IndiGo Changes Its Financing Plans For Aircrafts

IndiGo Airlines has got the approval of buying 11 more aircraft this year. While the government has cleared the way, it has sought to know the airline plans to introduce the smaller planes for better regional connectivity on shorter routes. The airline is the chief market player in the Indian aviation scenario and holds more than one-fourth of domestic market and providing cheap air tickets to passengers to travel. The carrier has applied for the approval of RBI for buying aircrafts using the external commercial borrowings route as it expects to raise Rs 4661 crore loan.

It is interesting to note that the domestic carrier has majority of its plane been acquired on sale-and-leaseback basis or on ‘operating leases’. In the sale-and-leaseback arrangement, the operating lessor buys the aircraft from the airlines and leases these back to the airline with the latter paying monthly rentals. It has to be understood that there are two most common ways of financing the aircraft. This can be done either by way of acquiring the planes on financial lease or the operating lease. The financial lease is the one in which the carrier pays the entire contracted price to the manufacturer. In the case of sale and lease back, the carrier company makes some down payment to the manufacturer and at the time of delivery, the lessor pays the remaining amount on behalf of airline.

The market observers have called this move as a prudent move on the part of the airline as it will have a mix of the owned and the leased aircraft. After having established itself as a leading market player in the Indian aviation sector by operating on the LCC model, providing cheap flights, the airline is now in a position to effect this change and directly own the aircraft which it seeks to get by the year 2014.

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