Aviation Working Group (AWG), a global aviation leasing watchdog, has taken the unprecedented step of reducing India’s compliance rating for the second time. This decision has been made in light of ongoing disputes between India’s Go First airline and its aircraft lessors. The country has been placed on a watchlist with a negative outlook, casting a shadow on its aviation leasing industry.
Legal Tussle: Go First vs. Aircraft Lessors
The heart of this controversy lies in the legal battle between the financially troubled Go First airline and its aircraft lessors. The dispute escalated after Go First was granted bankruptcy protection in May, a move that shielded more than 50 grounded Airbus planes from being repossessed by lessors. Complaints emerged regarding the deteriorating condition of these planes, raising concerns about asset preservation.
Cape Town Convention and India’s Obligations
The AWG noted a significant delay in responding to the lessors’ requests for repossession of their aircraft, with 130 days passing since the initial appeals were made. This extended period of waiting, more than double the 60-day maximum specified under the Cape Town Convention, has placed India in breach of its international obligations.
Legal Framework and Consequences
India, although a signatory to the Cape Town Convention, has not yet enacted legislation to address conflicts with its insolvency and bankruptcy code, which is endorsed by parliament. The AWG has expressed concerns that this failure to provide remedies for creditors, including repossession and deregistration, as well as inadequate asset maintenance and value preservation, has negatively impacted India’s compliance rating. Further rating downgrades are now being warned.
AWG’s Actions and Impact
The AWG, a not-for-profit entity co-chaired by industry giants Airbus and Boeing, has downgraded India’s compliance score from 3.5 to 2 out of 5. This decision falls under the compliance index, which evaluates the practical adherence to Cape Town Convention requirements. Notably, this is the second downgrade by AWG, which initially placed India on its watchlist in May and assigned a negative outlook due to its failure to process lessors’ repossession applications during the freeze on Go First’s assets.
Lessor Confidence and Market Implications
The implications of this second downgrade are far-reaching, particularly concerning lessor confidence in India’s aviation market. AWG’s members, including prominent lessors and financial institutions such as Aircastle, BOC Aviation, SMBC Aviation Capital, Deutsche Bank, Goldman Sachs, and Morgan Stanley, warned that this move could further erode trust in the world’s third-largest aviation market. SMBC, the world’s second-largest aircraft lessor, has already cautioned that India’s decision to prevent leasing firms from reclaiming Go First’s aircraft would have a detrimental impact on the confidence of lessors in the Indian market.
(With Agency Inputs)