In the most significant development for the Indian aviation industry, both houses of Indian parliament approved The Protection of Interest in Aircraft Objects Bill, 2025, a law that will fully implement the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (Cape Town Convention). This milestone marks a significant departure from India’s previous stance on the Cape Town Convention, which the country had agreed to in 2008 but failed to implement locally due to a lack of regulatory framework. The Cape Town Bill is the result of Indian policymakers actively working to strengthen investor confidence in India’s rapidly growing aviation market.
A Tricky and Troubled Market
The Indian aviation industry has witnessed an unprecedented surge in air passenger traffic in recent years. In 2023-2024, total air passenger numbers exceeded 220 million, and by 2030, domestic passenger traffic alone is expected to reach 300 million annually. To cater to this rising demand, Indian airlines have aggressively expanded their order books. However, amid this growth, systemic and historical issues have plagued key stakeholders for decades.
- Foreign creditors, especially aircraft lessors, have consistently struggled with debt recovery in Indian airline insolvencies.
- India has seen the collapse or bankruptcy of major domestic airlines such as Air Deccan, Kingfisher Airlines, Jet Airways, and recently Go First.
- In Jet Airways’ case, there was minimal actual recovery.
- Go First’s insolvency further exposed recovery vulnerabilities, as disputes over aircraft repossession delayed creditor claims, and the Go First liquidation ruling intensified concerns, leaving lessors uncertain about their ability to reclaim assets.
- The collapse of Kingfisher Airlines in 2012 resulted in substantial losses for foreign creditors, though precise recovery figures remain unclear.
- Extremely high aviation turbine fuel costs, expensive financing options, and lack of robust creditor/lessor protection are some of the key issues that have plagued Indian airlines and the aviation sector.
These cases underscore the challenges faced by foreign lenders and lessors in India, where regulatory hurdles, insolvency moratoriums, and legal complexities often extend disputes and diminish recovery rates. Indian policymakers have been actively working to address these challenges and create a more creditor-friendly environment, fostering confidence among foreign lenders and investors while aligning India’s aviation framework with international best practices.
Proactive Policymakers
With the Indian aviation industry’s growing demand and the need for robust investor confidence, Indian policymakers have taken proactive steps to strengthen the country’s aircraft leasing and financing ecosystem.
| Recent developments | Cape Town Bill approval |
| Policymaker efforts | Passage of the Cape Town Bill in record-breaking time |
| Clarification on insolvency moratorium | Indian judicial authorities issued an extraordinary notification clarifying that the moratorium under the insolvency laws would not be applicable to arrangements and assets covered under the Cape Town Convention. |
| Deregistration of aircraft | The DGCA refused to deregister the leased aircraft due to application of an insolvency law moratorium, and subsequently directed the deregistration of all 54 aircraft leased to Go First within five working days. |
The passage of the Cape Town Bill follows a string of positive regulatory and judicial measures. Indian policymakers have demonstrated a commitment to creating a more favorable environment for aircraft financing and leasing, aligning India’s aviation framework with international best practices and fostering confidence among foreign lenders and investors.
Cautious Optimism: Now Less “Cautious” and More “Optimistic”
The evolving regulatory landscape reflects a broader transformation in India’s approach to aircraft financing and leasing. It also illustrates that Indian policymakers are becoming aware of and are actively working to solve the practical challenges faced by the industry.
- The Cape Town Bill is designed to create a more creditor-friendly environment, fostering confidence among foreign lenders and investors.
- Such policy shifts are designed to align India’s aviation framework with international best practices.
- The reforms could position India as a robust and very attractive jurisdiction for aircraft financing, mitigating risks for foreign investors and bolstering the country’s aviation sector.
With sustained efforts, Indian policymakers could create a more favorable environment for aircraft financing and leasing, addressing the challenges faced by the industry and positioning India as a leader in the global aviation market.
