New insurance to spike plane lease rentals

Need for insurance cover is being felt after the service tax department held Kingfisher's planes in custody

Aircraft lease rentals for Indian carriers will go up, as leasing companies might opt for a re-possession risk insurance on planes leased  to local companies, said Uday Nayak, chairman of Veling, a Mauritius-based leasing company.

Re-possession risk insurance covers against loss due to non- recovery of aircraft from the lessee. Its need is being felt after airport operators and the service tax department held in custody Kingfisher’s planes upon termination of lease terms.

Recently civil aviation secretary K N Srivastava directed the Airports Authority of India (AAI) to release Kingfisher planes which were de-registered from the records due to a lease rental default. The government directive came in the wake of petitions filed by lessors and aviation finance companies, including ILFC and DVB, demanding release of their planes. Wary of the Indian government's actions and worried over the heightened risk of business in this country, leasing companies are considering an insurance cover against such actions.

"We will have to consider it (re-possession insurance) if we lease planes to Indian carriers,'' said Nayak. Veling had leased two ATR-72s to Kingfisher and terminated both leases. One of the planes flew out from Bangalore today, after five months of negotiations with the GVK group, AAI, the aviation regulator and the tax department

"Till now, we never considered India as a risk but recent developments have made us rethink. There will be higher finance costs for us as well, as those banks willing to finance aircraft for lease into India will be cautious. This will mean higher lease rentals for airlines,'' he said.

Nayak said the government should frame clear guidelines on the issue so that leased planes were not stuck because of defaults by a lessee. "Our plane was stuck for over five months,'' he rued. “Airlines getting bankrupt is a part of the business but it is the other peripheral issues (like airport authorities, ATC, tax and other government bodies holding in custody leased planes) which need to be addressed.''

For full report, visit www.business-standard.com

According to the website of the Directorate General of Civil Aviation (DGCA), 26 planes are registered in the Kingfisher fleet, including the airbus A319 plane used by chairman Vijay Mallya. Two days earlier, the Delhi high court ordered the DGCA to de-register two planes from the Kingfisher fleet on a petition filed by DVB, the German bank. The two planes were sent to Turkey for repairs and maintenance, where DVB seized them. However, unless the planes are de-registered in the lessor country, the German bank can't lease to other carriers or sell these.

In January, the chief executive of International Lease Finance Corporation, Henri Courpron, said its planes were being “held hostage” by local government authorities. It had leased six planes to Kingfisher and has managed to recover one of these.

“Deregistration is only one of the steps you need to get the airplanes out of the country,” Courpron  had said in an interview. “There are other authorities in the country, like airports and tax authorities, who have an axe to grind against Kingfisher and we are being held hostage to this process.”