Air India is in talks with various commercial banks for a loan to fuel the down payment of its order. The airline will buy the wide body aircraft fleet and will lease the narrow body fleet.
Air India order down-payment
The airline in Paris Airshow finalized deals with both Boeing and Airbus for 470 firm and 70 options. The order consists of Narrow body aircraft like Boeing 737, Airbus A320, Airbus A321 and wide body aircraft like the Airbus A350, Boeing 787-9 and Boeing 777X.
Sources told Financial daily that the airline will directly buy the wide body fleet from the Original Equipment Manufacturer (OEMs). In case of single aisle jets, the airline will lease them under the Sale and Leaseback Agreement. What is this agreement? We will discuss about it in the last paragraph.
For the Sale and Leaseback Agreement, the airline needs to pay the down payment. For this amount, Air India has reached out to various commercial banks including the State Bank of India for a loan of around Rs 3,000 crore. A source from SBI said that various banks are clubbing together for this loan amount.
Reports huge losses
In Financial Year 2023, TATA Group Airlines sustained major losses. Only Air India Express, which operates mostly international operations posted a net profit of Rs 116.84 crore. Rest 3 airlines posted a total loss of Rs 15,530 crore.
Air India, in total lost Rs 11,216.32 crore. The airline has invested a lot this year for getting new aircraft, signing leases and refurbishing the older fleet. Sister Full Service Carrier Airline Vistara also posted a net loss of Rs 1,394 crore. However, in Q3, the airline posted its first ever profitable quarter. AirAsia India or say, AIX Connect posted a loss of Rs 2,750 crore.
Today, the airline is all set to reveal its new branding, which will include a new livery, new uniform, new insignia, new tagline and a new logo.
What is a Sale and Leaseback Agreement?
I promised earlier in this article that you will read more about SLB Agreement. Here it is. There are 3 parties involved in a SLB Agreement. The OEM, airline and lessor. Lets look at the arrangement step-by-step :
- The OEM delivers the aircraft to airline.
- The airline sells the aircraft immediately to a lessor.
- The lessor will then lease the same aircraft to the airline on an agreed price.
I know what you are thinking. What is the benefit of all these?
Here are the benefits :
The lessor is liable for maintenance like C-checks, insurance and other paperwork related to the aircraft. The airline receives a lump sum amount from the sale of the aircraft, which can be used to improve airline economics. In return, lessor has the ownership of the aircraft, through which it can generate lease revenue.