AerCap says jet recovery dispute will hit Indian airline costs

BOC Aviation

01/06/2023 15:33

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      Indian carrier at centre of dispute over jet repossession
    

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      Leasing firms unable to recover jets for 330 days
    

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      AerCap says dispute to hurt Indian firms, push up lease
rates
    

  
    By Tim Hepher and Aditi Shah
       PARIS/DELHI, June 1 (Reuters) - India's fast-growing
airline industry faces higher leasing bills and growing
hesitation from financiers after foreign lessors were blocked
from recovering jets caught up in the bankruptcy of Go First,
the head of leasing giant AerCap  AER.N  told Reuters.
    An Indian tribunal last month granted a request from India's
sixth-largest carrier for bankruptcy protection, putting into
effect a moratorium on its assets that prevents foreign aircraft
lessors from taking planes out for almost a year.
    In an interview, AerCap Chief Executive Aengus Kelly said
the world's largest leasing company had earlier recovered planes
from Go First, previously called Go Air, but called the court
move "wrong and unfair" and warned of its wider implications.
    India's bankruptcy rules allow a maximum of 330 days to find
a resolution, failing which a court can initiate insolvency.    
    Lessors have argued such rules are only designed to cover
assets the airline actually owns. They say the 2001 Cape Town
Convention, which India has ratified but not fully implemented,
overrides local law - something denied by Indian regulators.
    "The airline doesn't own these assets," Kelly said. "The
decision by the courts will cost Indian companies".
    Aircraft lessors control about half the world's fleet
including three-quarters of jets recently delivered to India.
    AerCap's warnings come days after SMBC Aviation Capital, the
world's second largest lessor, warned the stand-off could shake
confidence in the world's fastest-growing aviation market.
    India's aviation regulator has told the Indian tribunal that
lessors' requests have been put on hold because local laws
prevail over any international treaty signed by India.
    India ratified the Cape Town Convention in 2008 but has yet
to pass a law resolving conflicts with its bankruptcy code. 
    Civil Aviation Minister Jyotiraditya Scindia told Reuters in
April a bill implementing the treaty was "very much in the
works". 
    Kelly said new lease rates had already begun rising for
airlines in India, which would now face a risk premium.
    "We know that there are people who have pulled back from the
Indian market a little bit in certain instances until they see a
resolution of this," Kelly said.
    "Hopefully, the Indian authorities will realise that this
isn't the way forward and they will allow the lessors to take 
equipment out."
        
    KEY MARKET
    The UK-based Aviation Working Group, which monitors leasing
practices, has put India on a watchlist with a negative outlook.
    Standard Chartered's Pembroke Aircraft Leasing, CDB
Aviation's GY Aviation Leasing and BOC Aviation  2588.HK  have
initiated proceedings to repossess planes from Go First.
    India is a critical market for lessors, in which
sale-and-leaseback deals accounted for 75% of plane deliveries
from 2018 to 2022, compared with a global average of 35%,
according to  analytics firm Cirium.
    But it has also been a challenging one with Go First
following Kingfisher and Jet Airways - both of which went
bankrupt over the last decade-plus. There are also growing
concerns among some lessors about carrier SpiceJet  SPJT.NS  
against which Aircastle has sought to initiate bankruptcy
proceedings. 
    SpiceJet  SPJT.NS  has said it is in the process of reviving
its grounded fleet and has "no plans whatsoever" to file for
insolvency.

 (Reporting by Tim Hepher, Aditi Shah; Editing by Emelia
Sithole-Matarise)
 ((tim.hepher@thomsonreuters.com; +33 1 49 49 54 52; Reuters
Messaging: tim.hepher.thomsonreuters@reuters.net))