Wolfstreet writes about lethal mix of GE aircraft leasing arm ( lessor) and Indian Aviation markets (lessee)….’While complacency still reigns, alarming signals have already started to come from the most unlikely place, the one market which the air transport industry (including leasing companies) long touted as an engine of infinite growth: India.Domestic Indian airlines have asked local authorities through the Federation of Indian Airlines (FIA) to be given “government assistance” in obtaining unsecured loans to offset their now depressingly common losses.
The true reason for this brazen request is Indian airlines have added so much capacity at such a rapid pace they are dealing with a glut of epic dimensions: To give an idea of what kind of crazy expansion we are talking about here, IndiGo had a 50-aircraft fleet in 2012. It now has 196 aircraft with a migraine-inducing 412 on order.
This fleet growth has led to a capacity glut which in turn fueled an all-out fare-war between India’s airlines that has destroyed profitability. For example, to win over customers from competition airlines, SpiceJet will often wave the bane of air travel, fuel surcharges, ending up with big financial losses as it has to eat the extra costs.
Indian airlines and leasing companies are still convinced the way forward is unbridled expansion, with fleets that are projected to be four times larger in less than a decade than their current fleets, and with the Ministry of Civil Aviation having already cleared eight brand-new airlines for domestic operations just over the past two years.”
One of the big whale in aircraft leasing ….GECAS has not been spared by the unfolding GE fiasco: After GE Capital sold off its banking unit, GECAS was cut off from a source of capital with extremely favorable conditions and was forced to finance its operations at going market rates. This coincided with a period of exceptionally loose financial conditions, which for a while allowed GECAS to shrug off these higher capital costs. But as it always happens, it worked until it didn’t.
GECAS has seen the value of its portfolio (not inflation adjusted) shrink from its 2012 peak of $34.1 billion to the latest estimate of $23.6 billion. Its fleet declined 42% from 1,600 aircraft in 2012 to 930 in 2017, as aircraft are either struck from the fleet and not replaced or simply sold to raise cash.”
Wolfstreet concludes “Aircraft leasing companies have already signed contracts to lease hundreds of aircraft to Indian companies over the next decade. As this engine of “infinite growth” stumbles and clashes with multiple problems, leasing companies will have to adapt and hope similar problems don’t surface elsewhere in the world.”
https://wolfstreet.com/2018/11/24/aircraft-leasing-bubble-in-trouble/
It appears the the principle of mean reversion is under application in India. Even as all fund managers and the famed FIIs are saying the India story is intact, the issues seem to be only growing. Real estate slowed down, then Autos slowed and now NBFCs. GST didn’t meet expectations. Hopefully, things on many fronts will not get very bad in the years to come even though the signs are visible.