Can New Rules Uncomplicate Aircraft Leasing In India?

On Monday, February 10, Civil Aviation Minister Kinjarapu Ram Mohan Naidu proposed The Protection of Interests in Aircraft Objects Bill, 2025 to the parliament. The bill seeks to harmonise India’s domestic laws with the Cape Town Convention and its Aircraft Protocol.

Naidu tweeted that this was for “ensuring a more secure and investor-friendly aviation sector”.

What Is The Bill?

The Cape Town Convention (CTC) is a global treaty that guarantees the rights of lessors to repossess leased high-value equipment such as aircraft, engines, and helicopters in case of payment defaults.

The new bill explicitly integrates the Cape Town Convention and its protocols into Indian law (as outlined in Section 3). While largely procedural, this move reassures both international and domestic financiers that, in case of airline defaults, lessors can reclaim their aircraft with minimal complications.

“The bill removes all kinds of uncertainties and risks for the lessor. This bill will instill confidence to the global players that their asset is safe and retrievable in case of any dispute or non-adherence to the contractual obligation by the lessee,” Manish Sinha, an aviation expert told The Core.

If passed, the bill is also expected to increase accessibility to air travel in the country, with domestic passenger traffic projected to rise by 7–10% and international traffic by 15–20% this year.

“It's difficult to put an exact number on the impact, but this bill will make it easier for airlines — especially new entrants — to access capital. Right now, if someone wants to start a small airline with propeller aircraft, they’ll struggle to secure funding and expand operations due to the lack of affordable financing. This bill aims to change that,” Nitin Sarin, managing partner at Sarin & Co., lessors and airline advisor told The Core.

Why Was This Needed

This isn’t the first time India has attempted to streamline aircraft financing. Despite signing the Cape Town Convention (CTC) in 2008, it was never incorporated into domestic/local law, leading to legal ambiguities.

“In the local law, whenever there was a conflict between an international obligation and domestic law, Indian law took precedence. Since acts of Parliament hold greater authority, this led to several legal issues, including difficulties in exporting aircraft and powers granted to entities like the Airports Authority of India to detain or sell planes,” Sarin said.

The urgency for this legislation arose after the National Company Law Tribunal (NCLT) admitted Go First's insolvency plea in May 2023, imposing a moratorium that prevented lessors from repossessing aircraft.

“It just complies with world norms — years after we approved it; our government has not cleared it — with the Go Air fiasco, it caused India to be frowned upon in the international aviation leasing market. The bill will now correct that situation,” Sanjay Lazar, aviation expert told The Core.

This moratorium led to lengthy court battles, increased lease costs for other airlines, and eroded lessors' confidence. Go First, formerly known as Go Air, filed for voluntary insolvency under the Insolvency and Bankruptcy Code (IBC) in 2016. The NCLT's moratorium halted legal actions against the airline and barred lessors from reclaiming their aircraft.

Despite unpaid lease payments, leasing companies were barred from taking back their aircraft. Lessors took the case to various courts, arguing that India had signed the Cape Town Convention, which allows aircraft repossession in case of default.

The ruling made India seem risky for aircraft leasing, leading to higher lease rates for other airlines.

Being legally non-aligned to the Cape Town Convention, increased the risk of the aircraft/ helicopter/ engine lessors.

“This had a direct impact on the cost of borrowing as well as increased insurance premium. As the airline industry is extremely price sensitive and operates on very thin margins, any ‘add-on’ element to its cost makes business unviable. The moment this bill becomes an act, it will have a legal status and will be helpful,” Sinha said.

How Has The Industry Struggled?

A clear example of this inconsistency is the case of Jet Airways vs SpiceJet in aircraft repossession.

When Jet Airways went bankrupt, lessors struggled for months to repossess their aircraft due to legal hurdles and government delays. Some planes were stuck in India, while others were repossessed after lengthy court battles.

In contrast, lessors of SpiceJet were able to reclaim their aircraft much faster after the airline defaulted on lease payments. Courts ruled in favour of lessors, allowing them to deregister and take back planes under the Cape Town Convention, despite India not fully implementing it into domestic law.

“This lack of legal clarity impacted India's reputation in the global market, forcing financiers to factor in higher risks when leasing aircraft to Indian airlines, driving up costs,” Sarin added.

A recent Boeing report also indicates that India's sustained economic growth and emerging middle class could spur annual traffic growth of 7.4% over the next two decades.

Another key aspect is that it overrides The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), which currently prevents Indian banks from repossessing aircraft.

“Because of this restriction, aircraft aren’t even considered eligible assets for financing by Indian banks. By removing this barrier, the bill will unlock new sources of domestic financing, making it easier for airlines to secure loans within India,” Sarin said.