Cabinet approves bill making repossession easier for aircraft lessors

In a major development, the union cabinet on Thursday approved the Protection and Enforcement of Interests in Aircraft Objects Bill which will allow aircraft leasing companies to repossess aircraft in case of non-payment of lease rental by an airline.

The bill will give primacy to the Cape Town Convention in case of conflict with any other local law - primarily the Insolvency and Bankruptcy Code, 2016 - and will be now presented during the next session of the Parliament.

Sources said that the bill reduces the moratorium period to a maximum of 40 days after the admission of the company into bankruptcy process. This is against the global convention which allows a moratorium of 60 days. Lessors recovering their aircraft will have to clear pending dues like airport charges and fees of oil companies for up to 60 days.

Urgency to introduce the bill was felt after the National Company Law Tribunal (NCLT) ruling in Go First’s case which put a moratorium on lessors to repossess aircraft. Lessors were stuck in long court battles as they tried to recover their aircraft which led to increase in lease cost for other airlines.

This hit the confidence of lessors, which are backed by top banks and financing companies, and immediately led to increase in risk premiums from other Indian airlines increasing their cost of doing business.

The Aviation Working Group (AWG), a global aviation leasing body comprising major aircraft manufacturers and lessors, last week further downgraded India as lessors have not been able to repossess their planes from Go First more than four months after the airline filed for insolvency.

Following that the Ministry of Corporate Affairs issued a notification giving exemption to aircraft and aircraft engines from the mandatory moratorium

Insolvency resolutions drag on for a long time but the lessor is unable to recover the aircraft due to the moratorium. Data from Insolvency and Bankruptcy Board of India shows that till December, 610 cases have been resolved under IBC and the average time taken was more than 600 days.

Although India acceded to the Cape Town Convention in 2008, there are no underlying domestic laws to enforce the provisions of the convention. Therefore, in the event, there is a conflict with any domestic airline, the latter prevails. Lessors however, don’t give importance to this accession as it is not backed by legislation.

A process to introduce the bill has been pending for three years now. While draft of the bill was floated multiple times, the Ministry of Civil Aviation hasn’t been able to table it in the Parliament.

The bill had proposed to give primacy to the Cape Town Convention in case of conflict with any other local law.