Leased aircraft rent up 20%

Airlines are facing a new cost crunch due to rising aircraft lease rentals, which have gone up by 20 per cent due to shortages in the international market.

Rentals for aircraft with a basic configuration have shot up by 33 per cent to reach $400,000 a month from $300,000 a month for popular models such as Airbus A320 and Boeing B737. Lease rentals for higher configuration (for full service airlines) are as high as $550,000.

"There is a shortage of bigger jets following the delay in the A380 production schedule," an Air-India executive said.

Aviation industry experts said lease rentals were moving northwards mainly due to an increase in the London Interbank Offered Rate (Libor).

"Libor is hovering around 5.12-5.25 per cent compared with 2.50-2.75 in 2004," they added. The aircraft shortage is mainly because of a boom in aviation, resurgence of tourism, and a high rate of economic growth in countries like India, China and South-East Asian countries.

"Our company has a locked lease agreement for eight aircraft when the Libor was between 2.75 per cent and 3.25 per cent. The current increase will only impact start-up airlines or existing airlines that want to add capacity," said Mohan Kumar, director (finance), Air Deccan.

An Indian Airlines executive pointed out that popular models were not available in the market. The response to the tenders floated for leasing aircraft by Indian Airlines and Air-India was weak.