Akasa Air has gone for the tried-and-tested leaseback model for five Boeing 737 MAX aircraft. The startup airline will soon become one of several budget carriers in India as it prepares to start operations in the coming months.
Sale and leaseback
India’s startup airline Akasa Air has entered a sale and leaseback contract with Dublin-based commercial aircraft leasing company Griffin Global Asset Management for five Boeing 737 MAX airplanes.
According to the airline, it is scheduled to receive its first aircraft sometime this month. Akasa will then complete the final bits of regulatory procedures before commencing operations in the second half of the year.
Ryan McKenna, Griffin’s Chief Executive Officer, commented,
“We are honored to enter into this long-term relationship right from Akasa’s launch. They have developed a business strategy that addresses a need in the market and assembled a very impressive team to execute that plan.”
Why leaseback?
Akasa’s decision to sell its planes to a leasing company and then lease them back is something that several airlines do. In a sale and leaseback model, an airline acquires the aircraft at an attractive price, sells them to a lessor — ideally at a profit — and leases it back for its own use. The SLBs are important as they free up cash and help the airline with fleet flexibility.
As an airline inducts new aircraft, the operational costs remain competitive, and shorter fleet replacement cycles also mean that carriers can induct new technology faster.
Startup and budget airlines almost exclusively sign lucrative lease agreements to rapidly grow their fleet and keep the average age low. IndiGo and SpiceJet have gone down the same path and expanded significantly over the years.
The downside for this is that airlines, over time, end up paying more for the asset, but if operations remain profitable, this method usually works out well.
What next for Akasa?
The airline…
