Centre proposes draft law allowing aircraft lessors to repossess planes in case of a dispute

The Ministry of Civil Aviation, on Friday, notified that it proposes to introduce the Protection and Enforcement of Interests in Aircraft Objects Bill 2022; that looks at facilitating international aircraft leasing companies to re-possess and transfer planes in case there is a financial dispute with an Indian airline. Planes can be repossessed and taken out of the country too.

The Ministry has also sought stakeholders’ comments, objections and suggestions on the provisions of the Bill, over a 30-day period beginning today.

The Bill implements the provisions of the convention on international interests in mobile equipment and protocol on matters specific to aircraft equipment, which was adopted at a conference in Cape Town in 2001.

India acceded to the two instruments in 2008. These provide default remedies for the creditor and create a legal regime for disputes.

Cape Town protocol

The Organisation for Economic Cooperation and Development (OECD) has set a norm that 10 per cent discount will be given in the processing fee for a loan to acquire aircraft to airlines of any country party to the Cape Town Convention/Protocol provided an implementing legislation has been passed by that country

“The Ministry of Civil Aviation proposes to introduce the Protection and Enforcement of Interests in Aircraft Objects Bill, 2022 to implement the provisions of the convention on international interests in mobile equipment and protocol on matters specific to aircraft equipment adopted with a view to discharging the treaty obligations and to avail full benefits of the Indian accession to the treaty,” the gazette notification reads.

As a part of the pre-legislative consultation, a draft Bill was notified on April 4seeking comments from the public.

The draft text of the Bill has been revised based upon the comments received during public consultation.

The provisions in the Bill provides for several remedies such as repossession of an aircraft object, or its sale or lease or collection of income from its use, de-registration and export of planes. It also suggests remedies pending final adjudication of a claim as well as safeguards a debtor’s claim during insolvency proceedings against its Indian buyer.

Explaining the rationale, it was mentioned that, an Act of Parliament would also provide greater confidence to the intending creditors “resulting in reduction of the risk applicable to asset-based financing and leasing transactions”.

The risk reduction will result in bringing down the cost of aviation credit and the lease rentals. This will be of immense help to the aviation industry.

It will also benefit passengers and other end users by pass-through price reductions and increased levels of service.

Amongst the other objectives, the international convention aimed at providing certain basic default remedies for the creditor, such as de-registration and export of aircraft, as a measure of speedy interim relief; creation of a legal regime which is applicable universally and administers justice to both parties in case of a dispute; and also reduce the level of risk for the intending creditors/lessors.

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