Airlines stuck with idle planes

Having cut down on flights, Indian carriers are now faced with a new problem: What to do with the idle aircraft?

The worldwide softness in the sector has ensured there are few takers for these aircraft; those who had leased the aircraft to Indian carriers will invoke a hefty penalty if the machines are sent back to them.

Reeling under record jet fuel prices and rock-bottom fares, this is the latest thorn in the side of Indian airlines. None is yet to arrive at a solution.

The problem, to be sure, is not small. Out of the 300 odd aircraft with these airlines, there is an excess capacity of 15 per cent, or roughly 45, experts reckon.

SpiceJet, for instance, has two planes idle after it cut 20 flights. Kingfisher Airlines and Deccan have cut back 17 and 20 flights, respectively, mostly in the South, which may result in 3-4 planes idling, though this figure could not be confirmed. Air India has withdrawn frequencies on routes like Mumbai-Chennai-Mumbai and could curtail some international flights.

Given that two out of their three planes are on lease, the obvious thing to do would be to return the extra planes. But experts said such a move will attract penalties.

"If you return a plane to a leasing firm before the lease term, it attracts penalties of liquidated damages or loss of rentals to the leasing firm, which can also forfeit the security deposit you have paid on the aircraft," said a former CFO with a budget carrier.

Lease rentals on aircraft are currently at around $350,000 per month (Rs 1.5 crore, almost) and airlines need to give rentals for 3-4 months as deposits.

In the last few years, the market for narrow-body jets like A320 and Boeing 737 was tight, and airlines in India were able to monetise their aircraft orders by selling their delivery rights or doing a sale-and-lease back deal.

Sources said a leading airline group earned as much as $250 million (Rs 1,050 crore) from such deals in the last two years. A number of fast-growing Asian carriers were taking these planes.

"Now, with every passing month, this market is softening. If fuel prices remain high, the Asian carriers wanting to take deliveries will disappear. Indian carriers have little time to extricate themselves or they will be stuck with deliveries," said an expert.

Aircraft leasing firms like AirCap say that the market for new narrow-body planes like A320s or Boeing 737 (new generation) is still strong but some of the older fuel-thirsty aircraft, MD80's and 737-200/300's, are being phased out.

Analysts said this market is down as airlines try to cut back flights and return planes. "The major aircraft leasing firms are in a real jam with many American airlines returning aircraft by the dozens," said an industry expert.