Jetstar Hong Kong grounds 7 new Airbus planes as licence approval delayed

Budget carrier mulls leasing option as long delay in gaining operating permit from city's regulator forces seven aircraft to remain idle

PUBLISHED : Thursday, 09 January, 2014, 11:37am
UPDATED : Friday, 10 January, 2014, 12:53am

Jetstar Hong Kong is in talks to sell some of its fleet of new Airbus 320 planes and lease them back in a bid to cut the crippling costs of a prolonged delay in securing an operating licence in the city, people familiar with the negotiations told the South China Morning Post.

The joint venture between Qantas, China Eastern Airlines and transport and property firm Shun Tak had planned to begin operating by the middle of last year.

"We are now choosing an aircraft leasing company to arrange a sale and lease-back on some parked aircraft in order to mitigate our financial burden," a source with knowledge of the plan said.

Sources close to Jetstar said seven aircraft that the airline had taken delivery of remained parked in Toulouse, a production base for Airbus. Two more aircraft would be delivered by June.

The carrier would sell the aircraft to the leasing company and lease them back for operations.

It costs about US$400,000 per month to lease an A320.

Jetstar would also have to bear an unspecified one-time cost for not taking the planes on schedule, as well as parking fees in Toulouse.

"As Jetstar Hong Kong is still progressing through the regulatory process, the board is evaluating options to manage its fleet in the short term, with a small number of aircraft in Toulouse," a Jetstar spokeswoman told the Post.

The registered capital for Jetstar is US$198 million, split evenly among the three shareholders.

The carrier aims to acquire 18 A320s in three years for a planned network spanning mainland China and Southeast Asia. It has promised to offer tickets at prices at least 50 per cent lower than those of rivals.

It is uncertain how long it will take for the airline's application to be approved but the low-cost carrier plans to launch services this year.

Jetstar filed its application to the Air Transport Licensing Authority in August last year after the government froze all applications for more than six months for a review of the licensing requirements.

The application triggered objections from Cathay Pacific Airways, Dragonair, Hong Kong Express Airways and Hong Kong Airlines.

Chief Executive Leung Chun-ying is reviewing the application, which could end up in court.

Meanwhile, Qantas had its credit rating downgraded to junk by Moody's Investors Service yesterday.

The agency said the rating was cut to Ba2 from Baa3 because of a "sharp deterioration" in the carrier's core domestic business.

Moody's downgrade follows a similar cut by Standard & Poor's last month.