Kingfisher Airlines Ltd Default : DVB Says India Plane Lease Costs to Rise on Kingfisher Airlines Ltd Default

DVB Says India Plane Lease Costs to Rise on Kingfisher Airlines Ltd Default

Jet Airways (India) Ltd. (JETIN) and rival carriers in the nation face rising aircraft financing costs after Kingfisher Airlines Ltd. defaulted on leases and Indian authorities failed to help recover the planes, DVB (DVB) Bank SE said.

“Risk is perhaps higher than we thought,” Bertrand Grabowski, managing director for aviation and rail at the Frankfurt-based bank, said in an interview in Singapore today. “If someone is willing to do aircraft financing in India, costs will move up,” he said without specifying any rates.

DVB Bank hasn’t been able to place with other carriers the two Airbus SAS A320s it repossessed from Kingfisher as India’s aviation regulator refused to deregister the jets, Grabowski said. The lender suspended all financing to Indian carriers because of the situation, he said.

Kingfisher (KAIR), the only Indian carrier to order Airbus A380s, has grounded planes since October after five straight years of losses. The carrier lost its operating license on Jan. 1 after failing to convince Indian authorities it has enough funds to revive operations.

DVB has parked the two jets it repossessed from Kingfisher in Turkey for the past 3-4 months, Grabowski said. India’s Directorate General of Civil Aviation hasn’t given a reason for not allowing the deregistration, he said.

The nation’s airlines rely on financing from foreign banks for purchase and lease of aircraft, said Praveen Sahay, a Mumbai-based analyst at Batlivala & Karani Securities India Pvt. The cost of such funding is in the range of 5 percent to 6 percent, he said.

Risk Premium
“It’s possible that leasing costs will rise,” said Binit Somaia, a Sydney-based director at CAPA Centre for Aviation. “The lessors and financiers will attach a higher risk premium to the Indian market if there are concerns they can’t recover their assets in the event of a default.”

The Delhi High Court will hear on April 8 DVB Bank’s lawsuit against the Indian aviation regulator on deregistering the two Kingfisher aircraft, according to the court’s website.

Arun Mishra, who heads New Delhi-based DGCA, said Dec. 21 the regulator would withhold the deregistration and export certificate for the planes until a court decision. Mishra didn’t immediately respond to a call and a text message to his mobile phone today.

India’s aviation ministry estimates that the nation’s carriers are expected to add about 370 aircraft by the year ending March 31, 2017. The fleet size would reach 1,000 by 2020 from 400 last year, according to the ministry.

DVB has about $450 million of direct and indirect financing to state-owned Air India Ltd., discount carrier IndiGo and Jet Airways, Grabowski said. After Kingfisher’s defaults, two banks decided to discontinue financing to the Indian aviation market, he said without naming the lenders.

“The Kingfisher story has been a kind of trauma for many banks,” Grabowski said. “The concern is not just for DVB, it’s an industry concern.”

Kingfisher’s A380 order still active

Airbus, which said the A380’s order book comprises 262 firm orders from 20 customers, acknowledged India’s Kingfisher Airlines order for five of the type “looks shaky.”  Kingfisher has ceased operations and its aircraft have been impounded.

“I have legally binding contracts with Kingfisher right now. We got deposits, we rescheduled the aircraft and it is probable at some point we will take the orders out,” COO-Customers John Leahy told ATW, adding that it hopes the troubled carrier gets new investors. “We certainly don’t want to get out [of this contract]. It is a good customer, operates an all-Airbus fleet. I don’t see a reason to give up [yet],” Leahy said.

According to the manufacturer, 97 A380s are in service with nine airlines.

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