Context: 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.
Background:
When Go First airlines filed for voluntary insolvency in the month of May (2023), the companies (lessors) who had leased aircrafts to the airline applied to DGCA to deregister those aircrafts from the airlines and repossess them. But DGCA didn’t approve their requests and kept their applications in abeyance.
Reason: Under section 14 of India’s Insolvency and Bankruptcy Code (IBC), the admission of an insolvency plea by the National Company Law Tribunal (NCLT) results in an immediate and complete moratorium on recovery of assets leased to the debtor (Go First in this case).
Concerns:
Inability of the lessors to take back their aircrafts results in:
- Violation of Cape town convention: India is a signatory to the Convention on International Interests in Mobile Equipment and the related protocol, commonly known as the Cape Town Convention (CTC), as per which lessors can seek deregistration and export of aircraft without consent of the airline when lease payments are defaulted.
- Impacts aviation market: It impacts the reputation of India’s aviation market and may increase risk premiums for other Indian carriers. This may increase cost of operations for Indian airlines which are already reeling under the pressure of volatile fuel prices and cut throat competition.
Thus, the recent changes to the IBC to exempt leased aircrafts under the protection given to debtors, came as a relief to the aviation sector.
