Air India, India's national carrier, has recently invited
bids for putting its recently acquired Boeing 787 aircrafts,
commonly called Dreamliners. Till December 2012, Air India had
received 6 Dreamliners and had issued RFP's inviting bids for
sale and leaseback for 7 as it expects another Dreamliner aircraft
in February. This decision has been approved by the government as
part of the plan to turn around Air India's finances since sale
and leaseback of the aircrafts allows the carrier to free up its
capital tied up in the aircrafts. The national carrier has ordered
approximately 27 Dreamliners aircrafts and intends to put all of
these on sale and leaseback.
PSA View – Putting aircrafts on sale and
leaseback is quite beneficial for Air India as not only will it
free up the capital tied in the aircraft, it will also help the
ailing carrier manage finances better by allowing tax deductions
for a leased asset. However, with the recent grounding of all
Dreamliner aircrafts all over the world following the directive of
the US Federal Aviation Authority due to the fire risk caused by a
battery problem, it remains to be seen how many bidders bid up to
the expectation of Air India in order for the sale and leaseback to
be successful. Be that as it may, it is a good move by Air India to
adopt a common practice adopted by airlines across the world in
order to reduce its financial stress.
Unviable routes to be auctioned
The Ministry of Civil Aviation has concluded a draft policy
(expected to be announced by the end of this month), wherein
commercially unviable routes will be offered to airlines by way of
an auction. The sector includes eighty (80) tier-3 towns and cities
of India. The winner or the lowest bidder will be the airlines,
which seeks the least subsidy from the government to run services
on the selected route. There will be only one winner on each route,
who will have the exclusive rights to run the services for a period
of two to three years. The draft policy is expected to be approved
by the cabinet in the coming months.
PSA View – The proposed policy is a good
attempt to encourage participation from airlines to provide
services to commercially unattractive sectors. Monopoly to run
services for an extended and specific duration on a certain route
will be an incentive for airlines to ply on the, otherwise,
economically unviable sectors.
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Nishith Desai Associates is a research-based Indian law firm with offices in Mumbai, Silicon Valley, Bangalore, Singapore, Mumbai BKC, Delhi and Munich that aims at providing strategic, legal and tax...
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