IndiGo Invests $820 Million to Boost Aircraft Ownership

IndiGo, India's largest airline, has announced a significant investment of $820 million (approximately Rs 7,300 crore) in its wholly-owned aircraft and engine leasing subsidiary, IndiGo IFSC. This strategic move aims to increase the number of owned and finance-leased aircraft in its fleet, reducing reliance on operating leases.

Traditionally, IndiGo has maintained a fleet structure primarily based on operating leases. This model allowed the airline to remain asset-light and financially flexible, as they would lease aircraft for a fixed period and return them afterward. However, as IndiGo has evolved into a major player in the aviation sector, the need for a more balanced ownership structure has become apparent.

The investment will be made through a combination of equity shares and Non-Cumulative Optionally Convertible Redeemable Preference Shares (OCRPS), enabling IndiGo IFSC to acquire essential aviation assets. This shift in strategy reflects the airline's commitment to prudent capital allocation and sustainable growth.

IndiGo aims to have up to 40% of its fleet owned or on finance lease by 2030. As of September 30, the airline had 417 aircraft, of which only 14 were owned, while 62 were on finance lease and a significant 333 were on operating leases. Currently, owned and finance-leased aircraft account for about 18% of the fleet.

Finance leases offer IndiGo greater control over the aircraft, nearly akin to ownership, as these planes are recorded as assets on the airline’s books. The longer lease periods also allow for extended usage, with an option to own the aircraft after the lease term. By utilizing finance leases from its GIFT City-based arm, IndiGo can ensure these aircraft are ultimately owned by the company, keeping finance lease rentals within the group.

Industry experts suggest that while operating leases provide flexibility, finance leases and direct ownership enable airlines like IndiGo to build a stable core fleet. This stability allows better control over operational costs and shields against the volatility of operating lease costs and foreign exchange rates, as aircraft leasing predominantly operates in U.S. dollars.

In conclusion, IndiGo's strategic investment marks a significant shift in its growth trajectory, positioning the airline for future expansion and financial stability in a competitive aviation landscape.