Aircraft Objects Bill 2025 Passed

Syllabus

GS 3: Infrastructure

Why in the News?

Recently, Parliament passed the Protection of Interests in Aircraft Objects Bill, 2025, aligning India’s aviation laws with international standards to help lessors reclaim aircraft easily and attract global investments.

Aircraft Objects Bill 2025 Passed

Protection of Interests in Aircraft Objects Bill, 2025

  • Protection of Interests in Aircraft Objects Bill, 2025, was recently passed by Parliament to resolve legal conflicts between lessors and Indian airlines.
  • It provides a clear legal framework for aircraft leasing and repossession.
  • This move aims to align India’s aviation law with global standards and boost investor confidence.

What Is the Bill About?

  • The Bill establishes rules for resolving disputes involving high-value aviation assets like aircraft, engines, and helicopters.
  • It enables lessors to recover their assets in case of unpaid dues or default by airlines.
  • It implements the Cape Town Convention and Protocol, an international treaty adopted by the International Civil Aviation Organization (ICAO).
  • India signed this Convention in 2008, but until now, lacked domestic legislation to enforce it.

Why Was the Bill Introduced?

  • International Concerns: India signed the Cape Town Convention in 2008, but had not enacted enabling legislation, which created legal confusion.
  • Legal Disputes: Cases like Kingfisher Airlines, GoFirst (2023), and SpiceJet showed that India lacked a consistent framework for resolving conflicts between lessors and airlines.
  • Repo Challenges: In the GoFirst case, courts protected the airline under insolvency laws, making it hard for lessors to repossess aircraft or even maintain them.
  • Global Ranking: These delays reduced India’s compliance score in the Aviation Working Group (AWG) Cape Town Index. It was previously at 50 but now has improved to 62. The target is to reach a score of 90.
  • Need for Clarity: International lessors demanded clearer laws that support their right to recover high-value aviation assets in case of defaults.

What Happened in the GoFirst Case?

  • GoFirst sought voluntary insolvency before the National Company Law Tribunal (NCLT) in May 2023.
  • The court granted moratorium protection, preventing lessors from:
    • Deregistering aircraft
    • Repossessing planes
    • Accessing aircraft for maintenance
  • Lessors were also forced to repay airport dues like ground handling, cargo operations, counter and office space, and aircraft parking charges.
  • This case clearly showed the need for specific legal safeguards for lessors and creditors.

Key Provisions of the Bill

Cape Town Convention Implementation

  • The Bill enforces the Cape Town Convention and Protocol through domestic law.
  • It provides a legal route for lessors to recover aircraft quickly in case of airline defaults.

DGCA as Registry Authority

  • The Directorate General of Civil Aviation (DGCA) is appointed as the authority to:
    • Register and deregister aircraft
    • Maintain compliance with the Convention
    • Issue directions for smooth implementation

Creditor Rights and Remedies

  • In case of default, lessors can:
    • Repossess their aircraft
    • Sell or lease it to recover dues
  • The timeline is two calendar months, or a mutually agreed period, whichever is shorter.

Debtor Responsibilities

  • Airlines must:
    • Submit records of outstanding dues to DGCA
    • Comply with rules and directions under the Bill

Overriding Clause

  • If this law conflicts with any existing Indian law, its provisions will override the others.

How Will the Bill Help?

  • Faster Repossession: Lessors no longer need to go through lengthy court processes to repossess aircraft.
  • Better Global Image: India’s compliance score on the Cape Town Convention Index has already improved to 62/100.
  • The target is 90/100, which will attract more international lessors.
  • Reduced Leasing Costs: Airlines expect up to an 8–10% drop in leasing expenses.
  • This can improve airline finances, especially for smaller operators.
  • Domestic Leasing Promotion: Bill aims to encourage aircraft leasing through GIFT City (Gujarat International Finance Tec-City) in Ahmedabad.
  • By creating a legal framework and ecosystem locally, India can reduce its reliance on foreign lessors and promote homegrown players.

Industry Response

Positive Aspects

  • Leasing companies and aviation stakeholders have welcomed the Bill, saying it brings long-needed clarity.
  • Airline executives say it may help small carriers and start-ups, especially with 10% interest rebates offered by the EXIM Bank.

Skepticism and Concerns

  • Some call it “closing the stable door after the horse has bolted”, pointing to the damage already done in cases like GoFirst.
  • Executives argue that airfare won’t reduce significantly, as ticket pricing depends on market forces, not leasing costs.
  • Large airlines like IndiGo and Air India are already financially strong, so the law won’t lower their leasing costs dramatically.

Taxation Issues: A Big Worry

  • Many lessors lease aircraft through Special Purpose Vehicles (SPVs) to avoid establishing a permanent establishment in India.
  • But they’ve been receiving IT department notices, raising fears of retrospective taxation and uncertainty.
  • An industry executive described India’s taxation as “whimsical, suspicious, and inconsistent.”
  • The government is seen as pressuring lessors to shift operations to GIFT City by creating hurdles elsewhere.

What the Bill Can and Cannot Do?

Can Do

  • Improve legal certainty
  • Align India with international norms
  • Lower risk for foreign lessors
  • Promote domestic leasing and GIFT City

Cannot Do

  • Guarantee reduced airfares
  • Replace existing global leasing hubs like Ireland or Singapore
  • Resolve all challenges without tax reform and IBC alignment

What Needs to Be Done Next?

  • Simplify Taxation: Lessors need clarity on tax treatment of SPVs and permanent establishments.
  • Capacity Building in DGCA: The DGCA must be equipped with staff and digital tools to handle aircraft repossession quickly.
  • IBC and Law Harmonization: The Bill must work in sync with the IBC to avoid future legal confusion.
  • Boost Investor Confidence: India should assure global lessors of long-term legal stability to attract more investments.
  • Ease of Doing Business: The government must reduce bureaucratic hurdles for lessors and financiers.

Conclusion

The Bill is a major reform for India’s aviation sector, aligning it with global norms. While concerns remain, it offers legal clarity, investor confidence, and better asset protection—paving the way for more responsible leasing practices.

Source

The Hindu

Mains Practice Question

Discuss the significance of the Protection of Interests in Aircraft Objects Bill, 2025 in reforming India’s aviation leasing framework.