Aviation leasing watchdog issues warning on India over plane repossessions (updated)

BOC Aviation

12/05/2023 09:42

(Adds analyst, detail on letter to Go First)
    By Aditi Shah and Aditya Kalra
       NEW DELHI, May 12 (Reuters) - India has been placed on a
watchlist with a negative outlook by a global aviation leasing
watchdog which said it had failed to comply with international
aircraft repossession norms after airline Go First was granted
bankruptcy protection.
    The move by the Aviation Working Group (AWG), a UK-based
entity that monitors leasing and financing laws on behalf of
planemakers and lessors, could raise leasing costs for Indian
airlines and further hurt lessors' confidence in the world's
third-largest domestic aviation market.
    Such an outlook will "have a direct and material impact on
future financings and leases to Indian airlines", AWG told Go
First in a letter which was also sent to India's aviation
minister.
    The inability to repossess Go First's planes in a timely
manner comes as Indian air travel is booming and hundreds of new
jets have been ordered by local carriers, who regularly turn to
lessors to help finance plane purchases.
    Go Airlines (India) Ltd filed for bankruptcy protection last
week, blaming "faulty" Pratt & Whitney (P&W) engines for the
grounding of about half its 54 Airbus  AIR.PA  A320neos. P&W,
part of Raytheon Technologies  RTX.N , says the airline's claims
are without evidence.
    In granting protection, the Indian tribunal ordered a freeze
on Go First's assets even though some lessors had already
terminated their leases with the airline and placed requests
with the aviation regulator to repossess more than 40 planes.
    Failure to process deregistration applications for aircraft
with leases terminated before the freeze was imposed, "results
in a negative outlook", AWG said in its watchlist notice.
    The aviation ministry and regulator were not immediately
available to comment. 
    Go First's lessors include SMBC Aviation Capital, CDB
Aviation's GY Aviation Leasing, Jackson Square Aviation and Bank
of China Aviation.
    In its letter to the airline's court-appointed administrator
at Go First, AWG said the airline has an "obligation" to
preserve the aircraft and maintain their value until the
creditors and lessors can take possession.
    AWG is a not-for-profit entity co-chaired by Airbus and
Boeing  BA.N . Its members include major lessors and financial
institutions like Aircastle, BOC Aviation, SMBC Aviation
Capital, Deutsche Bank, Goldman Sachs and Morgan Stanley.
    The negative outlook by AWG is under what it calls the
compliance index, which addresses whether requirements under the
Cape Town Convention, an international treaty on plane
repossessions, are met in practice. 
    India's score has been reduced to 3 from 3.5 earlier. 
        India made it easier for lessors to take back planes if
airlines default on payments after joining the Cape Town
Convention in 2008, but bankruptcy protection supersedes
repossession requests under its local laws.
    "If those jets can't get repossessed, everyone in the
country pays more. There is a risk premium," said Richard
Aboulafia, managing director at Aerodynamic Advisory.
    AWG in April issued a warning about Vietnam's compliance
with international aircraft leasing norms after a dispute over
the repossession of four jets.

 (Reporting by Aditi Shah and Aditya Kalra, additional reporting
by Tim Hepher in Paris; editing by Jamie Freed, Sharon Singleton
and Jason Neely)
 ((aditi.shah@tr.com; +91-11-4954 8023, +91-11-3015 8023;
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