Air India borrows $120 mn from SMBC to buy Airbus plane

Tata Group-owned Air India has borrowed $120 million from Japanese lender Sumitomo Mitsui Banking Corporation (SMBC) to buy a long-haul aircraft from Airbus.

The wide-body A350-900 aircraft accommodates 300-350 passengers in a standard three-class configuration and flies on long-range routes of up to 18,000 kilometres or 20 hours non-stop.

The transaction was executed with the assistance of Air India’s wholly-owned subsidiary in Gujarat International Finance Tec-City (GIFT City), AI Fleet Services Ltd, as part of Air India’s order of 470 aircraft placed earlier this year. Air India has also put in the equity component for the aircraft.

“We are pleased to partner with SMBC in this financing of an A350-900 aircraft, which is among the first deliveries of our large aircraft order. This transaction is also a major step in expanding our aircraft financing business through GIFT City, India’s first International Financial Services Centre (IFSC),” says Nipun Aggarwal, chief commercial and transformation officer at Air India.

India is the fifth largest aviation market globally, backed by the emergence of a large and growing middle class willing to travel.

Significant growth in the sector is expected to continue, as evidenced by the large orders placed across the Indian aviation industry to satisfy rising demand. Earlier this year, Air India ordered 470 aircraft from Boeing and Airbus for $80 billion.

Air India’s domestic air passenger market share stood at 10.5% in November. Vistara, a 51:49 joint venture between Tata Sons and Singapore Airlines, cornered 9.4% domestic market share last month.

Rival IndiGo too has placed the biggest aircraft order in aviation history. The budget carrier will buy 500 Airbus A320 aircraft, providing the airline a steady stream of deliveries between 2030 and 2035. IndiGo’s order book has almost 1,000 aircraft that are yet to be delivered. IndiGo, which is India’s largest airline in terms of capacity, clocked a market share of 61.8% in the domestic segment.

Commenting on the transaction, Hiroyuki Mesaki, country head of SMBC India, says, “The deal contributes to SMBC’s strong credentials globally in the aviation transportation business, with the onboarding of Tata Group-owned Air India into the bank’s portfolio. SMBC Group is pleased to expand upon its long-established relationship with Tata Group through this deal. Through an innovative GIFT City structure, we have successfully completed this aircraft secured debt facility amid a fast-growing Indian market, marking the bank’s first aircraft finance lease transaction of its kind.”