flight leasing hobby

But getting this first “domestically leased” aircraft in the country, at one point of time, seemed a daunting task as the lessee, JetsetGo Aviation Services Pvt Ltd, had to go through various challenges, which derailed the transaction. . Although plans were set in motion by the firm to lease an aircraft from GIFT City in February (right after the aircraft leasing announcement), the final set of approvals came only in August – some of the aircraft being brought in. day before. Country. A major issue initially was the lack of GIFT City-approved airports that could be used to land aircraft. Later, the government notified two airports, Nagpur and Hyderabad, to land such aircraft, however, it took some time to materialise.

Kanika Tekriwal, CEO and Co-Founder, said, “Our plane was supposed to arrive in July, but we postponed it till August because there was no clarity on the rules and we didn’t know initially that the plane would be scheduled to arrive in July.” Where to drop it? Jetsetgo Aviation. “It turned out that the seller told us that (we) either buy the plane or cancel the deal.” After interventions from several agencies, JetSetGo finally secured all the necessary clearances to land the aircraft. By then, it had been 14 August, days before the scheduled landing.

“We actually wanted to land the aircraft at the MRO (Maintenance, Repair and Overhaul) unit operated by GMR in Hyderabad, but they were not ready for it. Nagpur city and airport authorities helped us in giving permission to land there,” Tekriwal said.

The whole idea of ​​”domestic leasing” came about because most Indian flight operators are forced to rent their aircraft from outside the country – eg, Ireland or Hong Kong. Reason: Transactions can be of US-dollar denominations and reduce currency risk. This is where GIFT City enters the picture, which through hand-held legal scrutiny as a foreign jurisdiction on Indian soil. works effectively.

The move is aimed at bringing down the leasing cost of Indian airlines and benefiting the growth of the world’s fastest growing aviation market. If all goes well then customers will start getting benefits. This is why the experience of the early adopters of the GIFT City route is of immense value.

For example, Tekriwal of JetSetGo says Customs (in Nagpur) didn’t even know how to deal with GIFT City assets. He said that for ease of doing business, aircraft on domestic lease should be allowed to land at any airport in the country. For an aircraft aggregator like Jetsetgo, it takes about four weeks to lease an aircraft from a hub like Ireland. After initial planning to the firm through the domestic leasing route, it took about six months to deliver the aircraft. Such delay adds to the cost.

“These are early days, and a lot of rules are yet to be settled,” Tekriwal said. However, these hiccups can be attributed to the fact that this was the first leasing transaction done at IFSC, GIFT City. The deals are expected to close early in the future.

lease mobility

Most aircraft operated by commercial aviation Entities like airlines are leased because operators prefer to transfer the risk of ownership to lessees. Increasingly, a large number of aircraft in the general aviation realm, including small operators flying private jets and helicopters, are also being leased for similar reasons.

Interestingly, most Indian commercial airlines hire aircraft from lessees located in Ireland, Hong Kong, Dubai, Shanghai and other countries. Ireland is the preferred route because the two countries have a double taxation avoidance treaty. Ireland also has a vast ecosystem for leasing activities, which helps operators complete their transactions quickly.

As things stand, India’s largest domestic airline IndiGo has placed one of the largest orders globally for narrow-bodied aircraft from Airbus SE. Like most no-frills carriers, IndiGo finances most of its aircraft through the sale and lease back (SLB) model. An SLB is a financial transaction in which the owner (airline) sells the aircraft, and then leases it back from the buyer (the lessor). Such a deal typically removes the aircraft and associated debt from the carrier’s balance sheet. Other Indian airlines also follow a similar model and have a huge outstanding order book.

Since a large number of these incoming aircraft will have to execute leases in the near future, there will be ample opportunities for at least some of these deals to materialize through IFSC in GIFT City.

ground reality

However, most of the major international leasing firms are yet to make any concrete commitment to set up a unit in GIFT City. A person associated with the leasing industry, requesting anonymity, said all major lessees globally are on a ‘wait and see’ mode.

“The first few leases in Gift City are likely to have smaller aircraft like helicopters, as these are smaller assets,” said the person cited above. “As the rules are constantly being fine-tuned, things will only get better, which will pave the way for larger lessees.”

There is apprehension among international lessees about setting up shop in GIFT City due to alleged bureaucratic hurdles in India, the person above said, adding that these concerns come from the general view that things may take a long time in India due to inefficiency. and red tape.

“IFSC and its regulators are really fighting against this image of India. They have tried to make their offering available to leasing companies in Ireland from a tax point of view. But will it be enough, or will they have to go the extra mile, that remains to be seen,” said the aforementioned industry expert.

Leading global aircraft leasing companies such as Avalon Aerospace Leasing Ltd, SMBC Aviation Capital, CCB Financial Leasing Co Ltd did not respond to queries. A BOC Aviation spokesperson said the company has no intention of establishing an onshore leasing presence in India at present.

A spokesperson for GE Capital Aviation Services said the company does not comment on confidential customer information.

Some Indian airlines are already under pressure to lease some aircraft from GIFT City, the person mentioned above said, adding that several carriers are currently reviewing such an option. When contacted, spokespersons for IndiGo, SpiceJet, Vistara, AirAsia India and GoFirst did not comment on whether they were exploring the option of leasing aircraft through GIFT City.

Top public sector lenders in the country, such as state Bank of India (SBI) and Punjab National Bank (PNB) is also looking at presence in GIFT City to facilitate financing for the aircraft on lease. “Once the (aviation) sector recovers, we will look at partnerships as we do not have any prior experience in the aviation leasing business,” a senior SBI official said on the condition of anonymity.

So far, about six licenses have been issued to aircraft financing and leasing companies to operate from the International Financial Services Center in GIFT City, while around 20 companies have shown interest, and some of them have applied for licenses. have also applied. Officer with the International Financial Services Centers Authority (IFSCA). “IFSCA has resolved most of the initial issues in collaboration with the Indian government,” an IFSC official said on condition of anonymity. He added that the regulator is actively engaging with the industry to understand whether measures are needed to enable further growth of the ecosystem.

“Our aim is to make the (India-based leasing) platform commercially competitive as well with a view to ease of doing business,” the IFSCA official said.

Gift City Marg

According to an industry expert, aircraft leasing through GIFT City is currently as competitive as Ireland in terms of tax-related benefits.

Aircraft leasing and financing companies operating from IFSC in GIFT City can avail income tax exemption based on business income for 10 consecutive years out of a block of 15 years (tax holiday period), said Sunil Badala, Financial Services Tax in India , Partner and Head of KPMG.

“In addition, income tax exemption can be availed for capital gains arising from transfer of aircraft during the tax holiday period. To avail capital gains exemption, the aircraft leasing unit must be made on or before 31 March 2024. Will have to install before that,” Badal said.

According to Badala, the IFSC income tax exemption may be easier to certify than the similar exemption provided to lessees in Ireland. Double taxation treaties and other complications do not enter the picture because IFSC, though nominally an international territory, is within India.

From an indirect tax point of view, if both the lessee and the lessee are based in IFSC, then Goods and Services Tax (GST) will not be applicable, said another tax expert, who specializes in indirect tax and spoke on the condition of anonymity. The tax-expert further said, “FEMA (Foreign Exchange Management Act) provisions are not applicable to units in IFSC, hence they will not be charged transaction tax.”

“The idea is to create an alternative to the Irish leasing market in IFSC,” the person said.

the road ahead

According to Polaris Market Research, the global aircraft leasing market size was approximately $306.9 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 7.3% during the forecast period (2021-2028). “The narrow body segment (single-iced plane) is expected to hold the largest share over this period due to its (inherent) advantages, such as fuel-efficiency and less economical risk,” Polaris said in a June 21 report.

Meanwhile, the recovery of air passenger traffic is expected to be gradual, with domestic passenger traffic only expected to reach pre-Covid levels by FY24, according to rating agency Icra Ltd. International passenger traffic is expected to pick up much later and will depend on when and whether countries begin to lift the travel restrictions that are currently in place.

However, as travel increases, and airlines fly more aircraft, aircraft leasing activity will increase globally.

Vishok Mansingh, chief executive officer of aviation consultancy and asset management firm Vaman Aero Services LLP, said that since this is the first time that a platform is available for aircraft leasing within India, there are bound to be some initial hiccups. “These are more procedural issues in nature and are likely to be resolved,” he said.

Vman Aero expects to conduct leases for regional aircraft such as ATRs, turboprop planes and narrow-body aircraft from IFSC in future. “Currently, our focus is on general aviation-related leases, which include helicopters, turboprops, trainer aircraft and, if the opportunity arises, regional aircraft like ATRs,” Mansingh said.

“With the commencement of operations of airlines such as Akasa and Jet (Jet Airways 2.0), there will be an opportunity to lease narrow-body aircraft through a competitive bidding process in the future,” he added.

Mansingh said that if Vaman Aero is successful in executing some of these leases through IFSC, it will demonstrate that bidding costs are competitive for a lessee in India (compared to Ireland).

However, he added that creating a vibrant leasing ecosystem in India is a long-term plan and may take at least a few years to complete.