Government committed to keep aircraft lessors confidence intact in Indian aviation market

Days after the government exempted aircraft objects from the ambit of insolvency law moratorium, the Ministry of Civil Aviation on Friday said it is committed to keep lessors' confidence in the country's aviation market "intact" by reducing their risks.

The exemption made under the Insolvency and Bankruptcy Code (IBC) came against the backdrop of various aircraft lessors launching legal battles to repossess planes leased to the grounded Go First, which stopped flying since early May, and is undergoing an insolvency resolution process under the IBC.

On October 3, the corporate affairs ministry, through a notification, exempted aircraft objects registered in the international registry from the applicability of the moratorium under the IBC.

In a statement on Friday, the civil aviation ministry said the notification was in consonance with the treaties and conventions India is party of with regards to civil aviation.

India is already a signatory of The Convention on International Interests in Mobile Equipment (Cape Town Convention), where the Convention on International Interests in Mobile Equipment on Matters specific to Aircraft Equipment were adopted.

The adoption was done under the joint auspices of International Civil Aviation Organization (ICAO) and the International Institute for the Unification of Private Law concluded at Cape Town on November 16, 2001.

The notification is also in compliance with the other convention that India is signatory of, the Convention and the Protocol from the International Institute for the Unification of Private Law.

The ministry asserted that India is committed to keeping lessors' confidence in the Indian aviation market intact by reducing their risks.

About the notification, the ministry said the step fulfills its commitment to the convention, wherein it is helping out the lessors/financiers, when insolvency against the debtor commences.

Further, it said the legal entities dealing in this aircraft financing and leasing regime have estimated that the impediment being caused by the IBC that was hampering the repossession of the aircraft by the lessors was costing Indian airlines an extra USD 1.2-1.3 billion more than before in terms of lease costs.

"As a consequence, there could be a reduction in supply of aircraft on favourable terms to our airlines which would adversely affect the entire aviation industry.

"Further, the cost of higher lease rentals would 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 etc.

"In view of the above, the notification has been issued," the ministry said.

Gaurav Gupte, Partner at law firm Cyril Amarchand Mangaldas, said the notification provides clarity and certainty to the rights of aircrafts creditors, including lessors, in the event of insolvency of an airline.

"At the same time, should lessors move to repossess aircraft, it will raise serious doubts about the ability of the airline to keep operating as a going concern and the prospects of recovery/realisation by other creditors," he said.