As Indigo buys 500 aircraft, a look at how carriers finance their wishlist

Before this, Tata Group-owned Air India had placed an order for 470 aircraft



BS Web Team New Delhi

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IndiGo placed a historic order of 500 aeroplanes on Monday. Airbus received the biggest-ever aircraft order in the history of commercial aviation. The French company announced that the deliveries for the same will be completed between 2030 and 2035.

Before this, Tata Group-owned Air India had placed an order for 470 aircraft. While Indian carriers are adding aircraft to their fleets, buying aircraft is no cheap business. Prices of large aeroplanes run into tens if not hundreds of millions of dollars.

How much for that aircraft?

Airbus' costliest aeroplane was the A380 which cost around $445.6 million. On the other hand, the cheapest was the A318, which cost $77 million. But these are only indicative prices and tend to be substantially reduced as part of purchase negotiations.

On an average, carriers get a discount of about 50 per cent on the listed price, a Simpleflying report said.

Since they had little bearing on the real cost of the plane, Airbus stopped publishing price lists for its aircraft in July 2019.

On making large orders such as the two mentioned above, airlines get steep discounts on the listed price but still, the payments for these multi-million dollars are not easy. Often, there is a multi-faceted arrangement to take care of these large payments. Hereon, we try to look into these arrangements.

Lease-based system for planes

According to data from the CAPA Fleet Database, leasing is a common practice in the aviation industry and about 50 per cent of commercial aircraft around the world are leased. Thus, in a lot of cases, purchase announcements are not really purchases at all.

The lease is often attached to a leasing firm which usually has a better credit rating than the airline. Thus, creditors charge a lower interest rate which allows these firms to relay these benefits to the airline and pave the way to finance these aircraft at reduced rates.

Other than not paying the full amount at once, airlines can also act faster by resorting to leasing. Since aircraft purchases take two to ten years to complete, leasing helps airlines expand their fleet quickly.

First Published: Jun 20 2023 | 3:09 PM IST

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