The Protection of Interests in Aircraft Objects Bill, a Further Crucial GIFT to the Indian Aviation Industry24 March 2025

The Bill is the result of years of hard work by the Indian aviation community, including airlines, and the international aviation community, such as financiers and lessors, who are keen to support Indian aviation. In particular, the Aviation Working Group (the “AWG”) has played a crucial role in coordinating between stakeholders and the Indian government to get the Bill to this stage. The AWG will likely be further involved when the Bill is passed and becomes the Protection of Interests in Aircraft Objects Act, 2025 (the “Act”), to ensure its further implementation and adherence. WFW is principal legal advisor to the AWG and provides support across all of its projects and supports it in ensuring Convention rights are monitored and enforced in its relevant jurisdictions.

Whilst there are many positives to speak of when discussing Indian aviation, the jurisdiction has been overshadowed by several airline insolvencies during the previous decade. It is in these circumstances that the Indian courts have failed to implement the Convention, most recently in the insolvency of GoFirst which left lessors reeling. Delivered almost a year to the day after the airline’s petition for insolvency, the eventual judgment gave some cause for optimism, but in the meantime cost lessors enormously. The judgment as a matter of court precedent finally removed the longstanding conflict between Indian domestic law and the Convention in certain respects.  However, the Act remains crucial to properly implement the Convention. The Bill contains clear and concise provisions which clearly state the provisions of the Convention shall have primacy over Indian domestic law. This will anchor the Convention in India, enabling investors to rely on the provisions of the Convention. The Bill has already had a positive impact as it led to India receiving a positive compliance watchlist notice – for the index maintained by the AWG. That index is designed to provide oversight of jurisdictions where the provisions of the Convention are not being followed as they should.

The Indian aircraft finance market has been dominated by operating lessors, particularly through sale and leaseback transactions. The appetite for finance leasing is increasing and has been supported by a relatively small number of international banks who are keen to increase liquidity. The AWG, with the support of all Indian firms involved aviation finance, is planning on providing a definitive view on the Bill in due course.  If the Bill achieves primacy for the Convention in India as expected, we expect it to enormously broaden India’s access to investor markets:

• JOLCO investors: the door to JOLCOs for Indian airlines has been opened by developing aircraft finance structures through GIFT City which has made JOLCOs economically competitive with other financing usually structured through Ireland. At the time of writing, we have yet to see such a transaction announced and we expect the Act will provide the catalyst for the traditionally diligent and jurisdiction focussed Japanese JOLCO equity investor market to enter Indian aviation.  We might well see the first JOLCO before the Act is passed, but nevertheless we would expect the Act to facilitate access for Indian airlines.
• Enhanced Equipment Trust Certificates: the EETC market opened for non-US airlines over a decade ago. Funded by the capital markets, investors require the airline’s jurisdiction to operate like s1110 of the US Bankruptcy Code. These transactions often have liquidity facilities capped at 18 months, aimed at matching the expected time for repossession, remarketing and sale of the secured aircraft, which keeps interest current in a default scenario.  Under Alternative A of the Convention, which has been adopted by India, has a maximum waiting period in an insolvency of 60 days before the airline is required to hand the aircraft back to the investor if the airline has not remedied all defaults. Alternative A is modelled on s1110 and is the benchmark for many investors to deploy capital. EETC investors want the comfort they can get possession of, and remarket, the aircraft before the liquidity facility is fully drawn. The Act should open the EETC and other capital market options to the Indian airlines and extensively broaden the financier base.
• The popularity of export credit finance in India is correlated with global ECA finance activity and has always been available. The Act therefore will unlikely directly result in an increase in Indian ECA supported finance. However, pursuant to the Aircraft Sector Understanding (the “ASU”), jurisdictions which have properly implemented the Convention and selected Alternative A qualify for a discount to the minimum margin permitted under the ASU. The Act should result in Indian airlines qualifying for this discount which will make ECA financing cheaper.