Axis Bank, India’s fifth largest bank by market capitalization $40 billion, last month became the first Indian bank to execute an aircraft lease deal, for 34 trainer aircraft for Air India.
The deal also marks a milestone for Indian aviation finance: the first transaction in which all the stakeholders— lender, borrower, law firm (Dentons), facility agent, and security agent—worked through their entities based in the Gujarat International Finance Tec-City (GIFT City), India’s new international financial services center (IFSC).
Indian airlines have typically relied on multinational banks and foreign lenders for aircraft leases, mainly routed through Dublin, Ireland, due to lack of a strong domestic cross-border financing framework. That is changing.
Air India, through its registered leasing entity in GIFT City, AI Fleet Services, has closed eight lease deals worth $1 billion, including with international lenders for Airbus A350s. The March deal for trainer aircraft was done exclusively with an Indian lender, extending US dollar-denominated long-term tenor. InterGlobe Aviation Financial Services IFSC, the GIFT City arm of IndiGo Airlines, has already financed 20 Airbus A321Neos for $1.8 billion through international lenders and has plans to shortly route another 25 aircraft through the IFSC.
The Indian government is pushing the use of GIFT City as a financial hub for cross-border deals for all sectors, but especially aviation in the form of long-term aircraft leases. GIFT City offers a favorable tax regime for domestic and international financiers and a strong regulatory framework, including a new law that allows faster repossession of defaulted aircraft.
Indian airlines have ordered a total of 1,600 aircraft worth $100 billion, to be delivered over the next 10 years, which Indian banks are keen to finance. The government promises to facilitate domestic and foreign banks structuring and financing leases out of GIFT City and has identified $30 billion in funding for fleet modernization and expansion.
Following the Axis Bank deal, several other Indian banks have signaled their interest in entering the space as well.
