Relief for lessors as government makes it easier to deregister planes

Leasing companies viewed India as a risky market following litigation in Kingfisher cases

The civil aviation ministry has amended the Aircraft Rules 1937 incorporating provisions of Cape Town Convention making it easier for aircraft owners and lessors to repossess planes on cancellation of lease agreements.

While India signed the Cape Town Convention which provides better protection to aircraft lessors and banks it did not notify the rules giving it a legal force. This has now been done with the ministry amending the Aircraft Rules 1937.

The amended rules state that registration of aircraft shall be cancelled by the government as provided in the Cape Town Protocol on receiving specific request from the aircraft owner or lessor.

Leasing companies including BBAM have filed writ petitions in Delhi High Court seeking deregistration of six Boeing 737 leased to SpiceJet. The High Court has reserved its order in the matter.

Leasing companies have faced difficulties in repossessing their planes in case of Kingfisher and more recently in case of SpiceJet. While lessors terminated leases upon defaults in payments and sought to repossess the planes the efforts were hampered by litigation and delay by the government to de register the planes. In case of Kingfisher Airlines the problem for lessors was compounded as Airport Authority of India detained the planes even after the deregistration.

“Now the deregistration process has been made much simpler. Prior to the amendment if an aircraft owner or lessor wanted to repossess their asset, they had to approach the DGCA with a request letter accompanied by a NOC from the airline as well as the original Certificate of Registration. Apart from this, the DGCA would ordinarily investigate facts in relation to whether the aircraft lease agreement had been validly terminated and whether the de-registration would be in "public interest. Needless to say in case of dispute the airline would never give its consent,” said advocate Nitin Sarin, managing partner, Sarin and Company which specialises in aviation law.  

The Convention recognises lien on assets exercised by employees or creditors. India had made declaration that lien can not be exercised for dues accrued prior to the termination of lease agreement.

“The amendments must be interpreted in the letter and spirit of the Convention. This is a very welcome step taken by the new government to increase confidence of owners and lessors of aircraft,” he added.