Protection of Interests in Aircraft Objects Bill

Parliament has passed the Protection of Interests in Aircraft Objects Bill, 2025, aiming to establish a legal framework for resolving disputes between airlines and lessors over aviation assets such as aircraft, helicopters, and engines.

About the Protection of Interests in Aircraft Objects Bill

• The Bill seeks to align India’s aviation laws with international standards to boost investor confidence, especially amidst rapid fleet expansions by major airlines like IndiGo and Air India.

Key Provisions of the Bill

Implementation of the Cape Town Convention and Protocol

• The Bill enforces the Cape Town Convention and Protocol, an international treaty under the ICAO that standardizes transactions involving aviation assets and offers creditor remedies in case of airline defaults.
• Legal Framework for Dispute Resolution: It provides legal clarity, ensuring faster repossession of aircraft without lengthy court proceedings, thus avoiding situations similar to GoFirst’s 2023 shutdown.
• Designation of DGCA as Registry Authority: The Directorate General of Civil Aviation (DGCA) is designated as the Registry Authority responsible for registering and deregistering aircraft and issuing necessary directions to enforce the Convention.
• Obligations of Debtors and Available Remedies: The Bill mandates airlines to submit dues records to DGCA and allows lessors to reclaim their assets within two months or a mutually agreed period in case of default.
• Overriding Effect over Other Laws: In case of inconsistency, the provisions of the Bill will prevail over any other Indian law, ensuring uniformity in application.
• Power to make Rules: The Bill empowers the central government to make Rules to implement the provisions of the Convention and the Protocol. It also empowers the central government to make Rules on: 
  • Manner in which DGCA will issue directions to implement the Convention, and
  • Manner in which debtors and creditors will fulfil their respective obligations.

Need of the Bill

• Addressing Legal Uncertainties:  The Bill was introduced to resolve legal ambiguities that complicated repossession of aircraft during insolvencies, such as during the closure of Kingfisher Airlines and GoFirst.
• Compliance with International Standards: Despite signing the Cape Town Convention in 2008, India’s lack of supporting legislation led to conflicts with domestic laws like the Insolvency and Bankruptcy Code, reducing confidence among lessors.
• Improvement in International Compliance Score: By introducing the Bill, India aims to boost its Cape Town Convention Index score, which improved from 50 to 62 but still targets 90.

Impact on the Aviation Sector

• Potential Reduction in Leasing Costs: The Bill is expected to lower leasing costs by 8-10%, particularly benefiting smaller airlines and start-ups through financial incentives like EXIM Bank’s reduced interest rates.
• Boost to Indian Aviation Sector: The legislation is expected to enhance investor confidence in India’s aviation sector, one of the fastest-growing in the world, by reducing risks and costs associated with aircraft leasing and financing.
• Limited Impact on Airfares: Despite claims, experts argue the Bill will not significantly lower airfares, which are primarily influenced by market demand and supply, rather than operational costs.
• Promotion of Domestic Leasing Ecosystem: The government aims to encourage leasing activities through GIFT City, Ahmedabad, fostering a domestic aviation leasing ecosystem.

Criticism from the Industry

• General Welcome with Reservations: The leasing industry broadly supports the Bill for its role in facilitating aircraft repossession but criticizes the move as overdue, given previous airline insolvencies.
• Skepticism over Leasing Cost Reduction: Executives note that leasing costs depend more on an airline’s creditworthiness and financial strength than on legal reforms alone.
• Concerns Over India’s Taxation Regime: International lessors express concerns about India’s complex, inconsistent tax policies, particularly regarding IT notices for operations through Special Purpose Vehicles (SPVs).
• Hesitancy to Operate from GIFT City: Lessors are wary of being pressured to establish a presence at GIFT City due to perceived arbitrary and unpredictable taxation practices.