Exchange Rate Exposure for Aircraft Operating Leases - An Airline Operations Perspective

Aircraft leasing is a process through which airlines bring in the aircraft from 
other leasing companies or airlines as part of their capacity addition. Globally,
over 50% of the commercial aircraft fleet is on a lease basis. In India, over 70%
of the airline fleet is on an operating lease basis, and the same trend is expected
to be continued. In return for the leased asset, airlines pay huge fixed monthly
rentals to the leasing companies and usually in USD. As regards, the airlines are
exposing to foreign exchange fluctuation. The depreciation of the local currency as
against the USD will bring additional financial burden and revenue leakage into
Indian carriers and thus affecting the sustainable operations. Also, considering the
growth factor of civil aviation, so far, India does not have aresident leasing finance
industry. The objective of this paper is to analyze the impact due to the currency
fluctuation, current strategies by which airlines take proactive measures against this
fluctuation and the policy reforms and facilitation by Government, which can lead to
ÄF€õVble business operations.