Aircraft Leasing Reform Bill Introduced in 2025

The Protection of Interests in Aircraft Objects Bill, 2025, was introduced in the Rajya Sabha on February 10, 2025. This legislation aims to enhance the aviation sector by allowing leasing companies to reclaim aircraft if airlines default on payments. The bill follows legal challenges faced by lessors, particularly in the Go First insolvency case. It seeks to align India’s laws with international standards, particularly the Cape Town Convention.

Background of the Bill

The bill’s origins date back to 2018, when the Ministry of Civil Aviation first proposed it. Delays occurred due to various factors, including the complex legal landscape surrounding aviation leases. The urgency for this bill was brought into light by a ruling from the National Company Law Tribunal that restricted lessors from repossessing aircraft, leading to increased costs and uncertainty in the leasing market.

Key Provisions of the Bill

The bill prioritises the Cape Town Convention over local laws, especially the Insolvency and Bankruptcy Code of 2016. This prioritisation is crucial for resolving conflicts between international and domestic regulations. The legislation is designed to reduce the moratorium period for reclaiming aircraft from 60 to 40 days. Additionally, it mandates that lessors settle pending dues, such as airport charges, within 60 days.

Impact on the Aviation Sector

By facilitating aircraft reclamation, the bill is expected to lower leasing costs for airlines. This, in turn, is projected to make air travel more accessible. Domestic passenger traffic is anticipated to grow by 7–10%, while international traffic could increase by 15–20% in the coming year. The bill aims to strengthen investor confidence in the Indian aviation market.

Global Context and Compliance Issues

India’s accession to the Cape Town Convention in 2008 has not been fully realised due to gaps in domestic legislation. The lack of compliance has led to a downgrade by the Aviation Working Group, which brought into light the risks faced by creditors in the Go First case. The proposed bill seeks to address these compliance issues and restore confidence among international investors.

Future Prospects

The bill is seen as a very important reform that could facilitate the acquisition of over 1,000 new aircraft by the end of the decade. It aligns with India’s aspirations to become a global aviation hub. With a growing middle class and sustained economic growth, India’s aviation sector is poised for expansion in the coming years.

Questions for UPSC –

1. Critically discuss the implications of the Cape Town Convention on India’s aviation policies.
2. Examine the challenges faced by aircraft leasing companies in India prior to the introduction of the Protection of Interests in Aircraft Objects Bill, 2025.
3. Analyse the potential impact of the Protection of Interests in Aircraft Objects Bill, 2025 on the growth of the Indian aviation sector.
4. Estimate the role of investor confidence in the aviation sector’s recovery post-COVID-19 pandemic.

Answer Hints:

1. Critically discuss the implications of the Cape Town Convention on India’s aviation policies.

1. The Cape Town Convention aims to standardize aircraft financing and leasing practices globally.
2. India’s accession in 2008 has not been fully realized due to gaps in domestic legislation.
3. The Convention prioritizes international agreements over local laws, impacting insolvency procedures.
4. Non-compliance has led to downgrades by international aviation bodies, affecting investor confidence.
5. The proposed bill seeks to align domestic laws with the Convention, promoting a more secure leasing environment.

2. Examine the challenges faced by aircraft leasing companies in India prior to the introduction of the Protection of Interests in Aircraft Objects Bill, 2025.

1. Legal restrictions on repossessing aircraft during insolvency proceedings increased leasing costs.
2. The Go First insolvency case brought into light the lack of clarity in applying the Cape Town Convention.
3. Prolonged court battles diminished lessors’ confidence and deterred new investments.
4. Domestic laws favored airlines, creating an unbalanced leasing environment.
5. Increased operational risks and uncertainties led to a downgrade by the Aviation Working Group.

3. Analyse the potential impact of the Protection of Interests in Aircraft Objects Bill, 2025 on the growth of the Indian aviation sector.

1. The bill is expected to lower leasing costs, making air travel more affordable for consumers.
2. Anticipated growth in domestic passenger traffic by 7–10% and international by 15–20% post-legislation.
3. It aims to restore investor confidence, facilitating the acquisition of over 1,000 new aircraft.
4. Streamlining aircraft reclamation processes will enhance operational efficiency for airlines.
5. The bill aligns India with global aviation standards, positioning it as a competitive aviation hub.

4. Estimate the role of investor confidence in the aviation sector’s recovery post-COVID-19 pandemic.

1. Investor confidence is crucial for attracting funding and expanding airline operations post-pandemic.
2. High confidence levels can lead to increased aircraft acquisitions and modernization of fleets.
3. Restoration of trust in regulatory frameworks encourages foreign investments in the sector.
4. Investor optimism can stimulate market growth and enhance competition among airlines.
5. Confidence in the aviation sector contributes to job creation and economic recovery in related industries.