Govt strengthens norms for insolvent airlines’ aircraft, equipment recovery

Legal bigwigs are touting the move to help India regain its position with the AWG

The Ministry of Corporate Affairs has issued a notification stating that certain provisions of the Insolvency and Bankruptcy Code (IBC) will no longer apply to aircraft, their engines, airframes, and helicopters. This development is expected to have a significant impact on the aviation industry in India, making it easier to recover assets especially aircraft and engines even when an airline goes through insolvency.

“The Central government hereby notifies that the provisions of sub-section (1) of section 14 of the Insolvency and Bankruptcy Code, 2016 shall not apply to transactions, arrangements or agreements, under the convention and the protocol, relating to aircraft, aircraft engines, airframes and helicopters,” the Ministry of Corporate Affairs said in a notification dated October 3 which was passed on Wednesday.

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This development follows concerns raised by the Aviation Working Group (AWG), a global oversight body for aviation manufacturers, leasing firms, and financial institutions. AWG had recently downgraded India’s compliance rating, citing delays in insolvency proceedings involving Go First, which hindered lessors’ ability to repossess their aircraft.

In the case of Go First, which filed for bankruptcy in May, the court had previously ruled that the moratorium extended to leased aircraft and engines, preventing lessors from reclaiming their assets.

As a consequence of these concerns, AWG had placed India on a watchlist with a negative outlook earlier this year, highlighting the nation’s non-compliance with international norms related to aircraft repossession following Go First’s protection under insolvency proceedings.

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Speaking to businessline, Nitin Sarin, Managing Partner, Sarin & Co, explained that this is an “extremely good move” as this would help India regain its position with the AWG.

Speaking specifically about the GoFirst matter, Sarin explained that it will be argued in the court by the lessors, however, ultimately, in this matter, it will be the court’s decision. However, henceforth, this notification will be overridden by all other norms.

Repossesing aircrafts
Ravi Nath, managing partner, RNC Legal, said, “It is a great move by the government. Long awaited. It brings India at par with legislations in different parts of the world including the UK and the US. This should reduce the negativity that had come about because of Go First insolvency and will lead to a reduction in cost of new aircraft. It will make it easier for lessors to repossess planes from insolvent airlines as moratorium provisions of the IBC will no longer apply. The corporate affairs notification does not say it will come into effect prospectively and thus we are filing application in Delhi High Court on behalf of Go First’s lessors for release of planes.

This is the second time that the government has provided an exemption like this. Prior to this, a similar exemption was for the Oil sector.

According to official sources, this also comes in the backdrop of the GIFT City, to give a boost as a hub for a clarity on the vexed aircraft leasing situation and pitched for excluding aircraft leasing from the moratorium under IBC.

So far, over 20 leasing companies have been set up at IFSC Gift city including Air India, and even IndiGo has notified that it will set up shop there. However, India hasn’t been successful in attracting many international lessors. This, according to officials, will be a major boost for international players too.

International Civil Aviation Organisation (ICAO), says the primary aim of the Cape Town Convention is to resolve the problem of obtaining certain and opposable rights to high-value aviation assets, namely airframes, aircraft engines and helicopters which, by their nature, have no fixed location.

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