The government pledges to lower risks for aircraft lessors

 The government pledges to lower risks for aircraft lessors

In New Delhi: The ministry of civil aviation declared on Friday that the government is dedicated to lowering the risks experienced by aircraft lessors and upholding their faith in the Indian aviation sector.

The comments follow the ministry of corporate affairs' amendments to the Insolvency and Bankruptcy Code (IBC) on October 3 that now permit aircraft lessors to recoup their aircraft during insolvency proceedings.

According to the ministry, the agreements between Indian airlines and foreign lessors were being impacted by the previous IBC system. The government reports that due to the difficulties in recovering aircraft in India, Indian airlines are projected to be spending $1.2-1.3 billion more on lease rentals than they did in the past.

The corporate affairs ministry stated in the 3 October notification that transactions, agreements, or arrangements involving aircraft, aircraft engines, airframes, and helicopters are exempt from the provisions of Section 14(1) of IBC, which imposes a moratorium upon being accepted of an insolvency plea.

In addition, the ministry warned that the difficulty in repossessing aircraft for lessors may reduce the number of aircraft available to Indian airlines at competitive prices. This might have a negative impact on the overall aviation sector.

"Further, higher lease rentals could result in large public costs that would result in high fares on all lines. As a result, there would be a broad impact on not only the aviation industry but also on all sectors that depend on connection, such as tourism and cargo, according to the ministry, which also discussed potential repercussions of the previous IBC regime that prohibited aircraft recovery.

The ministry reaffirmed that the new notification complies with all treaties and agreements pertaining to civil aviation to which India is a party, including the Cape Town convention. By defending aircraft repossession rights, the 2001 pact aimed to facilitate the expansion of aviation. The treaty aims to lower the level of risk for the intended creditors or lessors, which will lower the cost of financing for aircraft and increase legal predictability in these transactions, especially in the event of insolvency.

According to the ministry, "this step is to fulfill its obligation under the Convention, wherein it is assisting the lessors or financiers when insolvency against the debtor commences."

The Aviation Working Group, a global watchdog that represents aircraft manufacturers and leasing companies, has also praised the revisions to IBC. 

After reducing India's compliance score last month, the AWG released a positive watchlist notification for India on Friday in their Cape Town convention compliance index. It cited obstacles that hindered lessors from reclaiming their aircraft due to delays in the Go First insolvency process. In May of this year, it also placed India on a watchlist with a poor outlook, claiming that when Go First was given protection under the insolvency proceedings, India failed to follow international aircraft repossession regulations.

The monitoring organization continued, "AWG continues to review the timely implementation of this new rule and calls upon the government to swiftly pass Cape Town convention primacy legislation." 

Almost 80% of Indian airlines' fleet is leased.