India Weekly: Aviation bill a relief to lessors

Aircraft lessors worldwide breathed a sigh of relief this week as India’s aviation minister, Ram Mohan Naidu, assured Parliament that lessors’ rights—much like homeowners’ rights—take precedence over those of bankrupt tenants. This declaration paved the way for approving a bill that firmly upholds these rights. The Protection of Interests in Aircraft Objects Bill, 2025, aims to fully implement the Cape Town Convention, which India signed over 15 years ago, in both letter and spirit. The bill swiftly cleared the Rajya Sabha (Upper House of Parliament) following the minister’s speech and a brief debate. While supporting the bill, opposition members voiced concerns about soaring airfares—even they, one noted, struggle to afford flights home after a week in Parliament. Now, the bill moves to the Lok Sabha (Lower House), where the Narendra Modi-led government holds a substantial majority, suggesting it is only a matter of time before it becomes law. The speed of progress has been remarkable. It was introduced in the Rajya Sabha on February 10th, and it has taken less than two months to clear the Upper House. During his speech, Minister Naidu highlighted a crucial concern: India’s Aircraft Working Group (AWG) compliance score had dropped to 50 due to complications surrounding Go First’s bankruptcy, where lessors could not reclaim aircraft because of court orders. In contrast, lessors could quickly retrieve their planes when Jet Airways went bankrupt. The U.S., by comparison, holds a score of 90, something India, he said, aspires to match. A strong AWG score is critical to India’s aviation sector. Airlines like IndiGo have warned the government that if the bill were delayed, lessors might cut exposure to India or increase risk premiums by 5-10% on top of an already high 10-15% being charged. Startups like Akasa Air are vulnerable to lease rate fluctuations, with estimates that rates could surge by another $15,000 per aircraft per month. At the same time, sale-and-leaseback (SLB) gains could drop by $1.5 million per aircraft. While Air India and IndiGo, with their stronger balance sheets, can negotiate better terms, smaller players struggle. Beyond individual airlines, the bill is crucial to India’s ambition of becoming a global aircraft leasing hub. Due to clear financial regulations, countries like Ireland, Dubai, and Singapore dominate leasing. In contrast, India’s lack of a well-defined framework has discouraged Indian banks from investing in the sector. The new bill aims to remove these roadblocks, making India a more attractive destination for leasing businesses. The minister emphasized two key protections for lessors. First, he explicitly stated that in the event of airline bankruptcy, “whenever there is an aircraft object coming into place, only then this bill is going to prevail” over any conflicting regulations. Second, all airlines must regularly report outstanding dues per aircraft to the Directorate General of Civil Aviation (DGCA), ensuring greater transparency. These changes could be transformative. In the past, airlines in India have collapsed without authorities having granular financial data to assess risks. By making airline financial health more transparent, the DGCA gains a powerful new tool, potentially allowing it to act on warning signs before a crisis unfolds. Ultimately, airline financial stability ties directly to aviation safety, which remains the regulator’s core responsibility. Strong oversight can prevent crises, and as seen in the case of the two major Boeing crashes—where regulatory failures played a role—being ahead of the curve is always critical.

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