In a recent and significant development, the Indian government has taken steps to alleviate the predicament faced by aircraft leasing companies seeking to reclaim their assets from Go First, the beleaguered budget airline that filed for voluntary insolvency in May. Despite the existence of provisions for swift aircraft deregistration and repossession, lessors have struggled to regain control of their planes from Go First due to a crucial legal impediment triggered by India’s Insolvency and Bankruptcy Code (IBC).
Under the IBC, the acceptance of an insolvency petition by the National Company Law Tribunal (NCLT) imposes an immediate and comprehensive moratorium on the recovery of assets leased to the debtor, as is the case with Go First.
This automatic moratorium is rooted in India’s adherence to the Convention on International Interests in Mobile Equipment and its associated protocol, often referred to as the Cape Town Convention (CTC). According to the CTC, lessors can pursue deregistration and export of aircraft without the lessee’s consent through Irrevocable Deregistration and Export Request Authorizations (IDERAs). However, the full integration of the CTC into India’s legal framework has been pending, leading to conflicts where Indian laws often took precedence over CTC provisions.
The government has now intervened to offer respite and assurance to aircraft leasing firms. The Ministry of Corporate Affairs (MCA) has issued a notification exempting transactions and agreements concerning aircraft, aircraft engines, airframes, and helicopters in line with the CTC from relevant sections of the IBC. This means that going forward, the automatic moratorium under the IBC will not hinder lessors’ repossession of aircraft in cases of airline insolvency.
The significance of this development cannot be overstated. The inability of lessors to reclaim their planes from Go First had cast a shadow over India’s reputation as an aviation market, causing concern among global aircraft financiers and lessors. In late September, the Aviation Working Group (AWG), an international not-for-profit organization comprising major aviation manufacturers, leasing companies, and financial institutions, downgraded India. This downgrade could result in higher risk premiums for other Indian carriers, further complicating their operations in an industry already grappling with volatile fuel prices and fierce competition.
As India aspires to become a hub for aircraft leasing and with major Indian carriers expanding their fleets, ensuring a favorable view of the Indian aviation market by global aircraft leasing firms is paramount. Alignment with international civil aviation conventions, protocols, and norms is crucial for the growth of this ecosystem in India.
While the MCA notification is a positive step, it’s essential to note that it may not immediately facilitate Go First’s lessors in repossessing their aircraft, as government notifications typically have prospective, not retrospective, effects. Nevertheless, Go First’s lessors are expected to seek relief from the courts based on this latest notification, although matters regarding the repossession of Go First aircraft remain sub-judice.
The case of Go First underscores the importance of swiftly resolving such issues to maintain India’s attractiveness as an aviation market and ensure the efficient operation of aircraft leasing activities. It also highlights the need for India to consistently prioritize international aviation agreements to facilitate smoother operations and reduce legal hurdles.
In conclusion, the government’s decision to exempt aircraft-related transactions from the IBC’s moratorium is a significant stride towards addressing the challenges faced by lessors in India’s aviation sector. It not only enhances India’s standing in the global aviation industry but also aligns with the government’s vision of transforming the country into a thriving aircraft leasing hub.
