As the G20 meets maybe now is a good time to find reasons to be cheerful
5th November 2012
The Indian Government is planning to introduce the Cape Town Convention Bill in the monsoon session of the Parliament in July this year with an aim to make it easier for the leasing companies to seize their assets from airlines that have missed or defaulted on payments.
The proposed Bill will give primacy to the Cape Town Convention in case of conflict with any other local law, mainly the Insolvency and Bankruptcy Code (IBC), 2016.
The Convention was adopted at a conference in Cape Town in November 2001 under the International Civil Aviation Organisation (ICAO) and the International Institute for the Unification of Private Law (UNIDROIT).
India is now a signatory to the convention, but the Indian Parliament has not ratified the treaty. Hence, the law prohibits such recovery once a company initiates bankruptcy proceedings.
The recent admission of Go First's insolvency resolution plea by the National Company Law Tribunal (NCLT) enhanced lessors' concern over leasing aircraft to India-based airlines citing India as a ‘risky jurisdiction’
To reassure lessors, the Centre has started to rework the Cape Town Convention Bill. The reworked Bill, once approved, will be presented before the Parliament. If passed, the Cape Town Convention Act will guarantee the rights of lessors to repossess their leased equipment.
The Act might even empower the Indian Government to make rules for implementing the convention and protocol in India. This is also expected to boost lessors' confidence in the Indian civil aviation space.
It is also expected to lower the lease rentals in India and help finance high-value mobile equipment, like airframes, helicopters and engines.
The Aviation Working Group recently gave a negative outlook on India creating problems for certain airlines like SpiceJet, with filing for deregistration of six SpiceJet aircraft that has defaulted on lease payments.
Insolvency resolution can take months or even years to resolve, and lessors are unable to recover their aircraft due to a moratorium. According to the data from the data from the Insolvency and Bankruptcy Board of India, as many as 610 cases have been resolved under the IBC, with the average time taken being more than 600 days, till December 2022.
A government official said: "Feedback from the industry has revealed that there are certain provisions of the convention that are in conflict with laws which fall outside the jurisdiction of the civil aviation ministry. Hence, lessors are asking for a separate law which has legal backing. This is to ensure that even in future if any law is passed, the protection of lessors under the convention remains unaffected."
Further the legislation will be in favour of Indian operators as the countries implementing the Cape Town Convention receive a 10% discount on the loan processing fee during an aircraft acquisition.