Indian Aviation Leasing Watchdog Issues Warning on Aircraft Repossessions

Indian aviation has been placed on a watchlist with a negative outlook by a global aviation leasing watchdog, citing its failure to adhere to international aircraft repossession standards following the bankruptcy protection granted to airline Go First.

The Aviation Working Group (AWG), an organization based in the UK that monitors leasing and financing laws on behalf of aircraft manufacturers and lessors, has taken this step, potentially resulting in increased leasing costs for Indian airlines and undermining lessors’ confidence in the country’s third-largest domestic aviation market.

The failure to promptly repossess Go First’s aircraft occurs amidst a thriving Indian air travel industry, with local carriers placing orders for hundreds of new jets. These airlines often rely on lessors to assist in financing their aircraft purchases, making the situation even more concerning.

Go Airlines (India) Ltd recently filed for bankruptcy protection, attributing the grounding of approximately half of its 54 Airbus A320neos to alleged issues with Pratt & Whitney (P&W) engines. However, P&W, a subsidiary of Raytheon Technologies, denies these claims, stating that there is no supporting evidence provided by the airline.

Following the bankruptcy filing, the Indian tribunal granted protection and ordered a freeze on Go First’s assets. This occurred despite some lessors already terminating their leases with the airline and submitting requests to the aviation regulator to reclaim over 40 aircraft.

AWG

AWG, in its watchlist notice, highlighted that the failure to process deregistration applications for aircraft with terminated leases prior to the asset freeze could have a detrimental impact on the situation.

At the time of writing, neither the government nor the aviation regulator has provided any immediate comment on the matter.

The airline’s operations involve Go First’s lessors, including SMBC Aviation Capital, CDB Aviation’s GY Aviation Leasing, Jackson Square Aviation, and Bank of China Aviation.

AWG has assigned a negative outlook to Go First regarding its compliance index, which assesses the practical fulfillment of requirements outlined in the Cape Town Convention. This international treaty pertains to the repossession of aircraft.

AWG has downgraded India’s score from 3.5 to 3.

Since India ratified the Cape Town Convention in 2008, it has made it more convenient for lessors to repossess planes in case of payment defaults by airlines. However, Bankruptcy protection laws within the country override repossession requests.

AWG, a non-profit organization co-chaired by Airbus and Boeing, plays a significant role in aviation matters. Its members include prominent lessors and financial institutions such as Aircastle, BOC Aviation, SMBC Aviation Capital, Deutsche Bank, Goldman Sachs, and Morgan Stanley.

According to AWG, the insolvency proceedings of Go First are a significant development that raises concerns about India’s compliance with the Cape Town Convention.

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