Central Idea

The Ministry of Corporate Affairs (MCA) issued a notification exempting aircraft-related transactions from certain sections of the IBC, aligning Indian regulations with the Cape Town Convention (CTC).
The notification eliminates the automatic moratorium on aircraft, engines, airframes, and helicopters, allowing lessors to repossess planes during airline insolvency.

Understanding the Go First Crisis

Bankruptcy: Go First, a prominent budget airline in India, filed for bankruptcy, becoming the second Indian airline to do so in recent years, following Jet Airways’ bankruptcy in 2019.
Debt and Lessors: Go First faced substantial debt, including over ₹2,600 crore owed to various aircraft lessors.
Engine Supplier Blame: The airline attributed its crisis to engine supplier Pratt & Whitney, claiming that faulty engines led to flight disruptions and significant financial losses.

Dependency on Foreign Lessors: Indian airlines heavily rely on foreign lessors to finance aircraft acquisitions, with approximately 80% of India’s 800 commercial aircraft under lease.
Legal Barriers: Legal proceedings in Indian courts have prevented lessors from repossessing Go First’s aircraft, potentially intensifying disputes between lessors and Indian airlines.
Higher Risk Premiums: Experts anticipate that lessors may charge higher risk premiums to mitigate future turbulence with Indian airlines, leading to increased business costs and potentially higher airfares for passengers.

Establishment	2001, Entered into force on March 1, 2006.
Purpose	Facilitates aircraft financing and leasing, establishing global standards and legal framework.
Global Registry	International registry for aircraft and equipment ownership interests, enhancing transparency.
Leasing	CTC simplifies aircraft leasing operations by allowing quick deregistration and repossession.
Priority Rules	Determines the priority of interests in aircraft, crucial in cases of default or insolvency.
Default Remedies	Outlines procedures and remedies in case of default, including repossession rights.
Coverage	Encompasses aircraft and aircraft equipment (engines, avionics), offering comprehensive legal guidelines.

India is a signatory to the CTC since 2018.
Despite being a party to the CTC, Indian laws have often prevailed over CTC provisions in cases of conflict, impacting lessors’ rights.

Hub for Aircraft Leasing: The Indian government aims to establish the country as a hub for aircraft leasing, attracting global lessors.
Alignment with International Norms: To achieve this vision, alignment with international aviation conventions like the CTC is crucial.

Prospective Impact: The MCA notification is effective prospectively and may not immediately assist Go First’s lessors in repossessing aircraft.
Sub-Judice Matters: The matter of repossession is currently under judicial consideration.
Previous Attempts: Lessors had applied to the Directorate General of Civil Aviation (DGCA) to repossess planes from Go First before the NCLT’s admission of insolvency.
Pending Legislation: The government had planned legislation to prioritize CTC provisions over conflicting Indian laws, but it has not been tabled in Parliament.

Current Status: India is a CTC signatory but lacks the necessary legal protection, resulting in conflicts between existing laws and CTC norms.
Fueling Aviation Growth: Legalizing CTC provisions is essential to support the aviation market’s growth and facilitate smoother aircraft leasing operations.
Impact on Passengers: Without proper legislation, higher premiums by lessors could lead to increased airline costs, ultimately affecting passengers through higher ticket prices.

The urgent enactment of the Cape Town Convention (CTC) Bill in India is crucial to harmonize legal provisions, protect lessors’ rights, and ensure the sustainable growth of the aviation industry without burdening passengers with escalated airfares.