India’s credibility within the aircraft leasing market has been affected after UK-based Aviation Working Group, which observes leasing laws globally, downgraded India’s rating. This is a direct consequence of the current crisis of grounded low-cost carrier Go First, which has had aircraft lessors extremely worried over the fate of their multi-million-dollar equipment stuck with the airline.
Downgraded
Aviation Working Group (AWG), a UK-based non-profit organization that monitors global aircraft leasing practices and laws, has downgraded India in its compliance rating following the disputes of Go First with its lessors. India’s score has now come down to 2 from 3.5 out of 5.
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The airline’s lessors have approached the courts seeking protection for their aircraft, which reportedly lack adequate maintenance and upkeep. With no permanent solution in sight, the lessors are becoming increasingly worried and frustrated.
AWG has noticed that it has been 130 days since Go First’s lessors requested to take their planes back. This is much more than the standard 60-day waiting period as prescribed in the Cape Town Convention, an international treaty created to safeguard the rules and regulations surrounding leased properties. Reuters quotes from AWG’s notice, which said,
“The prolonged failure to make remedies, including repossession and deregistration, available to creditors … and provide for asset maintenance and value preservation … negatively impact scoring.”
Lessor confidence low
With Indian aviation projected to grow significantly in the coming decades, maintaining good airline-lessor relationships will be crucial. While carriers such as Air India and IndiGo have strong financial foundations, the same can’t be said for other airlines.
Another Indian low-cost airline, SpiceJet, is often involved in court cases regarding unsettled payments, quite often with lessors. India’s reputation for being an airline graveyard also doesn’t help much in this regard. Go First is among several other carriers that have gone under over the years. The list also includes Jet Airways and Kingfisher Airlines.
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But the current crisis of Go First as it plays out in public and the issues being faced by its lessors have severely affected India’s reputation, particularly as certain laws in India are tipped in favor of the airlines. Nilaya Varma, Co-Founder & CEO, Public Policy Realization, Primus Partners, previously told Simple Flying,
“The NCLT’s decision to admit the voluntary insolvency petition filed by Go First has raised concerns among lessors and creditors about risks associated with aircraft leasing in India. The perception of India as a high-risk jurisdiction could translate into higher risk premiums to other local airlines.”
Reforms needed
Clearly, the rules regarding aircraft repossession in India need to be looked at again. The government, in fact, has been keen on making it easier for lessors to deal with Indian airlines. But, the proposed reforms are seemingly taking longer to implement.
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Last year, the aviation ministry asked for comments from all stakeholders involved in the proposed legislation called the Protection and Enforcement of Interests in Aircraft Objects Bill, 2022. The ministry noted that Indian laws, such as the Companies Act, 2013, and the Insolvency and Bankruptcy Code, 2016, do not align with the Cape Town Convention and Protocol. There have been various calls to amend these rules in the past, particularly when Kingfisher Airlines went down. Hopefully, the current Go First crisis will lead to some reforms.
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Source: Reuters