Days after the government excluded aircraft objects from the scope of the insolvency law moratorium, the Ministry of Civil Aviation, on Friday, reaffirmed its commitment to preserving lessors’ trust in the nation’s aviation market. The aim is to reduce the risks they face.
Background: Exemption Under the Insolvency and Bankruptcy Code
On October 3, the Ministry of Corporate Affairs, through a notification, exempted aircraft objects registered in the international registry from the applicability of the IBC’s moratorium. This exemption, which was enacted under the Insolvency and Bankruptcy Code (IBC), arose in response to numerous aircraft lessors engaging in legal disputes to reclaim planes leased to the grounded Go First, an airline that ceased operations in early May and is currently undergoing insolvency resolution proceedings under the IBC.
International Alignment: Adherence to Aviation Treaties and Conventions
In a statement released on Friday, the Civil Aviation Ministry clarified that this notification aligns with the international treaties and conventions to which India is a party concerning civil aviation. India is already a signatory to The Convention on International Interests in Mobile Equipment (Cape Town Convention), which includes provisions specific to aircraft equipment. This adoption took place under the joint auspices of the International Civil Aviation Organization (ICAO) and the International Institute for the Unification of Private Law in Cape Town on November 16, 2001.
Furthermore, the notification complies with another convention to which India is a signatory, namely, the Convention and the Protocol from the International Institute for the Unification of Private Law.
Preserving Confidence: India’s Commitment to Lessors
The ministry emphasized India’s dedication to maintaining lessors’ confidence in the Indian aviation market by minimizing their risks. Regarding the notification, it stated that this action fulfills its commitment to the convention, wherein it assists lessors and financiers when insolvency proceedings against a debtor commence.
Economic Impact: Costs Incurred by Indian Airlines
Additionally, legal entities involved in aircraft financing and leasing have estimated that the obstacles posed by the IBC, which were hindering lessors’ ability to repossess aircraft, were causing Indian airlines to incur an additional cost of USD 1.2-1.3 billion in terms of lease expenses compared to previous conditions.
Industry-Wide Ramifications: Impact on Aviation Sector and Beyond
Consequently, there could be a reduction in the availability of aircraft on favorable terms to Indian airlines, which would adversely impact the entire aviation industry. Moreover, the higher lease costs would be transferred to the public, resulting in higher fares on all routes. This would have a widespread impact, not only on the aviation sector but also on all sectors reliant on connectivity, such as tourism and cargo. The ministry said the notification was issued in the light of these considerations.
(With PTI Inputs)