Go First’s insolvency flight leaves trail of concerns for aircraft lessors

New Delhi/Mumbai: At least 50 requests to take back as many leased planes from two Indian airlines in less than two weeks. Petitions from lessors seeking to enforce rights under international norms and concerns over a possible spike in the risk premium for leasing aircraft for domestic carriers.

Cash-strapped Go First being admitted for insolvency resolution proceedings on a voluntary plea and subsequent moratorium has left a trail of concerns and uncertainties for aircraft lessors with respect to India, the world’s third-largest aviation market.

Currently, Indian carriers have around 700 planes and some of them, including Air India, are expanding their fleet. Most of the commercial aircraft in the country are operated through the sale and lease-back model, and there are concerns that developments related to Go First could push leasing costs higher.

Indian carriers are projected to require more than 2,200 aircraft in the next 20 years.

Advisory firm Primus Partners’ Co-Founder & CEO, Public Policy Realisation, Nilaya Varma said the perception of India as a high-risk jurisdiction could translate into higher risk premiums to other local airlines.

“This means higher lease rentals for domestic carries and increase in the cost of doing business implying higher costs being passed onto passengers in the form of high-ticket prices, thereby making it more difficult for Indian airlines to compete with their international counterparts,” Varma noted.

Regional airline Star Air’s CEO Simran Singh Tiwana said the NCLT (National Company Law Tribunal) ruling in favour of Go First may not be very pleasing for the lessors and that is the challenge Indian aviation could face at the international level. “Some ruling will hurt some lessors… those concerns will be voiced (by them)”.

A senior aviation industry executive said that lessors might think that airline companies in India could make their life miserable by going to court. There is also the possibility of more lessors putting in requests for deregistration of planes leased to some other airline thinking that they get stuck in litigation, the executive said on the condition of anonymity.

So far this month, lessors have approached the Directorate General of Civil Aviation (DGCA) for deregistration of 45 Go First planes and five SpiceJet planes under the Cape Town Convention.

Under the Cape Town Convention (CTC), if a lessor has invoked the Irrevocable De-registration and Export Request Authorisation (IDERA), then the plane concerned has to be deregistered. The same has to be done in five working days but due to the NCLT imposing moratorium under insolvency proceedings, lessors cannot take back Go First planes at least for now.

Citing that the Go First insolvency proceedings are a material development that implicates CTC compliance in India, the Aviation Working Group (AWG) has put the country on the watchlist with a negative outlook.

“The DGCA’s failure to process IDERA deregistration applications for aircraft whose leases were terminated prior to the imposition of the moratorium within the timetable set forth in its SOP results in a negative outlook for India’s scoring…,” the AWG said in an update on May 11.

The AWG is a not-for-profit legal entity comprised of major aviation manufacturers, leasing companies and financial institutions. It includes Boeing and Airbus.