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Aircraft Objects Bill 2025
Consolidating the Aviation Sector in India through Aircraft Objects Bill
Context: Parliament has passed the Protection of Interests in Aircraft Objects Bill, 2025, seeking to align India’s aviation laws with global standards under the Cape Town Convention and Protocol.
Background and Rationale
- India’s aviation sector has witnessed rapid expansion with major fleet acquisitions by carriers like IndiGo and Air India. However, unresolved disputes over aircraft leasing, especially during airline bankruptcies, have marred investor confidence.
- India signed the Cape Town Convention and Protocol in 2008, a global treaty facilitated by the International Civil Aviation Organisation (ICAO).
- However, in the absence of enabling domestic legislation, conflicts between international commitments and domestic insolvency laws, particularly the Insolvency and Bankruptcy Code (IBC), led to protracted disputes.
- High-profile cases such as Kingfisher Airlines, GoFirst (2023), and SpiceJet illustrated the gaps in India’s legal architecture, highlighting the need for a uniform law governing aircraft asset repossession and dispute resolution.
Key Features of the Bill
- Alignment with Cape Town Convention: The Bill implements the provisions of the Cape Town Convention and Protocol, thus standardising aviation transactions and ensuring compliance with international norms.
- Designation of Regulatory Authority: The Directorate General of Civil Aviation (DGCA) is designated as the Registry Authority to oversee:
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- Registration and deregistration of aircraft.
- Issuing directions related to implementation of the Convention.
- Legal Remedies and Creditor Protection
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- Creditors (aircraft lessors) are empowered with:
- Right to repossess aircraft within two calendar months or a mutually agreed period in case of default.
- Overriding effect of the law, ensuring that its provisions supersede conflicting domestic legislation.
- Creditors (aircraft lessors) are empowered with:
- Obligations of Debtors (Airlines)
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- Airlines must:
- Maintain and submit a record of dues to the DGCA.
- Comply with regulations regarding the maintenance and return of aircraft in case of payment default.
- Airlines must:
- Promotion of Domestic Aircraft Leasing
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- The Bill seeks to:
- Encourage domestic leasing operations at GIFT City, Gandhinagar.
- Boost investor confidence and reduce reliance on foreign lessors.
- The Bill seeks to:
Objectives and Expected Benefits
- Legal Clarity and Dispute Resolution: Brings clarity in disputes arising from aircraft leasing and defaults, thereby avoiding prolonged litigation like in GoFirst’s insolvency case.
- Boosting Investor Confidence: Aim to improve India’s score on the Aviation Working Group’s (AWG) Cape Town Convention Index from 50 to a target of 90 (currently at 62).
- Lower Leasing Costs: Airlines have claimed that a clear legal framework may reduce leasing costs by 8–10%, potentially leading to lower airfares for passengers.
- Supporting Aviation Ecosystem Growth: Encourages lessors to consider GIFT City as a hub, creating a localised ecosystem for aircraft leasing.
Challenges and Industry Concerns
- Limited Impact on Leasing Costs
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- Industry experts argue that leasing rates depend more on airline creditworthiness, not just legal reforms.
- Large carriers like IndiGo and Air India already enjoy lower rates due to scale and financial strength.
- Marginal Effect on Airfares: Market demand and supply dynamics, not leasing costs, largely determine airfares.
- Complicated Taxation Regime
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- Lessors face inconsistent and ambiguous tax policies, especially around:
- Special Purpose Vehicles (SPVs) used for leasing.
- Permanent establishment status under Indian tax law.
- Lessors face inconsistent and ambiguous tax policies, especially around:
- Lukewarm Response to GIFT City
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- The government’s push to encourage lessors to operate from GIFT City has been met with caution.
- Industry voices cite the “whimsical, suspicious, and inconsistent” nature of Indian tax enforcement as a major deterrent.
Way Forward
- Tax Reforms: Streamlining the taxation structure to provide clarity and security to foreign lessors is critical.
- Judicial Sensitisation: Indian courts and tribunals need to interpret aviation disputes in alignment with international standards.
- Infrastructure and Ecosystem: Robust legal, financial, and operational infrastructure at GIFT City must be developed to attract global leasing firms.
- Stakeholder Engagement: Continued dialogue between government, regulators, and industry is necessary to ensure smooth implementation of the law.
