Bill: Go First fallout: India considers passing Cape Town Convention Bill to comfort foreign aircraft lessors

NEW DELHI: India may now expedite legislating the long pending Cape Town Convention (CTC) Bill following Go First case to assuage aircraft lessor concerns and ensure leasing planes does not get more expensive for desi carriers, say people in the know.
The aviation ministry had in October 2018 sought comments on the CTC Bill 2018 to implement the treaty India had signed in 2008 to basically assure lessors their expensive assets like aircraft and engines will not get stuck here when Indian carriers default on paying rentals or go belly up. However the move has remained stuck since then.
But the events of the past few days where lessors were unable to repossess 45 of Go First’s 54 Airbus A320 aircraft after NCLT admitted the airline’s plea for voluntary insolvency could now lead to dusting of this 2018 proposal. Since bankruptcy law takes precedence over CTC, Go First planes can’t be repossessed for at least six months to a year. This led to aircraft leasing watchdog AWG issuing a “watchlist notice” for India. It has warned this case “would have a direct and material impact on future financings and leases to Indian airlines.” Aviation Working Group (AWG) is non-profit entity co-chaired by Airbus and Boeing and comprises of the world’s biggest aviation manufacturers, leasing companies, and financial institutions.
Now sources say the government may finally consider passing this bill to ensure India’s aviation story is not hit be leasing getting more expensive. Once a law, CTC will get equal weightage as the bankruptcy law. “The urgency pass CTC Bill stems from the fact that lessors are really alarmed and are seeking to repossess planes from vulnerable airlines. If more desi airline/s take the NCLT route to avoid repossession of planes, then things will get worse for the serious Indian players. While a law can’t be passes with retrospective effect, it can prevent more planes getting stuck here IBC if more airline/s go into insolvency,” said industry insiders.
US aerospace major Boeing had on Friday requested India to “fully ratify” the Cape Town Convention. Boeing India president Salil Gupte said once that happens, “lessors will get more comfort. We are trying to mitigate CTC concerns (for India) by pushing for full ratification to happen here. We encourage the aviation ministry to progress that legislation and help resolve this situation (lessors’ distrust).” While India is a signatory to the Cape Town Convention which allows lessors to take planes from defaulting or defunct airlines, the bankruptcy law takes precedence over the same.
In the 10 days since Go First filed for involuntary insolvency on May 2, lessors have filed applications to repossess 50 aircraft under Irrevocable De-registration and Export Request Authorisations (IDERA) with the DGCA.
“The average lease rental for an Airbus A320/Boeing 737 is $3,50,000 per month. Multiply this by 50 and you are looking at a hit of $175 million per month. Then one understand the panic among lessors,” said an airline official.
The CTC Bill 2018 was sought to be introduced ” to implement the Cape Town Convention/Protocol in India with a view to discharging the treaty obligations and to avail full benefit of the Indian accession to the treaty,” the 2018 draft bill says. “….inputs from the industry have revealed that for achieving full implementation of the Convention/Protocol in India, there is a need for separate Legislation as there are certainc provisions of the Convention /Protocol that are in conflict with the provisions of some other laws, which fall outside the jurisdiction of Civil Aviation Ministry, such as, the Civil Procedure Code, 2008, the Specific Relief Act, 1963, the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016…. The Organisation for Economic Cooperation and Development (OECD) has set a norm that 10% discount will be given in the processing fee for a loan to acquire aircraft to airlines of any country party to the Cape Town Convention/Protocol provided an implementing legislation has been passed by that country,” the 2018 draft says.
“The risk reduction will result in reduction in the cost of aviation credit and will also bring down the lease rentals. This will be of immense help to the Indian aviation industry. It will also benefit the passengers and other end users by pass-through price reductions and increased levels of service,” it says.