'Risky jurisdiction': Aircraft lessors raise alarm over Go First crisis in India

Jet Airways (India)

11/05/2023 12:09

(Repeats to widen distribution)
    By Aditya Kalra and Aditi Shah
       NEW DELHI, May 11 (Reuters) - The world's second largest
aircraft lessor, SMBC Aviation Capital, has warned that India's
decision to block leasing firms from reclaiming Go First planes
will jolt the market and spark a confidence crisis, legal papers
show.
    SMBC, along with firms such as Jackson Square Aviation and
Bank of China Aviation, raised the alarm after a tribunal gave
Go Airlines (India) Ltd bankruptcy protection to allow it to
revive itself, but barred lessors from repossessing planes.
    A boom in traffic in the world's third-biggest aviation
market prompted record jet orders but two major airline
failures, of Kingfisher Airlines in 2012 and Jet Airways in
2019, have taken some of the shine off the market.
    "Lessors and international aircraft owners see India as a
risky jurisdiction for aircraft leasing," after the failures of
Jet and Kingfisher, SMBC told the tribunal ahead of a hearing on
Friday where it seeks to quash Go First's bankruptcy protection.
    "The admission of the petition (seeking protection) will
further shake confidence of the international aviation
industry," it added in a filing to the tribunal that has not
been made public but was reviewed by Reuters. 
    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%, data
from aviation analytics firm Cirium shows.
    Go First and SMBC, which also called the Indian airline's
insolvency filing a "smokescreen" to defraud creditors and
lessors, did not respond to a request for comment.
    The lessors' anger comes as Prime Minister Narendra Modi
touts India's emergence as an aviation powerhouse.
    New airports are springing up rapidly nationwide, and
airlines such as IndiGo  INGL.NS  and Tata Group's Air India are
expanding aggressively with new, record plane orders.
    The moratorium on the Go First planes will also weigh on new
deals, forcing domestic carriers to shell out higher deposits
for leased planes, or higher monthly rents, an adviser to a
global lessor and an aircraft leasing industry source said.
    Such rents are, in most cases, already higher than in some
other countries following the departure of Jet and Kingfisher,
said the sources, who spoke on condition of anonymity.
    The situation could also boost risk premiums for IndiGo,
which has ordered hundreds of jets and Air India, which has
kicked off financing for its 470-plane order worth tens of
billions of dollars by seeking proposals from leasing companies.
    One leasing industry source said risk premiums would rise
for the Indian market "regardless of how strong" the airline
was, but stopped short of naming Air India or IndiGo. 
    Both airlines did not immediately respond to a request for
comment.
    The Go First bankruptcy decision also fuelled nervousness
among the lessors of financially-troubled SpiceJet, with many
wanting to pull out planes for fear that situation, too, could
turn sour, said the same two people involved in such talks.  
    In recent days, Ireland-based aircraft lessor Aircastle
sought to initiate bankruptcy proceedings against SpiceJet for
unpaid dues. This week, SMBC asked India's aviation watchdog to
allow it to repossess three planes for payment defaults. 
    The bankruptcy court has yet to decide on the matter. In a
statement on Friday, SpiceJet said it had "no plans whatsoever
to file for insolvency".
    Go First blamed its financial troubles on the grounding of
half its fleet of 54 Airbus A320neo aircraft, due to "faulty"
engines supplied by Pratt & Whitney  RTX.N . The U.S. firm says
the claim is without merit.

 (Reporting by Aditya Kalra and Aditi Shah; Additional reporting
by Arpan Chaturvedi; Editing by Clarence Fernandez)
 ((aditya.kalra@thomsonreuters.com; +91-11-49548021;))