 "IBC regime was costing carriers additional $1.3 billion, says Centre")
The Indian “legal regime” of the Insolvency & Bankruptcy Code (IBC), which hindered lessors from repossessing their aircraft from airlines, was costing domestic carriers an additional $1.2-1.3 billion in lease rentals, the ministry of civil aviation stated on Friday.
The time period during which the airlines incurred these additional costs is unclear.
Aircraft lessors charge higher lease rentals when they see that the local legal regime is not allowing them to repossess planes quickly from an airline that has gone insolvent.
Leasing costs represent a significant expense for Indian airlines, with approximately 80 per cent of their aircraft fleet being under lease arrangements.
The cost of higher lease rentals could be passed on to the public causing high fares on all routes, the ministry’s statement said.
As a result, the ministry of corporate affairs (MCA) issued a notification on Wednesday, exempting all agreements related to aircraft and their engines from the moratorium powers specified in Section 14 of the IBC.
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Therefore, if an airline goes insolvent now, it can’t cite Section 14 and ask the court to prevent lessors from reclaiming their planes. Go First stopped operating flights on May 3 after filing an insolvency application with the National Company Law Tribunal (NCLT).
Aircraft lessors have been unhappy for the past few months after the tribunal, in May, barred them from repossessing their approximately 45 aircraft from Go First.
“Legal entities dealing in aircraft financing and leasing have estimated that the impediment
being caused by the present legal regime of IBC, which is hampering repossession of aircraft by the lessors, is costing Indian airlines $1.2 to $1.3 billion more than before in terms of lease costs,” the ministry of civil aviation noted.
Meanwhile, Aviation Working Group (AWG) — a global aviation leasing body comprising major planemakers and lessors — on Friday upgraded India to a positive watchlist due to Wednesday’s notification. This upgrade would be a positive step towards ease of leasing / financing aircraft equipment for Indian operators, the civil aviation ministry stated.
In May, AWG had put India on its negative watchlist after the NCLT had barred lessors from taking their planes back from Go First.
AWG, had in September, further downgraded the country, stating that the lessors have not been able to take their planes due to the ongoing insolvency proceedings.
Citing Wednesday’s notification, the ministry said India is committed to keeping lessors’ confidence in the Indian aviation market intact by reducing their risks.
With this notification, the central government has officially adopted the Cape Town Convention (CTC), an international treaty that offers time-bound solutions for lessors to repossess aircraft, thereby reducing their inherent risks.
Lessors have advocated for the implementation of this treaty, which will grant precedence to the CTC over insolvency laws in India.
The aforementioned Section 14 of the IBC declares a moratorium on proceedings, and transfer or disposal of any of the assets of the company from the date of commencement of its insolvency.
AWG said that it continues to review the timely implementation of this new rule (Wednesday’s notification) and calls upon the government to pass the CTC primacy legislation as promptly as possible.