The remarks come on the heels of the changes made in the Insolvency and Bankruptcy Code (IBC) by the ministry of corporate affairs on 3 October, allowing aircraft lessors to recover their planes during insolvency proceedings as well.

The ministry said that the earlier IBC regime was impacting the agreements between Indian airlines and foreign lessors. According to the ministry, it is estimated by legal entities dealing with aircraft financing and leasing that Indian carriers spend $1.2-1.3 billion more than earlier in lease rentals because of the impediments in aircraft recovery in India.

In the 3 October notification, the corporate affairs ministry said the provisions of Section 14(1) of IBC, which imposes a moratorium upon the admission of an insolvency plea, shall not apply to transactions, arrangements, or agreements related to aircraft, aircraft engines, airframes, and helicopters.

Simultaneously, the roadblocks in the repossession of aircraft for lessors could also result in a reduction in the supply of aircraft on favorable terms to Indian airlines, and thereby, can adversely affect the entire aviation industry, the 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 fresh notification is in consonance with the treaties and conventions India is party to with regards to civil aviation, 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 a reduction in the cost of aircraft financing and expanding legal predictability in these transactions, including the case of insolvency.

“This step is to fulfill 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 also been welcomed by the Aviation Working Group, a global watchdog representing aircraft makers and leasing firms. 

On Friday, the AWG issued a positive watchlist notice in their Cape Town convention compliance index with projected increase in India’s score after downgrading India’s compliance score last month. It cited delays in the Go First insolvency proceedings which prevented lessors from repossessing their aircraft. It had also put India on a watchlist with a negative outlook in May this year, stating that India failed to comply with international aircraft repossession norms after Go First was granted protection under the 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% fleet of Indian airlines is leased.

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Updated: 06 Oct 2023, 05:05 PM IST