Fewer new aircraft lift mid-life plane demand

According to Jared Ailstock, managing partner of AIP Capital, an aviation asset management and investment company, airlines are choosing to pay higher fees to extend leases and keep such aircraft on their fleets, a trend that is consistent worldwide.

“Mid-life aircraft, which would normally have been retired, are staying in fleet longer, so airlines are signing early extensions; you see lease rents go up on those aircraft, you are seeing extensions on those planes to keep them on the fleet,” Ailstock said in an interview.

In India, too, airlines that had planned to retire older planes have often extended leases. IndiGo, the country’s largest airline, had said in January 2020 prior to the pandemic outbreak that it would start retiring A320ceo aircraft from January 2021, with an aim to return all 126 A320ceos on its 257-aircraft fleet by December 2022. However, the airline has since extended some leases and postponed some redeliveries to ensure supply amid a post-covid surge in air travel demand in India. As of June, the airline had 20 A320ceos in its 316-aircraft fleet.

Ailstock said the shortage of new planes has also prompted recent large aircraft orders, as airlines aim for a more consistent delivery window in the future.

“I think the overall theme in the market today is that there is a shortage of aircraft that is causing airlines to do a few things. Some of this you have seen in IndiGo where they placed one of the largest aircraft orders in history to secure delivery slots over the next seven years or so. We think that sort of theme of lack of supply of aircraft manifests itself in a couple of different ways,” he said.

AIP Capital doesn’t have any Indian customer, but has held discussions with IndiGo and Akasa Air, among others, and is exploring a business case in terms of partnerships, Ailstock said.

“Broadly, we are looking at operating leases of Boeing 737 MAX and financing in the form of pre-delivery payment facilities to help airlines. We are actively looking at both these aspects and speaking to airlines in the country about it,” he said.

AIP Capital, which recently took a 30% stake in Korean consulting and investment firm Dreamstone Aviation Partners, currently has a $1.6 billion portfolio with 30 aircraft, with another 68 Boeing 737 Max models on order.

While the legal developments related to leased planes of bankrupt Go First has instilled a sense of caution among the lessor community and can impact lease rentals in the future for secondary and startup airlines, the overarching sentiment towards India remains positive on the back of “unmatched” demand growth, Ailstock said.

In July, domestic air traffic stood at 12.1 million passengers, 1.6% above the pre-covid level of July 2019.

“If you are leasing aircraft into India—if it is IndiGo, Akasa, Air India or a healthier airline that is well-run—I think the community will get behind those airlines and participate there. But I think in India, we will probably see some caution around second-tier airlines, startup airlines because it has been clear that it is not easy to repossess your asset if there is default on lease rents,” he said.

Updated: 24 Aug 2023, 12:07 AM IST