As Indigo buys 500 aircraft, a look at how carriers finance their wishlist

IndiGo placed a historic order for 500 aircraft on Monday. Airbus received the largest order ever in commercial aviation history. The French company announced that deliveries will be completed between 2030 and 2035.

Prior to this, Air India, owned by the Tata Group, placed an order for 470 aircraft. As Indian airlines add planes to their fleets, buying planes is not a cheap business. Prices for large aircraft reach tens, if not hundreds of millions of dollars.

How much is that plane?

The most expensive Airbus was the A380, which cost about $445.6 million. On the other hand, the cheapest was the A318, which cost $77 million. However these are indicative prices only and tend to drop significantly as part of the purchase negotiations.

On average, carriers get about a 50 percent discount on the listed price, a simpleflying The report said.

As it did not affect the real cost of the aircraft, Airbus stopped publishing price lists for its aircraft in July 2019.

On large orders like the two above, airlines get deep discounts off the listed price, but even so, payments for these billions of dollars aren’t easy. Often, there is a multifaceted arrangement to take care of these large payments. Here, we attempt to consider these arrangements.

Aircraft leasing system

According to data from CAPA fleet databaseLeasing is a common practice in the aviation industry and about 50 percent of commercial aircraft worldwide are leased. Thus, in many cases, purchase ads are not purchases at all.

The lease is often associated with a rental company that usually has a better credit rating than the airline. Thus, the creditors charge a lower rate of interest which allows these companies to pass on these interests to the airline and paves the way for financing these aircraft at reduced rates.

Other than not paying the entire amount at once, airlines can also act faster by resorting to leasing. Because aircraft purchases take two to ten years to complete, leasing helps airlines expand their fleet quickly.