India was the world's fastest-growing aviation market last year
Prime Minister Narendra Modi's administration plans to make India a hub for financing aircraft purchases and leasing of planes, as the South Asian nation moves to support local carriers, which are among the biggest customers for Airbus SE and Boeing Co.
"As the world's third largest domestic aviation market, the time is ripe for India to enter into aircraft financing and leasing activities from Indian shores," Finance Minister Nirmala Sitharaman said in her maiden budget speech. "This is critical to the development of a self-reliant aviation industry, creating aspirational jobs in aviation finance, besides leveraging the business opportunities available in India's financial Special Economic Zones."
The ability to fund purchases and lease aircraft locally will be a boon for local carriers like InterGlobe Aviation Ltd.'s IndiGo and SpiceJet Ltd., as it will significantly insulate them from foreign exchange fluctuations. Airlines are increasingly moving toward an asset-light model, under which they sell aircraft to lessors for a profit, only to lease them back, which helps them keep a younger fleet.
The centre will also examine relaxing foreign direct investment rules in the aviation sector, Ms Sitharaman said, without giving details. Indian laws now allow foreign airlines to take a maximum of 49% stake in local carriers, preventing them from taking effective control and ownership of the local company.
The country was the world's fastest-growing aviation market last year, although the pace has slowed after a local carrier ceased flights due to a cash shortage. With an emerging middle class flying for the first time, India is one of the world's most lucrative markets, but a fierce price war by budget carriers often hurts profits.