GS2 GOVERNANCE
Overview: The Protection and Enforcement of Interests in Aircraft Objects Bill, 2024, seeks to modernize India’s aviation sector by improving the leasing framework. The legislation aims to reduce costs, enhance accessibility to air travel, and attract investment, especially as India prepares for a significant increase in aircraft acquisitions.
Objectives of the Bill:
- Protects the rights of aircraft lessors to reclaim leased equipment in case of default.
- Aims to lower leasing costs, making air travel more affordable.
- Supports the acquisition of over 1,000 new aircraft by the end of the decade.
Cape Town Convention Ratification: The Bill proposes ratifying the Cape Town Convention, a global treaty protecting lessors’ rights to repossess aircraft in default cases. While India is a signatory, it has not yet ratified the treaty, leading to dependence on local court decisions.
Key Facts about the Cape Town Convention and Aircraft Protocol:
- Signed in November 2001, the Convention and Protocol provide legal frameworks for securing rights over mobile high-value aviation assets, like aircraft and engines.
- They address legal challenges in different countries, promoting easier financing and lower borrowing costs for aviation assets.
Benefits of the Convention:
- Predictability and Enforcement: Establishes internationally recognized interests, with a registration system for quick enforcement, reducing contract enforcement delays from 10 to 2 months.
- Cost Savings: By reducing creditor risks, it leads to lower borrowing costs and encourages financing for modern, fuel-efficient aircraft. Airlines in member states can save up to 10% on export credit premiums.
- Example: Australian airlines saved up to $2.5 million on aircraft purchases after adopting the Convention.
Impact on Ease of Doing Business:
- The Bill will enhance legal clarity and reduce conflicts, addressing challenges faced by lessors (as seen during the Go First crisis) by aligning India’s laws with international standards.
Boosting Investor Confidence:
- By ensuring repossession rights, the Bill is expected to enhance confidence among global lessors, boosting foreign investment in India’s aviation sector, which is considered a high-risk market.
Reduction of Lease Costs:
- The Bill aims to reduce the high-risk premium associated with leasing in India, leading to lower aircraft financing costs and, ultimately, cheaper airfares for passengers.