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New Delhi: The Centre is committed to keeping the confidence of aircraft lessors in the Indian aviation market intact by reducing their risks, the ministry of civil aviation said on Friday, as global aircraft makers and leasing groups welcomed a move to protect the interests of lessors.
The remarks by the civil aviation ministry follow changes made to the earlier Insolvency and Bankruptcy Code (IBC) by the corporate affairs ministry on 3 October, allowing aircraft lessors to recover their aircraft during insolvency proceedings.
In a statement, the civil aviation ministry said the earlier IBC regime was impacting agreements between Indian airlines and foreign lessors.
According to the ministry, legal entities dealing with aircraft financing and leasing estimate that Indian carriers spend $1.2-1.3 billion more in rentals because of the difficulties in aircraft recovery.
In a 3 October notification, the corporate affairs ministry declared that Section 14(1) of IBC, which imposes a moratorium on the admission of an insolvency plea, will not apply to transactions, arrangements or agreements related to aircraft, aircraft engines, airframes and helicopters.
The roadblocks in repossessing aircraft for lessors could also result in reduction in the supply of aircraft on favourable terms to Indian airlines, which in turn can affect the entire aviation industry, the civil aviation ministry said.
“Further, the cost of higher lease rentals could be passed on to the public, causing high fares on all routes. As such, there would be an overall impact on not only the aviation sector but all sectors dependent on connectivity like tourism, cargo,” the ministry added on the possible consequences of the earlier IBC regime which imposed a moratorium on aircraft recovery.
The ministry reiterated that the 3 October notification is in consonance with civil aviation treaties and conventions that India is party to, including the Cape Town convention.
The 2001 treaty was designed to smoothen the growth of aviation by protecting the repossession rights of aircraft. The treaty aims to reduce the level of risk for the intending creditors or lessors, leading to reduced cost of aircraft financing and expanding legal predictability in these transactions, including in insolvencies.
“This step is to fulfil its commitment to the Convention, wherein it is helping the lessors or financiers when insolvency against the debtor commences,” the ministry said.
The changes in IBC have been welcomed by the Aviation Working Group (AWG), a global watchdog representing aircraft makers and leasing firms.
On Friday, the AWG issued a positive watch-list notice in its Cape Town convention compliance index with a projected increase in India’s score.
This came after it downgraded India’s compliance score last month, citing delays in the Go First insolvency proceedings that prevented lessors from repossessing their aircraft.
It had also put India on a watch list with a negative outlook in May this year, saying India had failed to comply with international aircraft repossession norms after Go First was granted protection under insolvency proceedings.
“AWG continues to review the timely implementation of this new rule and calls upon the government to pass Cape Town convention primacy legislation as promptly as possible,” the watchdog added.
Nearly 80% of Indian airlines’ fleet is leased.
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Updated: 07 Oct 2023, 05:00 AM IST
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