Thread by @atilotia

Recently, the @FinMinIndia notified that ‘aircraft leasing’ will be considered a financial product. This will be permitted at GIFT City—India’s International Financial Services Centre (IFSC). This may seem like a minor development, but is a big step. Here’s why - a thread <1/13>

@FinMinIndia The #aviation industry is going through a rough patch. @IATA expects air traffic will take years to recover to pre-pandemic levels. Over time, #zoom and #googlemeet can eat into the air #travel business market. <2/13>

@FinMinIndia @IATA The other reasons of #airtravel: leisure, #education, visiting friends & relatives could see a bounce-back. Recent trends show that the demand can quickly fill up when #lockdown opens. The 'winter schedule' will have more than half the pre-#pandemic capacity deployed <3/13>

@FinMinIndia @IATA Let’s go beyond the #pandemic for a minute. Even if the needs of the #aviation #airtravel market changes dramatically, one requirement that will not go away is that of the #Aircraft.

This brings us to aircraft leasing. <4/13>

@FinMinIndia @IATA Indian #airlines had perfected the art of sale-and-lease-back of aircraft. They would order large quantities of aircraft which would allow them to book a spot on the delivery schedules of the two large manufacturers, @Airbus and @Boeing who had multi-year waiting periods. <5/13>

@FinMinIndia @IATA @Airbus @Boeing Large quantities also got them a good discount off the list price.

When the deliveries took place, #airlines would turn around to a financier (lessor) who would buy the plane from them at current market prices and lease it back to the airline. <6/13>

@FinMinIndia @IATA @Airbus @Boeing The airlines would lock in a neat profit and convert their cost of ownership into a variable cost.

In fact, this was one of the considerations when we were designing the #UDAN scheme too. <7/13>

#aviation

@FinMinIndia @IATA @Airbus @Boeing Airline operators told us about the need to have long-term certainty on the routes they win. That will make it much easier for them to lease planes. This conversation on leasing for #UDAN routes later led to a more detailed work on leasing and the report, Rupee Raftaar. <8/13>

@FinMinIndia @IATA @Airbus @Boeing #COVID19 has upended many assumptions in the above trade. With many #airlines cancelling orders, delivery spots have lost some premium. Lessors have many planes stranded with them which has increased supply and reduced rentals. <9/13> #aviation

@FinMinIndia @IATA @Airbus @Boeing Sale-and-lease-back takes place almost completely in US dollars. #airlines, however, earn in local currencies—especially during the #pandemic, when #international #travel is limited. So there is an inherent mismatch of currencies. <10/13> #aviation

@FinMinIndia @IATA @Airbus @Boeing #China worked to create an #Aircraft leasing industry over the last decade. Chinese lessors are now among the largest aircraft lessors in the world. India, with its large domestic & international #aviation market, is in a natural position to develop its own leasing market <11/13>

@FinMinIndia @IATA @Airbus @Boeing In this context, the IFSC move is welcome. Other aspects mentioned in the Rupee Raftaar report like reducing #tax incidences have been proceeding ahead too. <12/13>

@FinMinIndia @IATA @Airbus @Boeing India now has the opportunity to start to bring home the business of aircraft financing. Highlighting an article from last year on the need for India to build an aircraft leasing industry here: atilotia.blogspot.com/2019/09/india-… <13/13>