded airline
owes money, including the Airports Authority of India (AAI), are
preventing them from doing so.
One lessor, a UK-based company, has been knocking on various doors in New Delhi seeking help to repossess aircraft from Kingfisher, according to a private airline executive who requested anonymity.
Kingfisher owes money to the state-run AAI, Delhi
International Airport (Pvt.) Ltd, Mumbai International Airport Pvt. Ltd,
and three oil-marketing companies.
Difficulties faced by lessors in repossessing aircraft could have two consequences, said
Saroj K. Datta
, a senior aviation consultant and former executive director of
Jet Airways (India) Ltd
. It will make lessors reluctant to lease aircraft to Indian airlines or increase the cost of such transactions.
“India is getting into a dangerous situation of having a shortage of aircraft or a high-cost environment,” Datta explained.
Tony Ramage, executive vice-president (airline leasing and sales, Asia Pacific and Middle East) of BOC Aviation Pte Ltd of Singapore, declined to comment on its exposure to the Indian market and Kingfisher.
Earlier,
at a seminar organized by consultancy firm Centre for Asia Pacific
Aviation, or Capa, Ramage said appetite for the Indian market among
lessors is still healthy and his company was in talks with all local
carriers.
Aashish
Sonawala, senior vice-president at GE Capital Aviation Services, a
leasing finance company, declined to comment. At the same seminar,
Sonawala had said that lessors need to be informed about the
environment, jurisdiction and quality of the management of the airline
with which it is dealing.
In
the long term, defaults such as the one by Kingfisher could have a
catastrophic effect on the business in India, said Nirvan Veerasamy,
managing director at Mauritian aircraft leasing company Veling Ltd.
“I
do remember the earlier days of aircraft leasing in India when a few
lessors had difficulty (repossessing) aircraft. As a result, most, if
not all, lessors require a power of attorney for de-registration of an
aircraft at the very beginning of a lease,” he said.
“This
is in effect a ‘blank cheque’ which a lessor may use when a set of
specific events take place that leads to the repossession of the
aircraft. Today, we have moved to another environment whereby a lessor
may not be able to take back its aircraft before stepping in the shoes
of a defaulter and paying that debt,” Veerasamy said.
That
makes the business much more riskier, he added, and lessors may look to
more attractive markets such as West Asia, China, and South East Asia.
Not allowing lessors to take back planes wasn’t “right”, admitted AAI chairman V.P. Agrawal.
“But
what Kingfisher Airlines is doing is also not right. They owe us money
and we will have to get it back,” Agrawal said. Kingfisher Airlines owes
Rs.293 crore to AAI.
Veling
has leased two aircraft to Kingfisher Airlines and Veerasamy said it
would strive to achieve a balance between the airline’s interests and
those of the lessor’s own shareholders.
In the case of Deccan 360, the cargo carrier founded by G.R. Gopinath,
Veling had no choice but to terminate the lease, take back the
aircraft, re-market the asset and take the necessary steps to recover
money owed to it. “This is the not so nice but (an) inevitable part of
the business,” Veerasamy said.
Both
Veerasamy and Manikkan Sangameswaran, president (infrastructure) at
ICICI Venture Funds Management Co. Ltd (who earlier worked with lessor
Babcock and Brown India Ltd), said transaction prices could increase.
