The grounding of Go First planes and the airlines filing for bankruptcy has spiralled in a major issue for Indian aviation with a negative outlook circling Indian aviation sector as Aviation Working Group (AWG) has put India on a watchlist.
The AWG's action comes in response to India's failure to comply with international aircraft repossession norms following Go First being granted bankruptcy protection.
“Actions in the Go First insolvency proceedings may affect India’s score, positively or negatively on the Cape Town Convention (CTC) compliance index, depending on whether such actions are compliant with India’s CTC-treaty commitments. This would have a direct and material impact on future financings and leases to Indian airlines,” AWG has warned.
This move could potentially increase leasing costs for Indian airlines and undermine lessors' confidence Indian civil aviation market.
AWG is a not-for-profit entity, co-chaired by Airbus and Boeing that monitors leasing and financial laws on behalf of plane makers and lessors.
AWG’s negative outlook comes under the Cape Town Convention, India’s score was reduced from 3.5 to 3 earlier. AWG said that India’s inability to process deregistration applications for aircraft, whose leases got terminated before the freeze was imposed, resulted in a negative outlook.
"The Go First insolvency proceedings are a material development that implicates Cape Town Convention compliance in India," AWG said.
After India joined the Cape Town Convention in 2008, it made it easier for lessors to take back planes if airlines defaulted on payments, but the NCLT’s bankruptcy protection supersedes the repossession requests.
Go First sought protection from lessors and DGCA against any adverse actions in its plea to the National Company Law Tribunal (NCLT). The NCLT has accepted the plea and allowed the airline relief from recovery by lessors’ ad lenders under a moratorium.
SMBC Aviation has challenged this order at the higher NCLAT, stating that the Delhi bench has denied an opportunity to the lessors to present their case. SMBC Aviation added that Go First’s leases were terminated before NCLT granted a moratorium.