Two New Budget Carriers To Start Operations in 2004

Aircraft leasing companies, as hard hit as the rest of the aviation industry by the 9/11 attacks, the global aviation slump and the war on terror, hope their fortunes will pick up considerably in the next 12 months. Reuters reports the introduction of cheap-fare carriers like Singapore's ValuAir and Thailand low-cost alternative (a function of Thai Airways International) might be the ticket to releasing pent-up consumer demand for low-cost travel.

Industry sources say these start-ups could begin with as few as one plane each to keep costs low and increase the number of leased aircraft as they expand. Leasing an aircraft limits some of the capital outlay so that you are paying the aircraft usually on a monthly rental. If you buy a plane, you have to pay for it all at one go," said an aviation leasing executive, who declined to be identified.

"If you are in the business of leasing aircraft, of course you are going to go where your customers are," says Chris Sanda, analyst at DBS Vickers Research Singapore Ltd. Already, the concept has been proven by the popularity of companies like Malaysia's Air Asia and Australia's Virgin Blue.

Even as these carriers grow, traditional operations such as Singapore Airlines continue to mothball their aircraft.

ValuAir spokesman Jimmy Lau said the airline was in talks with four big players in the aircraft leasing industry but had not decided which vendor it would select, or the size of its fleet. The firm, set up by former executives of Singapore Airlines has narrowed its choice of planes to single-aisle aircraft, which indicates it will be focusing on short-haul flights. Lease rates and aircraft values have plummeted since the September 11, 2001 attacks by as much as 50 per cent in some cases. About 2,000 planes are still parked in US deserts.

Malaysia's profitable no-frills carrier, Air Asia, which started in 2002 with Boeing 737-300 aircraft, said in June it would add 11 B737 planes to more than double its fleet as it expands its business. The B737-300 planes, to be delivered by GE Capital Aviation Services, will bring the carrier's total fleet to 18 by mid-2004.

Rental fees for second-hand aircraft from either the A320 family, or the rival Boeing 737 could go as high as $200,000 a month depending on the condition of the plane and the length of the lease, another aircraft leasing source said. "You just have to look at other low cost airlines in the world like Southwest Airlines. There is a model there that seems to work in those particular cases," said one leasing executive.

FMI: www.gecapital.com/transport.html