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Carriers between a rock and a hard place amid govt notification: Air India

In 2008, India signed the Cape Town Convention, an international treaty providing time-bound remedies for lessors to repossess planes, mitigating their risks

Indian carriers ready to splurge on new planes in booming aviation market

Deepak Patel New Delhi

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Indian carriers are between a "rock and a hard place" due to the government's October 3 notification, Air India's general counsel Zubin Masani said on Tuesday. The notification bars insolvent airlines from citing Section 14 of the Insolvency and Bankruptcy Code, 2016, to halt lessors from reclaiming their planes.

Go First ceased flight operations on May 3 following the submission of an insolvency application to the National Company Law Tribunal (NCLT). On May 10, the tribunal imposed a moratorium on the airline's assets, effectively preventing lessors from reclaiming their approximately 45 planes from the carrier. This decision has left lessors profoundly discontented.
 
Therefore, the ministry of corporate affairs issued a notification on October 3 last year, which effectively stated that if an airline goes insolvent now, it can’t cite Section 14 and ask the court to prevent lessors from reclaiming their planes.

While speaking at Airline Economics Growth Frontiers India 2024, Masani said, "I would seek to persuade lessors that actually, the jurisdictional risk is not what they feel it is, especially after the October 3 notification. I think the lessors can take a lot more comfort from it because Indian airlines are in a worse position than previously because we can't have the comfort of the moratorium and neither are we sure on whether we are getting the 'waiting period' under the (Cape Town) convention. So, we are really in between a 'rock and hard place'."

"If lessors are not persuaded by the jurisdictional risk argument, there is also a question of credit risk. We have airlines with AAA credit ratings who have never defaulted on their contractual obligations. These are the things that should give them a lot of comfort," he added.

In 2008, India signed the Cape Town Convention, an international treaty providing time-bound remedies for lessors to repossess planes, mitigating their risks. Lessors have been urging India to pass a parliamentary bill to implement this treaty, which will prioritise CTC over insolvency laws. With the October 3 notification, the Indian government has adopted the treaty. However, Masani pointed out an issue with this adoption. Under the CTC, a 60 day "waiting period" has to be given to an airline before the plane is reclaimed by the lessor but there is no such provision under the October 3 notification.

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First Published: Feb 27 2024 | 11:37 PM IST

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