IndiGo to stick with sale/leaseback strategy for A320neos

This story is sourced from Pro
See more Pro news »

India's IndiGo plans on maintaining its sale and leaseback policy for its upcoming Airbus A320neos, which start delivering in 2015.

"It is a more expensive form of financing, but we are consciously following this model as we don't want the residual value risk when the time comes to retire these aircraft from our fleet," said Riyaz Peermohamed, chief financial officer of Indigo today at the International Society of Transport Aircraft Trading conference today In Tokyo.

"We will look at finance leases, too, however it all depends the availability of funding when we take the aircraft."

He admits the cost of fuel was a major consideration in the carrier's Neo decision, but not the only one. The airline has 180 A320neos on order.

"In India fuel taxes are very high and fuel accounts for 50% of our costs, so if the engine is going to give us the fuel efficiency, it will be a big advantage over other airlines that don't have this aircraft, " he says.

The other "strong reason" behind the order is commonality, he says.

"The airframe is essentially the same [as the current engine option] so the maintenance, the pilots, the operations, and everything remains the same - it is just the engine that is different," says Peermohamed.

He also cites the added range as a benefit of the new aircraft.

The airline estimates 80% of its 100-aircraft order, placed in 2006, has been financed by sale and leasebacks, while the remaining 20% has been financed by acquired by finance leases.

According to Peermohamed, the market potential for India is "huge" as it is the second fastest growing aviation market at a rate of 13% for the next few years.

"India has 1.2 billion people but with the least amount of aircraft with one commercial aircraft for every 2 million people in India. If you compare us with Brazil, we have four times less aircraft," he says.

The airline has 66 A320s in its fleet with an average age of 2.1 years and is the largest airline in India by market share at 27.8%, he says.

IndiGo typically signs short-tern sale and leaseback deals, allowing the carrier to avoid costly maintenance repairs that creep in after the six-year mark.