India Strengthens Aircraft Repossession Laws in Alignment with Cape Town Convention

In a pivotal move, India has amended its Insolvency and Bankruptcy Code to streamline the repossession process for lessors when dealing with insolvent or defaulting airlines. The changes, specifically to section 14(1) of the Insolvency and Bankruptcy Code, 2016, align India’s domestic laws with the provisions of the 2001 Cape Town Convention. Widely seen as a response to the recent Go First (GOW, Mumbai International) insolvency, these amendments provide a significant boost to lessors seeking to reclaim aircraft frames and engines.

The Ministry of Corporate Affairs (MCA) announced the modifications on October 3, 2023. The key alteration exempts certain transactions, particularly those involving aircraft, aircraft engines, airframes, and helicopters, from court-imposed moratoriums that have traditionally hindered lessors from repossessing assets after an airline defaults or becomes insolvent.

India has witnessed multiple airline collapses, notably Kingfisher Airlines in 2012, Jet Airways in 2019, and the more recent case of Go First this year. The National Company Law Tribunal (NCLT) decision during the Go First insolvency prevented lessors from seizing their planes, and the Directorate General of Civil Aviation (DGCA) declined deregistration requests. Despite the tribunal’s belief in the necessity of aircraft for Go First’s potential restart, lessors expressed intentions to repossess the entire 54-strong fleet.

With the new exemption in place, lessors now have the authority to terminate lease agreements in the event of a default, enabling them to take possession of their leased assets. This amendment aligns India’s regulations with the Cape Town Convention and is poised to impact ongoing lease dispute cases before the NCLT, involving Go First and SpiceJet.

Industry leaders have shown support for these changes, with CEOs of major airlines, including Air India, Vistara, SpiceJet, and a representative of IndiGo Airlines, expressing their endorsement during a meeting with Jyotiraditya Scindia, India’s Civil Aviation Minister, on October 17. The collective sentiment is that these amendments will reduce leasing costs, minimize risks for lessors, and create a more favorable leasing environment. The positive response extends internationally, with the Aviation Working Group issuing a watchlist notice, indicating a favorable outlook for India’s manufacturers, leasing companies, and financial institutions following the MCA’s regulatory adjustment.