India aligns its repossession laws with Cape Town Convention

Changes to India's Insolvency and Bankruptcy Code will make it easier for lessors to retrieve aircraft frames and engines if a customer becomes insolvent or defaults. The changes bring India's domestic laws into line with the 2001 Cape Town Convention and are widely viewed as a response to the recent Go First (GOW, Mumbai International) insolvency.

India's Ministry of Corporate Affairs (MCA) advised of the changes to s.14(1) of the Insolvency and Bankruptcy Code, 2016, on October 3, 2023. The change exempts certain transactions, specifically those related to aircraft, aircraft engines, airframes and helicopters, from any court-imposed moratorium that has traditionally prevented lessors from repossessing their assets after an airline defaults or becomes insolvent.

Lessors have been burnt by several airline industry collapses in India, including Kingfisher Airlines in 2012, Jet Airways in 2019, and Go First this year. In the case of Go First, India's bankruptcy court, the National Company Law Tribunal (NCLT) prevented lessors from seizing their planes after the airline stopped flying in May. Based on the NCLT decision, India's Directorate General of Civil Aviation (DGCA) has also declined lessors' requests to deregister the aircraft. The tribunal believes that if Go First is to restart - as is the plan, it will need aircraft. However, lessors have indicated their intention to repossess all of Go First's 54-strong fleet.

Under the new exemption, lessors can terminate a lease agreement in the event of a default and take possession of their leased assets. This aligns with the Cape Town Convention and is expected to have ramifications for several lease dispute cases currently before the NCLT involving Go First and SpiceJet.

Reportedly, the CEOs of Air India, Vistara, SpiceJet, and a representative of IndiGo Airlines met with Jyotiraditya Scindia, India's Civil Aviation Minister, on October 17 to voice their support for the change, which they say will reduce leasing costs and reduce risks for lessors, creating a more favourable leasing environment. The Aviation Working Group, which monitors the international aviation financing and leasing environment, recently issued a positive watchlist notice for India manufacturers, leasing companies and financial institutions following the MCA change.