The aircraft leasing watchdog, Aviation Working Group (AWG), has deemed that India has failed to comply with international aircraft repossession norms, and put the country on a watchlist with a “negative outlook.” The issue arose following the bankruptcy of the ultra-low-cost carrier Go First, which ceased operations on May 3rd.
The airline blamed its financial woes on the grounding of around half of its 54-strong fleet of Airbus A320neos. The aircraft were removed from service due to ongoing issues with their Pratt & Whitney engines. The same issues have led to several airlines across the world struggling to meet their flying schedules, including KLM Cityhopper and airBaltic.
The airline was granted bankruptcy protection earlier this week by India’s National Company Law Tribunal. This put a freeze on the carrier’s assets, meaning that the aircraft could not be returned to their lessors, even though for some, the leases had already come to an end.
All of Go First’s flights are currently suspended. Find out more on the latest in the Go First bankruptcy saga here.
India’s downgraded compliance rating
Part of the study by AWG focuses on compliance, addressing whether requirements under the Cape Town Convention, an international treaty on plane repossessions, have been met in practice. Following Go First’s bankruptcy protection, India’s score on the compliance index was downgraded from 3.5 to 3.
India joined the Cape Town Convention in 2008, which would have seen any leased aircraft returned to their lessors in the event of bankruptcy. However, under local laws, bankruptcy protection supersedes any repossession requests.
Impact on future aircraft leasing in India
AWG is a UK-based not-for-profit group that monitors leasing and financing laws on behalf of aircraft manufacturers and lessors. The group is co-chaired by Airbus and Boeing. In its communication with Go First, AWG said that its assessment could “have a direct and material impact on future financings and leases to Indian airlines.”
India is the world’s third-largest aviation market, with the country’s airlines undergoing significant expansion. Aircraft leasing will undoubtedly play a significant part in that expansion, but the rating by AWG could increase leasing costs for Indian carriers in the future, making further growth more challenging.
The Managing Director of Aerodynamic Advisory, Richard Aboulafia, added that “if those jets can’t get repossessed, everyone in the country pays more. There is a risk premium,” as reported by Reuters. AWG went on to say that the airline has an “obligation” to preserve the leased aircraft and maintain their value until they can be repossessed.
India is not the only country to fall foul of AWG’s compliance assessment this year. In April, the group issued a warning to Vietnam over concerns about the country’s compliance with international aircraft leasing norms.
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Do you agree with AWG’s assessment? What impact do you think it may have on the future of aircraft leasing in India? Let us know by commenting below.
Sources: Reuters
