IFSC GIFT City sees aircraft and engine leasing rise 31% on year in 2024, better times may be ahead

GIFT City, Gujarat.

The aircraft leasing business has started to pick up in IFSC GIFT City as around 68 new aircraft or engines were leased from GIFT City in 2024, a 31 percent rise in transactions from the 52 aircraft and engines that were leased in 2023, officials in the know told Moneycontrol.

Latest data from the International Financial Services Centre Authority (IFSCA) shows that total aircraft related assets rose to 196 entities in December 2024 against 128 entities a year earlier. Of the 196 entities 63 are aircraft and 56 are engines.

This number is expected to rise even more in 2025, with officials expecting atleast 100 new aircraft or engines to be leased from GIFT City in 2025.

“Axis Bank and Air India’s aircraft financing deal will see 34 training aircraft being leased to the airline in 2025, which already covers 50 percent of all transactions completed last year before the end of the first quarter. GIFT City should easily see over 100 aircraft or engines being leased in 2025,” a senior executive from an international lessor told Moneycontrol.

Earlier this month, Axis Bank and Air India announced an aircraft financing transaction through the banks’ International Banking Unit (IBU) at GIFT City IFSC.

As part of the deal Air India will take delivery of the aircraft for its upcoming pilot training institute in Amravati, Maharashtra.

Journey so far and optimism about the future

IFSC GIFT city has seen the registration of around 30 aircraft leasing companies in the past four years. In the last four years, GIFT City has mainly attracted leasing contracts from chartered flight operators and flight training schools due to various tax incentives offered.

ModAir Aviation, an Indian leasing firm, which mainly deals in training aircraft and charter flights has so far acquired around six aircraft through IFSC GIFT City.

Similarly, JetSetGo Aviation Services, a charter flight operator has leased four aircraft from GIFT City in the last four years.

Aircraft leasing businesses in GIFT City gets a 10-year tax holiday on lease rentals and don’t have to deduct tax before paying rent to a lessor in another jurisdiction.

The Directorate General of Civil Aviation (DGCA) has also exempted lessors registered in GIFT City from obtaining prior approval for importing or acquiring aircraft on lease. And for the past few years, the government has been trying to attract global leasing and financing companies to set up shop in GIFT City.

The executive from the international lessor told Moneycontrol that once the Protection and Enforcement of Interests in Aircraft Objects Bill, 2025 is passed by the Indian government more international lessors will look to setup shop in GIFT City and carry out transactions for Indian airlines from Gujarat.

The bill, once passed, will give primacy to the Cape Town Convention in case of conflict with any other local law - primarily the Insolvency and Bankruptcy Code, 2016 - and will be presented during the next session of the Parliament.

The bill reduces the moratorium period to a maximum of 40 days after admission of the company into the bankruptcy process. This is against the global convention which allows a moratorium of 60 days. Lessors recovering their aircraft will have to clear pending dues on account of  airport charges and fees of oil companies for up to 60 days.

The urgency to introduce the bill was felt after the National Company Law Tribunal (NCLT) ruling in Go First’s case which put a moratorium on lessors to repossess aircraft. Lessors were stuck in long court battles as they tried to recover their aircraft which led to an increase in leasing costs for other airlines.

Last year, the UK-based Aviation Working Group (AWG) downgraded India’s rating to ‘high risk’ due to poor protection for lessors. This made leasing more expensive for Indian airlines. But now, with the bill in place, AWG has already bumped India’s rating back to ‘medium-risk jurisdiction’ and it could climb higher once the bill becomes law.

Amendments to the Insolvency and Bankruptcy Code (IBC) that exclude transactions related to aircraft, aircraft engines, airframes, and helicopters from the moratorium upon admission of an insolvency plea, have also created a more favourable environment for stakeholders in the sector.

Challenges GIFT City still faces

While Indigo and Air India have been planning to ramp up their presence in GIFT City and have setup leasing arms to carry out transactions, both airlines are currently enjoying better pricing when leasing from the international market, especially for larger commercial aircraft.

Air India has also leased its first six A350 from the GIFT city through its leasing firm AI Fleet Services IFSC Ltd under a financial lease. The estimated cost of leasing one A350 from GIFT City is around is Rs 7,253 crore.

While Air India has leased six new planes from GIFT City, most of the airline’s aircraft are still leased from international lessors.

According to a PWC report, around 86 per cent of the total commercial fleet in India is leased, compared with 53 per cent globally. Lessors located in China, Ireland, Dubai and Singapore have the lion’s share in the Indian airline market.

Ireland has long been the top pick for aircraft leasing companies, mainly because of its extensive double taxation agreements (DTAs). These treaties prevent income from being taxed twice, reducing the tax burden on lessors. And thanks to them, leasing companies often pay little to no tax in the lessee’s country and minimal tax in Ireland.

In contrast, India’s tax approach is stringent. The 2017 General Anti-Avoidance Rule (GAAR) allows tax officials to scrutinise and deny tax benefits in case a leasing company exists solely for tax-saving purposes in the GIFT City without real commercial activity. This means lessors can’t just set up a shell entity in GIFT City and expect Ireland-style tax perks.

Financing is also a cause for concern in GIFT City as global leasing companies survive on the support of financial institutions.

While European banks support leasing businesses in Ireland and the government-owned Temasek Holdings and Singaporean banks support leasing firms in Singapore, there is no such provision in India because banks are cautious about lending to airlines here given the history of collapses in the country.

As a result, lessors operating from GIFT City have to rely on overseas funding. And that comes with additional costs, making GIFT City less attractive.

The PWC report also mentions the same. “At this juncture, it is vital to develop this business line in the IFSC in India, given the immense demand for aircraft from airlines, high growth in passenger traffic and aircraft leasing’s position as the most profitable leg in the aviation supply chain,” it noted.

The report further added that in order to promote aircraft leasing in the IFSC, it was “imperative to benchmark the ecosystem with leading regimes,” along with “tremendous focus and support from the Central Government.”

Lessors  also told Moneycontrol that in order for GIFT City to become a global large hub for commercial aircraft leasing an aircraft Maintenance, Repair, and Operations unit needs to be developed around GIFT City to ensure quality checks and carry out repairs in a timely manner.