AWG has published “a positive watchlist announcement in their Cape Town Convention (CTC) compliance index with an expected increase in the Indian score,” the Ministry of Aviation said in a statement on Friday.
India this week disconnected expensive aviation assets such as planes, engines and helicopters from the moratorium – or protection against repossession – that the Insolvency Bankruptcy Code (IBC) offers to bankrupt airlines, something that allowed GoAir to retain 45 leased aircraft even after closing in May . The Civil Aviation Ministry said lessors have taken into account the difficulty of taking planes and engines back to India by adding about $1.3 billion in leasing costs to Indian airlines, something that will now make leasing cheaper for strong desi players .
“Legal entities involved in aircraft financing and leasing estimate that the drag caused by India’s current IBC legal regime, which hinders aircraft repossession by lessors, is costing Indian airlines $1.2 billion to $1.3 billion more than before in terms of leasing costs. ..there could be a reduction in the supply of aircraft on favorable terms to our airlines, which would have negative consequences for the entire aviation industry,” the ministry said.
“In addition, the costs of higher rental rates would be passed on to the public, pushing fares higher on all routes. There would be an overall impact not just on the aviation sector but on all sectors that depend on connectivity… (Hence) “The notice has been issued. India is committed to keeping the confidence of lessors intact in the Indian aviation market by mitigating their risks reduce,” the statement said.
The GoAir fiasco shook the confidence of landlords. In accordance with international standards, the Indian Directorate General of Civil Aviation (DGCA) deregisters planes at the request of lessors when a desi player has defaulted on rent payments. SpiceJet, which is cash-strapped, has seen a number of planes seized in this way.
In the case of GoAir, lessors had filed requests to repossess 45 aircraft. But before the five working day period, the NCLT admitted Go’s plea for voluntary insolvency. And as soon as that happened, Go was protected from the seizure of these 45 aircraft, as IBC took priority over IDERA. This Go model set off alarm bells in the global leasing community. AWG has issued a “watchlist notice” for India, warning that the Go case “would have a direct and material impact on future financings and leases to Indian airlines.” AWG) is a non-profit organization co-chaired by Airbus and Boeing and consists of the world’s largest aerospace manufacturers, leasing companies and financial institutions.
Finally, last Tuesday, the government issued a gazette notice stating: “…provisions of…IBC…shall not apply to any transaction, arrangement or agreement, under the Convention and the Protocol, relating to aircraft , aircraft engines, airframes and helicopters.”
The notice was necessary because India has not yet legislated on the long-pending Cape Town Convention (CTC), which allows lessors to get their aircraft back from defaulting or defunct airlines. The Civil Aviation Ministry had sought comments five years ago on the CTC Bill 2018 to implement the treaty that India had signed in 2008 to basically assure lessors that their expensive assets such as aircraft and engines will not be stranded here if Indian airlines in failing to pay rent or going bankrupt. . But the move has since stalled. Regardless of when this bill is passed, cash-strapped or defunct airlines will no longer be able to hold expensive aviation assets under IBC.
Go Air files for bankruptcy, blaming engine manufacturer Pratt and Whitney
The UN’s aviation arm, the International Civil Aviation Organization (ICAO), says the “primary purpose of CTC is to solve the problem of obtaining certain and opposable rights in high value aviation assets, namely airframes, aircraft engines and helicopters which, by their nature , do not have a fixed location. This problem arises primarily from the fact that legal systems take different approaches to securities, retention of title agreements and leases, creating uncertainty for credit institutions as to the effectiveness of their rights. This hinders the provision of financing for such aviation assets and increases financing costs.”
