Air India’s Mega Aircraft Deal: Financing India’s Largest Fleet Expansion via GIFT City and Global Leasing Hubs
Air India’s reported discussions with Airbus and Boeing to buy up to 300 aircraft — including as many as 80–100 wide-body jets — mark a strategic inflection point for the carrier and for India’s aviation sector. The scale of the contemplated programme would materially increase seat capacity, route flexibility and long-haul competitiveness, but also raise financing, leasing and balance-sheet questions. How these jets are funded — outright purchase, operating or finance leases, or structured loans routed through hubs such as GIFT City — will determine Air India’s capital ratios, cash-flow volatility and return on invested capital over the next decade.
The context: why buy so many aircraft now?
Two drivers explain the timing. First, demand recovery and international growth have created urgent capacity needs for long-haul routes as India seeks deeper connectivity and tourism growth. Second, Air India’s modernisation under Tata ownership includes an explicit fleet-renewal agenda that started with large orders announced in 2024 and continued through 2025, positioning the airline to reclaim global market share. The proposed 300-aircraft talks build on earlier 2024/25 orders and would accelerate replacement of older frames and the launch of new routes.
Financing choices: loans, leases and the GIFT City innovation
Airlines typically use a mix of funded debt, finance leases, and operating leases to acquire aircraft. Operating leases preserve balance-sheet flexibility and reduce near-term capital outflow, while purchases (debt-funded or cash) lower lifecycle unit cost but increase leverage and depreciation charges. Structured loans — including those routed via IFSCs — offer another route to secure competitive pricing and foreign-currency financing. In late September 2025, Air India’s leasing arm (AI Fleet Services IFSC Ltd) secured a $215 million seven-year loan from Standard Chartered and Bank of India for six Boeing 777-300ERs via GIFT City, signaling a willingness to pioneer local structured financing for widebodies. That transaction demonstrates how GIFT City is emerging as a conduit for aircraft finance and could be used at scale if Tata-backed Air India opts to keep financing domestic.
Balance-sheet impact: a simple leverage read
Air India reported consolidated revenue of about ₹78,636 crore for FY25 and carried gross debt of roughly ₹26,880 crore at year-end. On a headline basis, that implies a debt-to-revenue ratio near 0.34x, which is moderate compared with some peers but does not capture off-balance-sheet lease exposure. Additionally, Air India (with Air India Express consolidated) reported a combined FY25 pre-tax loss of around ₹9,568 crore, underscoring that near-term profitability remains fragile even as revenues grow. Any large-scale aircraft acquisition will therefore either raise absolute debt (if purchased) or increase lease commitments (if leased), with direct implications for interest cover and leverage metrics such as debt/EBITDAR — the industry standard for airline gearing. Investors should therefore focus on post-deal debt/EBITDAR guidance and the mix of operating leases versus owned fleet.
Lease vs. buy: trade-offs quantified
* Buy (loan finance) — Pros: lower lifecycle per-seat cost, asset ownership (residual value); Cons: higher upfront capex, increased leverage, and greater exposure to residual-value risk. Loan pricing for aircraft can be competitive (GIFT City deals show margins around SOFR + ~168bps in recent transactions), but currency and interest-rate mismatches must be managed.
* Lease (operating/finance lease) — Pros: flexibility to scale capacity up or down, lower initial cash outflow, and off-balance flexibility (though accounting standards increasingly bring many leases onto balance sheets). Cons: higher long-term unit cost, less control over configuration, and dependence on lessors’ appetite. The global lessor base is deep — but narrowbody lease rates had been rising through 2024–25 amid supply constraints, making long-term lease economics sensitive to lessor pricing.
For Air India, an optimal structure could involve a core owned fleet for high-demand trunk routes (to lower per-seat cost) combined with leased capacity for seasonal, experimental or route-scaling needs.
Comparative capital structures: Indian carriers vs global peers
Indian carriers present varied capital profiles. As of FY25, IndiGo reported materially higher gross debt (~₹67,088 crore) compared with Air India’s ₹26,880 crore, reflecting a high fleet-ownership model and aggressive expansion. Globally, flag carriers and low-cost carriers manage mix differently: legacy carriers often rely on a blend of owned aircraft and bank/lessor financing, while ultra-low-cost carriers favour ownership to reduce unit costs. The choice depends on network strategy, yield profile and access to capital markets or export credit agencies. Air India’s Tata backing gives the airline noticeable strategic depth, but commercial lenders and lessors will still require clear traction to finance a multi-hundred-aircraft order without diluting credit metrics.
Investment and risk implications
A sizeable fleet order could boost revenue potential via capacity-led growth and improved per-seat economics, but will also increase fixed costs and require sustained demand to justify return on capital. Key investor watch-items include: (1) the firm/option split in any order, (2) the financing mix (owned vs leased), (3) expected impact on debt/EBITDAR and interest coverage, and (4) timelines for deliveries and expected yield improvement on new routes. The GIFT City loan demonstrates an appetite among Indian and international banks to support aircraft finance domestically — a structural positive — but execution and macro sensitivity remain primary risks.
Conclusion
Air India’s potential commitment to up to 300 jets could transform India’s long-haul connectivity and Air India’s market position, but the financing blueprint will decide whether the expansion is a profitable scaling or a leverage risk. Investors should treat the announcement as a strategic positive for capacity and network, conditional on disciplined financing (a balanced buy/lease mix), clear delivery schedules, and demonstrable improvement in unit economics.
The image added is for representation purposes only
