With Vijay Mallya and other directors of the now defunct Kingfisher Airlines (KFA) running the risk of being declared wilful defaulters by various banks for failing to return loans of over ₹7,000 crore, the spotlight has once again turned on the impact the airline going bust will have on the domestic aviation sector.

Analysts say that due to some actions by KFA and subsequently by vendors such as the Airports Authority of India to which Kingfisher still owes a lot of money, global aircraft leasing companies are now reluctant to do business with India.

Kapil Kaul, Chief Executive Officer, Centre for Asia-Pacific Aviation, points out that the challenges faced by lessors to repossess Kingfisher’s aircraft continue to hurt the domestic industry.

“Lessors continue to see serious market risks in India,” Kapil told BusinessLine .

Risks high

Adds Vasuki Prasad, aviation analyst with Flyingengineer, “Leasing companies are wary of India after their bitter experiences with Kingfisher and Paramount. When operating for an Indian airline, the jurisdiction in India does not allow repossession of aircraft, as has been the case with Paramount and Kingfisher.”

According to the CEO of an international aircraft leasing company doing business with several Indian carriers, India’s loss will be a gain for Russia, the Middle East, Egypt, countries in South-East Asia (including Vietnam, Cambodia, and the Philippines) and even Bangladesh, all of which have a huge appetite for Airbus 320 and Boeing 737 aircraft.

“The risk element in the Indian aviation market for lessors is just too high post Kingfisher. This is true for single-aisle aircraft such as the Airbus 320 and Boeing 737 family of aircraft. Following the Kingfisher Airline fiasco, the monthly leasing rates for an Airbus A-320 and Boeing 737 have risen to around $400,000 from about $320,000-350,000.

“Besides, lessors are now seeking advance payments for 36 months rather than the three months sought for each aircraft leased earlier,” he said.

Many feel a direct fallout of the KFA imbroglio is being felt by Air India.

The state-owned airline has been in the market for close to a year for leasing an Airbus 320 aircraft, but has been unsuccessful as lessors want guarantees and longer term lease tenures.

AAI stand

What has also muddied the waters for aircraft leasing companies is that the Airports Authority of India, to which Kingfisher owes ₹390 crore, refused to allow lessors to take the aircraft back till its dues were cleared.

It sought $1.5 million for allowing a lessor to take back an Airbus 320 and $ 750,000 for an ATR aircraft fearing that if the aircraft left the country it would have little chance of recovering its dues from the airline.

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