Aircraft Leasing: $100bn financing market to be tapped in next 20 years, says Primus Partners report


The report states that around 80% of the total commercial fleet in India is leased in comparison to 53% globally

Advisory firm Primus Partners has launched a report titled, “Aircraft Leasing Industry: Has India Nailed the Landing?” highlighting the challenges and recommendations for the progress of the Aircraft Leasing Industry in India. Recognising that the industry holds immense potential, it is vital that the right ‘ecosystem’ is built for the sector to flourish and for India to be deemed as a leasing hub. The report states that around 80% of the total commercial fleet in India is leased in comparison to 53% globally. With growing passenger traffic, India’s demand for aircrafts is predicted to reach ~2,100 in the next 20 years. An enabling and conducive aviation eco-system with ample focus on the domestic leasing industry can propel India’s capability to tap into the $100bn financing opportunity in the next 20 years.

Currently, Indian airlines are compelled to finance their leases through other countries such as Ireland, Singapore, Hong Kong who provide an ecosystem which fulfills their needs such as strong financing, faster aircraft repossession and redeployment and provision of maintenance and operations activities. Leasing internationally implies Indian funds are redirected abroad which is another factor that should drive the Government to take the necessary steps to establish a thriving leasing eco-system in India. According to the report, there is a dire need to streamline processes and the regulatory environment, with Gujarat International Finance Tec-City International Financial Services Centre (GIFT IFSC) possessing sufficient potential to become the face of Aircraft Leasing in India. Several tax and leasing reforms have ensured a strong foundation which is brimming with opportunity. Probable reforms recommended in the report include:

Financing Aircraft Leases Indigenously

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Primus Partners highlights that effective implementation of policies and changing lessor’s perception is vital to the growth of this sector. The report suggests that banks must devise a strategy to extend their leasing arms to GIFT City to support both domestic and foreign lessors, such as building a consortium of banks to develop and streamline financing activities. Moreover, with a total AUM of USD 4.3bn, Primus Partners suggests the National Investment & Infrastructure Fund (NIIF) must explore fund raising for aircraft leasing.

Strengthening Aircraft Repossession

Primus Partners has pointed towards the importance of implementing regulations on aircraft possessions, with the need for a special task force for implementation of amendments with regards to the Cape Town Convention. Lack of adequate enforcement of the CTC has made India a more difficult market for Aircraft Financing.

Streamlining Tax Regulations

It must be noted that long-term tax burdens for lessors made India a less competitive destination. In this respect, GIFT City’s conducive taxation regime is on par with several leading leasing hubs around the world. While domestic aircraft lessors have started to consider leasing from GIFT IFSC, authorities need to aggressively market this tax regime to garner national interest.

Ripple effect on the Maintenance, Repair and Operations ecosystem in India

In India, airlines spend around 12 to 15% of their overall revenues on maintenance, which becomes the second most expensive item after fuel. The right aviation leasing ecosystem will help address key bottlenecks such as infrastructural issues, lack of access to credit, a licensing and certification framework, and tax, duty and royalty issues.

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Elaborating on the industry landscape, Nilaya Varma, Co-Founder & CEO, Primus Partners, said “Airlines based in India provide one of the biggest markets for international leasing hubs. Despite possessing a competitive tax regime and liberalized policies at GIFT IFSC, there is still a lack of a conducive regulatory and operational ecosystem that can transform it into a hub. It is a combination of different factors, which hampers the ease of doing business for airlines. Our report deep dives into the prevalent issues that are impeding the growth of the aviation sector in India. The report further recommends strategic and definitive measures that can propel this sector, which is worth USD 150 bn+, into a new era”

By building on the right foundation and bringing together favourable regulatory and banking structures, the aircraft leasing industry can be developed substantially, resulting in not just economic growth but also employment generation.