Indian jet repossession row could scare off funds - ILFC

DUBLIN Wed Jan 23, 2013 5:22am IST

People are silhouetted as Kingfisher Airlines' aircraft are seen parked at an airport in New Delhi October 1, 2012. REUTERS/Mansi Thapliyal

People are silhouetted as Kingfisher Airlines' aircraft are seen parked at an airport in New Delhi October 1, 2012.

Credit: Reuters/Mansi Thapliyal

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DUBLIN (Reuters) - One of the world's largest leasing firms has warned India the failure of troubled carriers like Kingfisher Airlines to return airplanes when they cannot pay their bills could put the country's aviation growth at risk by scaring away new funding.

ILFC, which owns over 900 aircraft and rents them out to airlines for several years at a time, is the latest industry player to clash with the Indian carrier, whose financial difficulties have left its aircraft grounded since October.

"I am not happy with the way things are working out in India right now," ILFC Chief Executive Henri Courpron told Reuters.

"There is not a clear path to exiting fleets out of India when necessary. There are too many cooks in the kitchen and too many authorities involved in what should be a clear process."

ILFC has six Airbus jets with Kingfisher of which four have been taken off the country's register. The Los Angeles-based lessor has sent a team to repossess the jets for unpaid bills. But they remain stranded by adminstrative hurdles and problems getting the planes ready to fly, Courpron said.

ILFC is not the only firm citing problems getting planes back from Indian liquor baron Vijay Mallya's airline, which is estimated to owe $2.5 billion to banks, staff and suppliers.

Germany's DVB Bank said in December it had sued India's aviation regulator and Kingfisher to have two planes it financed for the troubled carrier de-registered, a possible first step towards recouping its funds.

Courpron said the Kingfisher saga was not merely a problem for those directly involved. Indian authorities could suffer a setback in aviation generally if they did not provide the "safe harbour" needed when lessors decide where to risk their assets.

"If they want to grow their industry, if they want support from the financing community in financing their aircraft generally,... then they need to enforce the rules that allow the financiers to get access to their assets when it is waranted."

Indian airlines will need 1,043 new passenger and freighter aircraft valued at $145 billion by 2030 to satisfy surging annual demand, Airbus said last year.

ILFC's warning came as India's civil aviation minister said Kingfisher needed at least 10 billion rupees to restart its grounded operations and must also demonstrate an ability to sustain itself for at least 6 months.

A senior government source said India was willing to support a rescue plan from Kingfisher if it could settle months of salary owed to frustrated employees.

U.S. DEMAND

ILFC, or International Lease Finance Corp, has itself rebounded since its seeing funds squeezed by the credit crisis, and is in the midst of being sold to a Chinese consortium.

The lessor said it had broadened funding sources and reduced their cost in 2012, and had $2.9 billion in unrestricted cash.

Speaking in Dubin on the sidelines of an Airline Economics conference, Courpron said he expected the sale of a majority of ILFC by its owner, U.S. insurer AIG, to go ahead as planned in the second quarter. AIG has deemed the unit non-core.

Despite woes in India, where many private airlines complain of high taxes and subsidies to state carrier Air India, Courpron said growing the rise of disposable incomes, especially China, would continue to drive investment in new aircaft in Asia.

He also predicted more appetite for aircraft in the United States, the world's largest aviation market which until two years ago was remarkably quiet in ordering new capacity as airlines there went through restructuring and conserved cash.

"There is still a good activity in the U.S. for replacement of older aircraft," Courpron said.

However, he warned Airbus and Boeing not to over-sell aircraft purely in order to win every battle in their fierce annual duel for orders worth a combined $100 billion.

The waiting list for some types of aircraft has grown to unprecedented levels of 6-7 years and cannot be pushed out even further because buyers cannot plan that far ahead, he said, adding a more sustainable backlog would be 3-4 years.

Just as airlines overbook seats to protect their income in the event passengers cancel, plane manufacturers use exactly the same strategy on the airlines by selling more aircraft than they can actually make in the expectation that some will cancel.

"I don't know if they are over-selling; I think they are very smart and both Airbus and Boeing have mastered the art of overbooking, like the airlines around the world," Courpron said.

(Editing by James Regan)

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