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Leasing companies faced difficulties in taking back Kingfisher planes. Photo: Mint (Mint)
Leasing companies faced difficulties in taking back Kingfisher planes. Photo: Mint

(Mint)

India to frame rules on aircraft repossession by leasing companies

A European consultant has been commissioned to frame the rules and submit them within a month to DGCA

New Delhi: India has appointed a consultant group to frame rules that will make it easier for international aircraft leasing companies to repossess planes, a move that will help lower charges for companies leasing the planes, according to Arun Mishra, head of the aviation regulator.

The country’s airlines have had to face higher lease charges after leasing companies found it difficult to recover their planes.

India has seen several airlines going out of business because of financial reasons in the last two decades since private companies were allowed to enter the sector. Paramount Airways Pvt. Ltd and Modiluft are cases in point. In some instances, aircraft have been grounded for months due to non-payment of lease charges and government authorities haven’t allowed the owner to take them back.

Debt-laden Kingfisher Airlines Ltd’s planes, for instance, haven’t flown since October and there’s no clarity yet on when and whether the company will resume flights.

Leasing companies such as International Lease Finance Corp. (ILFC) and Germany’s DVB Bank have faced hurdles in repossessing Kingfisher planes.

The Directorate General of Civil Aviation (DGCA), the regulator, was unable to remove these aircraft from India’s fleet registry and allow them to be repossessed because of objections from other government departments that are owed money by the airline, said a DGCA official who declined to be named.

This was despite India being a signatory to the Cape Town Convention, which duplicated repossession conditions that apply in the US when airlines default on lease payments among other things.

Although India acceded to the Cape Town Convention in 2008, it didn’t frame any rules under its own Aircraft Act, which governs all the country’s civil aviation and is a critical step in implementing the accord. That will change over the next few months, Mishra said.

“We will formulate rules based on those conventions," he said. “These rules can then be implemented when such a need arises. This would give a lot of comfort to lessors also."

A European consultant has been commissioned to frame the rules and submit them within a month to DGCA.

The rules will lay down the procedure for various scenarios. They will also address issues such as what DGCA does when government departments make claims on pending dues.

Once the rules are framed, “the law ministry will have to approve it", Mishra said.

India should abide by international obligations and not add to the negative sentiment about the country’s aviation business prevailing among global investors and suppliers, said consulting firm Capa-Centre for Aviation in an October report. Apart from unpaid rentals, lessors will also incur costs on restoring the aircraft to a status that makes them fit to lease again, Capa said.

“Large global banks have taken a serious view of the situation," Capa said. “This experience is likely to negatively impact future financing of Indian aircraft orders and increase lease charges due to a perceived higher risk rating."

DVB Bank said in December it had sued India’s aviation regulator and Kingfisher in order to have two planes it financed for the troubled carrier de-registered.

US-based aircraft finance company ILFC asked India in March to release six planes it had leased to Kingfisher that were grounded in Delhi, Mumbai and Chennai.

Once the new rules are in place, they will give lessors the confidence to provide aircraft to Indian carriers “at the same rate" as they would other signatories to the Cape Town Convention, Mishra said.

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