India plans aircraft leasing company at GIFT City to counter Chinese dominance

Mumbai: A dedicated aircraft leasing company is in the works at the International Financial Services Centre (IFSC) in Gujarat’s GIFT City as the central government looks to counter Chinese dominance of the market. Leading public sector lenders State Bank of India (SBI) and Bank of Baroda (BoB) among others will likely be the founding members of the entity and collectively own at least a 49% stake, said two people with the knowledge of matter. The rest of the equity will be owned by other financial institutions, including foreign investors. Top officials discussed the matter last week, said the people cited above.The finance ministry classified aircraft leasing as a financial activity last week, a step that allows IFSC entities to provide such services. SBI and BoB did not respond to queries. Aircraft leasing is mainly of three kinds--financial, operational and hybrid. Banks and specialised financial services companies are the biggest players in the business globally.The development assumes significance as Indian air carriers are estimated to have placed orders of more than 1,000 airplanes worth over $50 billion. Most Indian carriers have leased planes from companies based in Ireland and the Netherlands as both nations enjoy favourable tax treaties with India. IFSC companies can offer the same tax incentives.“India is one of the top markets in the world for the aircraft business, with the majority of Indian aircraft being on an operating lease structure,” said Tapan Ray, managing director and group CEO at Gift City. “This is the right time for creating a regulatory framework in GIFT IFSC to serve the huge hinterland demand for aircraft leasing and financing, which will onshore this hitherto offshore financial services business.” Four of the top 10 companies are Chinese with annual transactions worth $60-70 billion, reflecting the aviation growth surge in the country. The big Chinese entities include Avolon, ICBC and Bank of China.The Indian government is learnt to be of the view that instead of availing of dollar-based funds from overseas, airlines can get financing from onshore banks, thereby saving foreign exchange and creating job opportunities at home.“The move will help in having a complete ecosystem within IFSC for financial service players,” said Suresh Swamy, partner, PricewaterhouseCoopers. “They have a huge job creation potential and will prove to be a magnet for economic activity within IFSC. At the same time, companies will enjoy the benefit of a low-cost centre and an efficient tax and regulatory environment.”GIFT City operates as a multi-services special economic zone (SEZ). The entities set up there are eligible for a tax holiday of 10 consecutive years, which they can choose from a block of 15 years.A senior public sector banking executive said the government is keen on the participation of state-owned lenders.“We are evaluating possible structure of such entity as in how it needs to be done,” he said, “In our interactions, we have received positive response from atleast two major airlines.”

from Economic Times https://ift.tt/3kGRSCL