Aviation Working Group raises outlook of India’s aircraft leasing compliance rating to positive

The Ministry of Corporate Affairs' (MCA) decision to exempt agreements relating to aircraft, aircraft engines, airframes and helicopters from the moratorium prescribed under the Insolvency and Bankruptcy Code, (IBC), 2016, was made to ensure rationalisation of future lease rates, a senior government official told Moneycontrol.

The AWG assigns its aircraft leasing compliance outlook based on the terms and conditions of the Cape Town Convention.

Under the Cape Town Convention (CTC), lessors can take back the possession of aircraft leased to airlines. India is a signatory of CTC.

AWG had issued India a negative outlook after leasing firms could not take back their aircraft from bankrupt Go First.

Since Go First is undergoing an insolvency resolution process, a moratorium is in place and lessors are locked in a legal battle with Go First for taking back the leased planes.

Despite, revising its outlook for India, the AWG has left the country on its CTC Compliance Watchlist.

"While the country remains on the CTC Compliance Watchlist (the ‘watchlist’), its scorecard should be viewed with caution as it does not yet reflect the potential impact of ongoing material developments that have resulted in the watchlist placement," the AWG said.

AWG on September 27 had said that CTC remedies have not been made available to lessors nor have lessors been able to access aircraft to determine that their aircraft are being maintained in accordance with the leases as required by CTC.

The actions and inactions in the GoFirst insolvency proceedings are developments that materially and negatively implicate CTC non-compliance in India, it said, and added that the country's variable A score is projected to be materially reduced under the compliance index formula from 3.5 to projected 2.

Variable A pertains to legislation, regulations, and rules impacting CTC implementation.

Budget carrier Go First stopped flying on May 3 amid the grounding of many of its aircraft due to engine issues that resulted in financial woes.

Commenting on the development, Vinay Dube, Founder and CEO, Akasa Air said, “We applaud the government and the Honourable Minister for Civil Aviation for this progressive step, that cements into law the tenants of the Cape Town convention. The Indian aviation industry is set to grow multi-fold in the coming years. Currently, close to 80 percent of aircraft in India are leased, and as players continue to expand their operations, and the industry carves space for new players, India will need continued support from lessors to cater to this growth. The latest amendment to the IBC will encourage lessors to collaborate with Indian airlines by leasing more aircraft, at commercially favourable rates.”