India changes insolvency rules to exclude freezing of leased aircraft

Go First Insolvency

India has amended its insolvency law to exclude leased aircraft from assets that can be frozen, according to a government notification released on Wednesday, resolving a discrepancy between global and local rules after criticism from leasing firms.

The rule change comes at a time when foreign lessors of budget airline Go First are entangled in a legal dispute to recover their aircraft after the airline went bankrupt in May.

Some provisions of the Indian Bankruptcy Code will not now apply to transactions relating to aircraft, aircraft engines, airframes and helicopters, the government notice showed.

India had previously signed up to global aircraft leasing rules under the Cape Town Convention – a treaty designed to protect repossession rights, but there was no local legislation enforcing it.

"With this, India can hope to somewhat repair the reputation it has acquired as a risky country to lease aircraft and engine to," Ramesh Vaidyanathan, managing partner of law firm BTG Advaya told Reuters.

Aircraft lessors of Go First were blocked from repossessing their planes and the world’s second-largest aircraft lessor, SMBC Aviation Capital, had warned that the decision would shake the confidence of the international aviation industry.

The freezing of the Go First planes would weigh on new deals, forcing domestic carriers to shell out higher deposits for leased planes, or higher monthly rents, an adviser to a global lessor and an aircraft leasing industry source had told Reuters.

In June, the country’s aviation secretary told Reuters that India was working to resolve discrepancies between global aircraft leasing rules and its national bankruptcy laws.

The impact of Wednesday’s announcement on the Go First case is likely to be discussed during ongoing court proceedings where the foreign lessors are seeking to repossess their planes, according to people involved in the case.