January 23, 2015

Legacy of Kingfisher Airlines debacle hangs over repossession row between BOC Aviation and Spicejet

India’s Spicejet airline is coming under increased scrutiny and financial pressure with the news that BOC aviation have demanded the return of three leased Boeing 737s. This comes in the same week that Mumbai International Airport Limited (MIAL) had put the troubled carrier on cash-and-carry mode since January 20th. This move followed after the airline allegedly failed to clear its earlier dues, sources said. In addition, these sources said that the net outstanding balance currently stood at approximately Rs 5 crore (US$800,000), while MIAL wants a further Rs15 crore (US$2.4m) in the form of bank deposit towards surety. MIAL had en-cashed SpiceJet’s Rs15 crore (US$2.4m) on December 19th, last year as a consequence of dues piling up. An MIAL official stated, “We are now cautious after the closing down of Kingfisher Airlines which owed several crore of rupees to us and therefore are taking no chances this time.”
Robert Martin, BOC Aviation’s MD and CEO, is quoted as saying that “SpiceJet is a very frustrating situation,” continuing, “Obviously when we lease planes we like people to pay us. And if they don’t pay us, then generally the way an operating lessor reacts is by moving its planes to somewhere else in the world.” It was reported this week in India’s Economic times that lessors wanted the return of 11 planes in total. BOC is among half a dozen firms currently exposed to the financial problems at Spicejet, with Canada’s export credit agency, which has financed 15 Bombardier Q400s, another concerned party, though they had not yet indicated a desire for these planes to be deregistered.
The Bank of China leasing arm has warned that India’s fast-growing airline industry may now find it more difficult to attract investment funds if India fails to uphold a pact designed to protect the owners of leased jets, one which is currently used across the world. The case of Spicejet is being monitored more closely than the demise of Kingfisher as unlike Kingfisher, Spicejet’s operations are covered by what is referred to as the Cape Town Convention of 2001. In an effort to assist new airlines in emerging markets a 10% reduction in leasing fees would be given, but with the proviso that owners could retrieve planes in the event of default on payment.
The current situation, according to Sanjiv Kapoor, SpiceJet’s Chief Operating Officer in a recent email, indicates that “In general with the imminent change of ownership and re-capitalisation, we expect all matters related to payables to be resolved soon in co-operation with our partners and suppliers, and are in regular contact with them.”
BOC Aviation’s Robert Martin, however, has greater concerns, indicating that ignoring the pact would be detrimental to other Indian carriers, saying “It means the industry will be less interested in leasing planes to India, relative to other jurisdictions”. Airlines have 60 days to return planes, but relevant officials have stated that SpiceJet still had enough time to meet the deadline.



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