Cash strapped airlines seek to rework lease rentals with lessors
Besides a substantial reduction in rental costs, several domestic carriers have approached lessors seeking a deferment on the rentals and have already managed to avail concessions, according to industry watchers.
Aircraft lessors who spoke to Mint on condition of anonymity said that in several instances, carriers have been allowed to partially delay payment by anywhere between three to eight months.
“The situation remains grim for airliners across the world and Indian carriers are no exception" said a senior official of a global aircraft leasing firm. “ This is an extraordinary situation and everyone needs to be cognizant of the immense challenges faced by the sector’" he added. Aircraft lease rentals are fixed costs and account for around 15% of an airline’s expenses and since these are paid in dollars are also subject to currency fluctuations.
India's largest domestic airline, InterGlobe Aviation Limited-operated IndiGo, which is currently flying about 20% of its current capacity, has so far got about 50% relief on supplementary rentals as a majority of its fleet remains grounded. Supplemental rent are funds collected during the term of the lease by leasing companies to cover the cost of maintenance.
“Supplementary rentals are purely driven by the amount of flying that you do. So till the time, if we are flying, we need to put these supplementary rentals up, if we are not flying, then obviously these supplementary rentals don't accrue," company's chief financial officer Aditya Pande told analysts at a post result call last week.
Like Indigo, SpiceJet too has negotiated leasing costs .
"Lessor payments, which form the bulk of our fixed costs, have been mutually deferred and waived as there has been no economic value derived by the airline, however the news report makes a deliberate effort to malign our standing without verifying the correct position with us" the company said in a recent statement.
The cost saving measures, however, don't stop at reworking leasing agreements alone. Most domestic airlines have been working to address other aspects too, which include seeking volume discounts from vendors, renegotiating payment terms and seeking a waiver on annual cost escalations for high cost components such as IT contracts, ground handling agreements, said a senior airline official, under the condition of anonymity.
"At a time like this, the approach is simple. Airlines need to survive for vendors to survive. If they don't aree, either we find someone else or the airline, especially smaller ones, stand a chance to shut shop. In that case, vendors may not get paid at all," said the senior airline official. For vendors, the choice is the possibility of losing existing business or working on lower margins, said independent aviation analyst Ameya Joshi, also the founder of aviation blog NetworkThoughts. "Most of the time vendors agree to charge lower rates," Joshi added.
India’s aviation industry is expected to post losses of $3-3.6 billion in the June quarter with airlines sharing the bulk of the hit following a raft of travel restrictions and diminishing travel appetite because of the covid-19 pandemic, according to aviation consultancy Capa India.
Domestic carriers are forecast to incur losses of about $1.75 billion during, followed by airports and concessionaires with losses of between $1.50 billion and $1.75 billion, The ground handling industry could report a loss of $80-90 million during the same period, Capa India added.
Source: https://www.livemint.com
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