Unlocking Aircraft Repossession
Whenever I fly over Bengaluru airport, I see dozens of planes lying idle, abandoned by bankrupt airlines like GoFirst. It makes me wonder—why isn’t anyone using these planes to start more flights on different routes?
The reason behind this is laws that restrict lessors from reclaiming their planes from bankrupt airlines, even when the airline is no longer operational.
In 2023, over 50 petitions were filed before the NCLAT (National Company Law Tribunal) to take back leased planes from airlines like GoFirst and Jet Airways. The petitioners argued for enforcing the Cape Town CTC treaty, which is designed to protect lessors and make aircraft repossession easier. However, since India hasn’t fully implemented this treaty by enacting supporting domestic laws, reclaiming these planes remains complicated. The core issue lies in the conflict between international aircraft leasing rules and India’s Insolvency and Bankruptcy Code (IBC), 2016.
To address this, the government introduced the Protection of Interests in Aircraft Objects (PIAO) Bill, 2025, which aims to align India’s domestic laws with the Cape Town CTC treaty. By streamlining aircraft leasing and repossession, this bill will make leasing easier, attract more investments, and increase domestic flight options—ultimately benefiting the aviation market.
So, I’ll take you through the key insights of this bill, how aircraft leasing has worked so far, how this reform will improve the process, and why legal changes like this are essential for economic growth.
The Moratorium under the Insolvency and Bankruptcy Code, 2016
India’s aircraft leasing market has been significantly affected by the lack of a streamlined repossession mechanism, leading to prolonged litigation, financial uncertainty, and increased risk for lessors. A major legal barrier to aircraft repossession arises from the Insolvency and Bankruptcy Code (IBC), 2016, which imposes an automatic moratorium once an airline enters insolvency proceedings. This provision, while designed to protect financially distressed companies and enable structured resolutions, has created unintended challenges for lessors seeking to reclaim their aircraft when airlines default on lease payments.
The issue of aircraft repossession has become more pressing with the collapse of multiple Indian airlines, including Jet Airways and GoFirst. Lessors, primarily foreign leasing companies, have found themselves unable to retrieve their aircraft due to legal roadblocks imposed by Indian insolvency laws. The moratorium under Section 14 of the IBC, 2016, explicitly prevents creditors—including aircraft lessors—from reclaiming their assets while insolvency proceedings are ongoing (Protection of Interests in Aircraft Objects Bill, 2025). This restriction applies even in cases where lease agreements have been terminated due to non-payment, creating a complex conflict between domestic insolvency laws and international leasing norms.
Under Section 14(1) of the IBC, 2016, once insolvency resolution proceedings are initiated, the National Company Law Tribunal (NCLT) imposes a moratorium that prohibits:
- Continuation or initiation of any legal proceedings against the debtor
- Transfer, disposal, or recovery of assets owned or leased by the debtor
- Termination of essential contracts, including lease agreements
While the moratorium is essential in protecting the interests of all creditors and ensuring a fair resolution, its blanket application to all assets creates significant challenges for aircraft lessors. Unlike general corporate assets, aircraft are highly mobile, perishable in value due to maintenance and storage costs, and crucial for airline operations. The inability to reclaim aircraft during insolvency proceedings results in substantial financial losses for lessors, who must continue paying insurance, storage, and maintenance fees for idle aircraft.
The case of GoFirst’s insolvency proceedings in 2023 highlights these challenges. Over fifty petitions were filed before the National Company Law Appellate Tribunal (NCLAT) by lessors seeking repossession of their aircraft (Aircraft Leasing in India: Ready to Take Off, 2021). Despite GoFirst ceasing operations and defaulting on lease payments, the moratorium under the IBC prevented lessors from exercising their contractual rights under lease agreements and international conventions.
Conflict Between the Insolvency and Bankruptcy Code and International Norms
The Cape Town Convention (CTC), 2001, provides a clear framework for the repossession of aircraft by lessors in the event of lessee default. India ratified the CTC and its Aircraft Protocol in 2008, committing to the establishment of legal protections for aircraft lessors and financiers. However, India has not fully incorporated the CTC into domestic law, creating a legal vacuum that prevents lessors from benefiting from international protections (Aircraft Financing and Leasing in India: Challenges & Opportunities, 2019).
In jurisdictions such as Ireland and Singapore, which have implemented the CTC into domestic law, lessors are able to quickly repossess aircraft without interference from insolvency proceedings. These countries prioritize contractual rights over bankruptcy moratoriums, ensuring that lessors retain control over their assets. In contrast, Indian insolvency laws override lease agreements, treating leased aircraft as part of the insolvent airline’s assets, thereby hindering repossession efforts.
Implications of Aircraft Repossession Delays on the Indian Aviation Sector
The inability of lessors to reclaim aircraft promptly has serious consequences for both aircraft financing and India’s aviation sector.
1. Increased Risk Premiums for Leasing Aircraft to Indian Airlines
Foreign lessors factor in legal and financial risks when leasing aircraft to Indian carriers. The difficulty in enforcing repossession rights under Indian law has resulted in higher leasing costs for Indian airlines, as lessors charge a risk premium to compensate for potential delays in repossession.
2. Rising Operating Costs for Airlines
Higher leasing costs increase financial strain on airlines, particularly low-cost carriers that rely heavily on leased aircraft. As a result, Indian airlines face higher operational expenses, making it more difficult to compete with international carriers that benefit from lower lease rates in jurisdictions with stronger legal protections for lessors (Aircraft Leasing in GIFT IFSC, 2024).
3. Higher Ticket Prices for Passengers
With airlines passing on additional costs to consumers, ticket prices for domestic and international flights rise. This affects passenger demand, impacting airline revenues and overall aviation sector growth.
4. Reduced Foreign Investment in India’s Aviation Market
Uncertainty surrounding aircraft leasing and repossession laws deters foreign lessors and financiers from investing in India’s aviation industry. Countries with stronger legal protections attract higher levels of investment, supporting airline fleet expansion and aviation infrastructure growth.
The Need for Reform: The Protection of Interests in Aircraft Objects (PIAO) Bill, 2025
To address these legal deficiencies, the Protection of Interests in Aircraft Objects (PIAO) Bill, 2025, was introduced in the Rajya Sabha. The bill seeks to align Indian law with the Cape Town Convention by providing clear legal protections for lessors.
Key provisions of the PIAO Bill, 2025, include:
- Automatic Deregistration of Aircraft (Section 7): Lessors can initiate the Irrevocable Deregistration and Export Request Authorisation (IDERA) process to repossess aircraft without court intervention.
- Exemption from the IBC Moratorium (Section 6): Aircraft leases will no longer be subject to Section 14 of the IBC, ensuring that lessors can repossess their aircraft even if an airline enters insolvency.
- Faster Repossession Process (Section 8): Establishes clear timelines for lessors to enforce their rights, with jurisdiction granted to High Courts to resolve disputes efficiently.
- Recognition of International Standards (Sections 3 & 9): Incorporates Cape Town Convention provisions into Indian law, overriding conflicting domestic laws.
- Strengthening Aircraft Leasing via GIFT IFSC (Section 4): Provides tax incentives and legal certainty for lessors operating in GIFT IFSC, India’s emerging aviation leasing hub (Protection of Interests in Aircraft Objects Bill, 2025).
Conclusion
The lack of a streamlined aircraft repossession framework has created a hostile legal environment for lessors, resulting in higher costs for airlines and passengers, reduced investment, and slower growth in India’s aviation sector. The PIAO Bill, 2025, is a crucial reform that, if implemented effectively, will:
- Enhance legal protections for lessors
- Reduce risk premiums and leasing costs for Indian airlines
- Encourage foreign investment in aircraft leasing and financing
- Ensure better compliance with international aviation norms
By bringing India’s legal framework in line with global best practices, these reforms will strengthen the aviation industry, making India a more attractive market for aircraft leasing and financing while improving airline profitability and affordability for passengers.
Refrences:
Aircraft Leasing in GIFT IFSC. (2024). PwC
Aircraft Leasing in India: Ready to Take Off. (2021). PwC.
Aircraft Financing and Leasing in India: Challenges & Opportunities. (2019). SSRN.
Protection of Interests in Aircraft Objects Bill, 2025. (2025). Government of India.
Written with AI inputs.