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AI eyeing outright purchase of Dreamliners.

LOSS- MAKING national carrier Air India ( AI) is now toying with the idea of switching from a sale- and- leaseback deal to an outright purchase of 15 of the 27 Dreamliners it has ordered as this could help it save $ 225-$ 300 million.

A senior official confirmed that the proposal has been sent to the ministry of civil aviation for approval as AI feels that the shift to the outright purchase system would provide a much better internal rate of return.

The reason being stated for the change in mind is that in a leaseback an airline does not get the benefit of the residual value of an aircraft after its lease expires as it is enjoyed by the lessor.

Sale- and- leaseback is a financial transaction where one sells an asset and leases it back on a long term and continues to use it without owning it.

According to AI officials, the redelivery cost ( after the lease expires) of a wide- bodied aircraft like the Dreamliner is very high at almost $ 20 million while for narrow- bodied aircraft it is about $ 10-$ 12 million.

Such high redelivery costs would be avoided if the planes are owned by the company.

AI, which has seven aircraft on leaseback and has been offered five more through that process, now plans to turn to the outright purchase scheme for the remaining 15.

Currently, the airline has a total of 17 Dreamliners in its fleet with one more slated to be delivered in December.

The last of these planes are expected to be delivered by September 2016.

Under the future global accounting system International Financial Reporting Standards, which would become mandatory for all nations in a few years, all longterm leases would have to be shown as both assets and liabilities, which would also enhance the burden on the airline's aircraft leases.

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Publication:Mail Today (New Delhi, India)
Date:Oct 20, 2014
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