MC EXPLAINER Why global reinsurers are concerned about wet lease agreements in Indian aviation

Why global reinsurers are concerned about wet lease agreements in Indian aviation

Reinsurers have become increasingly wary of wet lease contracts due to a surge in operational failures and the sheer financial risks involved, according to a leading insurance broker.

Their concerns come at a time when between January 2024 and January 2025, Indian airlines reported 273 technical glitches across 10,69,680 flights.

Though this is a drop from 390 glitches in 2023 and 723 in 2022, experts suggest that the figures are still substantial.

On June 12, 2025, Air India Flight AI 171 crashed in Ahmedabad, killing over 240 people and triggering massive insurance claims. Just days later, on June 15, a helicopter ferrying pilgrim in Uttarakhand crashed near Gaurikund due to poor weather, claiming seven lives. Today, June 16, 2025, an Air India flight bound for Delhi returned to its origin due to a suspected engine malfunction.

While domestic insurers handle the initial aviation payouts, the bulk of the financial risk, often up to 95 percent, is passed on to global reinsurers.

These reinsurers are now seeking greater contractual clarity around wet lease agreements, particularly in areas where operational control, liability, and legal jurisdiction remain ambiguous.

What exactly is a wet lease and why do Indian airlines rely on it so heavily?

A wet lease is a contractual agreement where an airline rents an aircraft along with its crew, maintenance, and insurance (ACMI) from another operator, mostly foreign. The lessee retains commercial control, such as scheduling and route planning.

This model allows airlines to quickly plug gaps in capacity, especially during peak seasons, aircraft groundings, or delivery delays.

In India, carriers like IndiGo, SpiceJet, and even Air India have used wet leases to meet surging demand or keep services running during fleet disruptions.

According to aviation experts, however, while useful as a short-term fix, these arrangements introduce layers of complexity, particularly when something goes wrong.

What are the major concerns reinsurers have about these contracts?

“The primary issue for reinsurers lies in the ambiguity of operational responsibility and legal jurisdiction,” said a leading insurance broker.

Wet lease contracts often fail to clearly establish who is in charge of maintenance, safety protocols, and crew oversight.

In the event of an accident or technical fault, this lack of clarity complicates the process of determining liability.

Moreover, because many lessors are based abroad, disputes often end up in foreign courts.

Has this been a longstanding problem in Indian aviation?

Yes, India has a chequered history with wet leasing. In the early 2000s, budget carriers like Air Deccan and SpiceJet rapidly expanded by leasing aircraft from Europe and the Middle East under wet lease arrangements.

However, many of these contracts were hastily drawn up, lacking clarity on critical issues such as maintenance accountability, crew responsibility, and accident liability.

One of the earliest flashpoints came in 2008, when a Turkish wet-leased aircraft operated by Jet Airways was grounded following a maintenance disagreement, exposing the contractual grey zones that continue to trouble the sector.

These same issues have resurfaced in recent years with higher financial stakes.

In 2024, SpiceJet found itself locked in a $29.9 million legal battle with UK-based Celestial Aviation over delayed payments and disagreements on control and crew responsibility.

The situation escalated to litigation in London, disrupting SpiceJet’s operations.

In 2025, the airline faced another dispute with US-based Willis Lease Finance over $20 million in unpaid dues related to leased aircraft and engines.

In both Spicejet cases, the core issue remained the same: unclear contract terms, particularly regarding crew liability, maintenance obligations, and legal jurisdiction.

What specific issues are reinsurers flagging today?

Beyond legal ambiguities, reinsurers are alarmed by operational control issues, said aviation experts.

For example, in 2020, an IndiGo A320 leased from a European lessor faced a technical fault, sparking a months-long debate over who was responsible for repairs.

In many cases, determining who was operating the aircraft at the time of failure, whether the Indian airline or foreign lessor, becomes contentious.

Another layer of complexity stems from varying legal regimes.

India follows the Montreal Convention, which caps passenger liability unless gross negligence is proven, while many foreign lessors operate under different laws.

What steps has the DGCA taken to address these concerns?

The DGCA has taken steps over the years, but regulatory action only intensified recently.

In 2015, after a wet-leased SpiceJet aircraft failed a safety audit due to crew fatigue, the DGCA introduced mandatory breath-analyser tests for foreign crew.

By 2018, it made pre-approval of wet lease contracts compulsory. However, enforcement was inconsistent. A turning point came in September 2024, following a string of safety incidents and disputes.

The DGCA overhauled its wet leasing framework, capping lease periods to six months (extendable by another six), and requiring lessees to use aircraft only from jurisdictions with strong safety oversight.

The rules now demand submission of incident reports, adherence to crew testing protocols, and allow DGCA physical access to leased aircraft and documents.

Why is wet leasing still important for Indian airlines despite all this?

Despite its risks, wet leasing remains indispensable.

For Indian carriers, wet leasing accounts for 5–10 percent of their active fleets in recent years, with this number only trending upwards.

As of late 2024, IndiGo operated nearly 33 wet/damp leased jets, including two Boeing 777s, 16 A320s, 10 B737-8s, and two B777-300ERs, supplementing its 406‑strong owned fleet.

DGCA extensions and plans for up to six B787 wet-leases from Norse Atlantic further underscore this reliance.

Meanwhile, SpiceJet reported seven wet-leased aircraft by March 2025, with these comprising 28 percent of its 25 active aircraft, a full fifth of its operational capacity.