Car Leasing and Aircraft Leasing

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    05-Apr-2018

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    Car Leasing

    As the Indian economy is booming and corporate is doing brisk business, car leasing opportunities is

    supposed to bring next wave in automobile sector. Car leasing has become big business in India. The

    corporate sector is increasingly hiring vehicles from car leasing companies. Though this concept will take

    time to shapeup, the corporate sector has already accounted for nearly 6 lakh of the 12 lakh cars soldlast year in India.

    Earlier, most Indian companies tend to buy cars or provide cash to employees (in salaries) as car

    allowance. Recently, the companies view this as an extra expense on individual employees. But if the

    company provides the facility through car leasing, their expenditure will be reduced. Thus it minimizes

    the pressure on the company of sustaining such allowance. The concept has already gained popularity in

    US and Europe.

    Advantages:

    Car leasing has several advantages

    The car leasing allows the corporate to use the car without thehassles attached with ownership and maintenance. The lease is granted for a specific period against a

    rental under an agreement signed by the company and the car leasing company. Leasing a car also helps

    to avoid certain car related risks, usually borne by the owning companies.

    The outsourcing of cars for the companies will also attract tax benefits for the company. It will reduce

    car related hassles like maintenance, servicing, insurance, replacement & repairs and depreciating

    value of the asset. Outsourcing will also reduce the expenditure on hiring drivers. Not only corporate,

    but independent individuals can also lease cars from these car leasing companies. After the lease period,

    the individual can also exchange it for a latest car.

    Whats new in the sector?

    There are around 30,000 cars under leasing operation in India. The leading car lease companies in India

    like the Leaseplan, Hertz India and Arval (an arm of BNP Paribas) are now taking active interest to build

    the future of car leasing in India. Arval has ambitious plans for India as it has set a target to own a fleet

    of 10,000 vehicles over the next five years. Currently, the company owns 125 vehicles which are

    available for lease in Mumbai, Chennai, Bangalore and Delhi. The company has plans to spread in the

    emerging cities like Pune, Hyderabad, Kolkata and Ahmedabad.

    Arval plans to approach the corporate companies creating awareness about car leasing. The company

    has come up with pronged strategies to buy their official cars or lease the same to them on costeffective rentals.

    Leaseplan and Hertz India have decided to invest Rs 2,000 crore and Rs 500 crore, respectively, in

    order to meet the potential of the lease market, over the next five years. Leaseplan currently has a

    fleet of 12,000 cars and also plans to expand to 40,0000 cars by the end of 2012. Hertz India leasing

    company, which has a small fleet of 2,000 cars plans to increase it to 9,000 cars by 2010.

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    As Indian car market is flooding with new models equipped with modern technologies, the mindset of

    buyers is changing, now nobody wants to keep the same car for long. And car leasing provides a perfect

    option for them.

    Aircraft Leasing

    Indian airlines and private non-scheduled air operators are together likely to add around 1,000 aircraft

    and 250 helicopters over the next five years, according to Planning Commission estimates.

    While the scheduled airlines are likely to add around 370 aircraft in their fleet, non-scheduled operators

    could induct 300 business jets, 300 small planes and 250 helicopters during this period, owing to

    heightened demand.

    A working group set up by the plan body to formulate the 12th Plan for the civil aviation sector said

    the Indian carriers were anticipating a significant growth in air traffic, which is leading them to add

    around 370 aircraft worth about Rs 150,000 crore.

    "Fleet expansion at this scale would require airlines to explore multiple funding options including capital

    markets, long-term borrowings and leasing," the group has said.

    Going by a KPMG report which estimated fleet expansion by the Indian airlines, the plan panel group

    said Jet Airways was expected to add 79 planes by 2017, Kingfisher 78, IndiGo 69, SpiceJet 68, Air India

    40, GoAir 22 and JetLite 20.

    The estimated value of these 376 aircraft was Rs 147,600 crore, it said.

    The working group estimates that over Rs 20,000 crore would be invested in general aviation till 2017,

    with private non-scheduled operators expected to add 600 small aircraft and business jets and about

    250 helicopters.

    To finance their aircraft acquisition plans, airlines were resorting to multiple methods like direct lending,

    operational lease, finance lease and sale-and-leaseback. The last option has lately become popular as "it

    allows airlines to optimize their cash flow", the Planning Commission group said.

    Leaseback is a financial transaction where one sells an asset and leases it back for a long-term.

    Therefore, one continues to be able to use the asset but no longer owns it. Leaseback is very often used

    in commercial aviation to essentially take back the cash invested in assets.

    The group has estimated that the Indian airline industry would suffer a huge debt burden of USD 20

    billion in 2011-12 and recommended "significant and continuous investment" to give a boost to the

    cash-strapped sector.

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    It also pointed out that the industry faced "many taxes" like those on fuel, aircraft leases, airport

    charges, air passenger tickets, air navigation service charges, maintenance costs, fuel throughput fees

    and other such charges.

    Identifying some 'key enablers' which would be required to achieve the projected growth in the civil

    aviation sector over the 12th five-year plan period, the plan body recommended rationalization of taxeson jet fuel and investment by foreign airlines in Indian carriers.

    Other 'key enablers' include steps to help Indian carriers reach foreign skies and expand international

    operations, thrust on technology and innovation and granting support to the airlines to provide

    connectivity to Tier-II and Tier-III cities.

    It proposed a projected total outlay for the sector at over Rs 54,743 crore for the entire plan period of

    2012-17, including Rs 32,963.67 crore for Air India and Rs 17,500 crore for the Airports Authority of

    India.