Why India’s airline startups are betting on hybrid fleets

Historically, leasing has dominated Indian aviation. Over 80% of commercial jets are leased in India, compared to approximately 53% globally, according to industry reports from Primus Partners and PwC. But new entrants believe a partial shift to ownership may increase credibility with banks and investors.

“We are pursuing a well-calibrated growth strategy that blends leasing and direct acquisition, aligned with the evolving dynamics of the Indian aviation sector,” said Anurag Chabbra, co-founder and executive director of Shankh Air. “We will commence operations with two aircraft and aim to expand our fleet to seven and beyond by the end of 2026, focusing on key metro hubs while establishing Lucknow as our strategic base of operations.”

The airline is backed by $50 million in funding from parent company Shankh Trading Pvt. Ltd.

Gurugram-based FlyBig, which temporarily suspended operations due to financial constraints, is now operational in around 20 cities. Travel platform EaseMyTrip recently acquired a 49% stake in the airline. FlyBig reported ₹128.75 crore in FY24 revenue and currently operates four DHC-6-400 aircraft—one owned and three leased.

The airline is also placing a strong bet on the upcoming Noida International Airport, also known as Jewar airport, joining Shankh Air in targeting the new aviation hub. However, the new entrants will face stiff competition from established players like Akasa Air and IndiGo, both of which have already signed MoUs with Noida International Airport, securing early access.

Regional focus

“While legacy low-cost carriers are attempting to retrofit regional operations into existing frameworks, FlyBig was purpose-built for this sector,” said Chander Bahadur, vice president of FlyBig. “Our very inception was aligned with the UDAN mission, and over the past four years, we’ve amassed deep operational expertise in navigating the nuanced demands of underserved and remote destinations.”

The UDAN (Ude Desh ka Aam Nagrik) scheme is a regional connectivity initiative by the Indian government that aims to make air travel affordable and accessible by subsidising flights to underserved and unserved airports.

Bahadur also sees the new Jewar airport as a critical gateway for improving connectivity across the populous states of Uttar Pradesh, Uttarakhand, and Bihar.

Yet, India’s regional aviation market remains a tough terrain. Demand is volatile and highly seasonal, complicating revenue forecasts. “These fluctuations place immense pressure on airlines to overfill planes during peaks and absorb large losses during lean months,” said Pragya Priyadarshini, VP at Primus Partners.

Operational hurdles are also common at smaller airports, many of which lack basic infrastructure like night landing systems, refuelling, and maintenance support. “Without reliable ground operations, airlines risk flight delays, diversions, or cancellations—factors that impact traveller confidence and reduce repeat demand,” she said.

Moreover, the UDAN scheme’s financial support is time-bound. Viability Gap Funding (VGF), meant to subsidise initial losses on underserved routes, typically lasts only three years. After that, airlines are expected to generate sustainable demand on their own.

That’s why a hybrid leasing-ownership model is gaining traction.

Globally, regional airlines favour leasing over owning aircraft to reduce capital expenditure, manage risk, and maintain fleet flexibility. According to the 2024 Duke University Insight article, leasing allows them to adapt quickly to changing demand and upgrade fleets more easily.

Owned versus leased

“Owning aircraft is highly capital-intensive. Especially for low-cost carriers, locking in capital upfront may not make sense without clarity on future cash flows,” said Bhavana Yerrumreddy, partner and national aviation leader at EY India. A hybrid model—owning some and leasing others—makes more strategic and financial sense. Airlines should evaluate this depending on factors like the operator’s financial situation, expected aircraft utilisation, and long-term operational goals, Yerrumreddy said.

Still, access to financing remains a roadblock. “Ownership demands significant upfront investment—something many new or regional airlines may not be prepared to take on,” said Anurag Gupta, partner at Deloitte. “Leasing becomes the easier path, particularly on UDAN routes, where it often makes better commercial sense.”

“If an airline wants to lease a small aircraft in India, they’re confronted with higher financing costs when compared globally, and banks here also tend to be more conservative. That’s why airlines often look abroad for financing,” Gupta added.

Despite that, he sees the pace of steady reforms accelerating in the near future. “…While reforms were progressing slowly, we believe that in the next two to three years, these changes will begin to take full effect—unlocking greater potential for fleet expansion.”

Goa-based Fly91 is another player entering the fray, targeting smaller towns and tourist hubs. “We currently operate out of eight cities, and three of those are tier II towns in Maharashtra itself, like Jalgaon, Solapur and Sindhudurg and Agati in Lakshadweep,” said Manoj Chacko, MD and CEO at Fly91. “We then connect these to larger hubs like Hyderabad, Bengaluru, Pune, and Goa.”It began operations in 2024 with ₹200 crore in equity funding.

FLY91 operates four ATR 72 aircraft, of which two are fully owned.

Balanced fleet

“At the end of the day, it’s not just about whether you lease or own an aircraft—it’s about what works best at that point in time,” said Chacko. Both leasing and ownership have their merits and demerits, and the decision depends on a range of variables, including the opportunity. “If you get a leased aircraft on favourable terms, you take it. If you can finance a purchase on equally good terms, that may offer more long-term value too,” he said.

Chacko added that the regional airline intends to induct five to six aircraft annually and eventually scale to 40-50 cities across five regional hubs in five years.

Yet, leasing remains dominant due to flexibility, added Priyadarshini. “Owning a fleet is always far more expensive than leasing over the long run. Even large commercial airlines like Air India or IndiGo lean heavily on leasing,” she said. “Leasing helps avoid the heavy cash outflows required upfront and gives more operational flexibility.”

With leasing, periodic maintenance responsibilities often shift to the lessor. “If the lease is for 10 years, airlines can simply return the aircraft at the end and lease a newer one,” she added.

Aircraft maintenance costs are primarily driven by flight hours, with the A340-600 incurring 25% of total costs due to its high utilisation. Major expenses stem from scheduled checks, unscheduled repairs, and issues in systems like fuel, landing gear, and air conditioning. Moreover, older aircraft require more frequent and expensive maintenance, according to research papers published by Elsevier in Procedia CIRP (2020).

There are two types of aircraft leases: wet leases, where the lessor is responsible for maintenance, and dry leases, where the responsibility for maintenance lies with the lessee, typically the airline. Most commercial airlines opt for dry leases, said Priyadarshini.

Still, financing decisions are also influenced by collateral. “Financiers prefer ownership deals because they can seize the aircraft as collateral if payments stop. With leased aircraft, the planes legally belong to overseas lessors—so Indian financiers often have no fallback asset, which is an even greater concern for regional airlines,” Priyadarshini added.

As new players try to carve out their niche, even more entrants are preparing for takeoff.

Recently, LAT Aerospace, a new aviation venture reportedly backed by $50 million in funding, including $20 million from Zomato’s Deepinder Goyal. Though details are scarce, this marks Zomato’s second foray into aviation, following its short-lived food delivery-by-air pilot in 2022.Mint’s queries to Zomato did not elicit a response.

Meanwhile, Kerala is preparing to welcome two regional carriers—Air Kerala and Alhind Air. Air Kerala, led by UAE-based entrepreneurs under Zettfly Aviation, will operate three ATR 72-600 aircraft. Alhind Air, launched by the Calicut-based Alhind Group, will also use ATR 72-600s, initially flying from Cochin and eventually serving Gulf destinations.