India's adherence to international aviation leasing regulations has faced a second downgrade in its compliance rating by the Aviation Working Group (AWG), a global watchdog based in the UK that supervises leasing and financing laws.
This downgrade places India on a watchlist with a negative outlook, largely due to an ongoing dispute between the domestic airline Go First and its aircraft lessors.
The reduction in India's ratings coincides with a legal battle between the beleaguered airline Go First and its lessors, who are seeking to reclaim their aircraft.
The conflict began when Go First was granted bankruptcy protection in May, preventing lessors from repossessing over 50 grounded Airbus planes. Lessors have expressed concerns about the deterioration of crucial aircraft components during this period.
AWG has pointed out that 130 days have passed since the lessors' request to repossess their aircraft, far exceeding the maximum waiting period of 60 days stipulated in India's commitments under the Cape Town Convention—an international treaty that safeguards the repossession rights of lessors.
While India has ratified the Cape Town Convention, it has not yet enacted legislation to reconcile conflicts with the country's insolvency and bankruptcy code, which has parliamentary backing.
AWG has expressed dissatisfaction with the ongoing legal dispute between Go First and its lessors, emphasizing that "The prolonged failure to make remedies, including repossession and deregistration, available to creditors ... and provide for asset maintenance and value preservation ... negatively impact scoring."
This watchdog, co-chaired by Airbus and Boeing, has adjusted India's score on its compliance index from 3.5 to 2 out of 5, which evaluates the effective fulfillment of requirements under the Cape Town Convention.
Additionally, AWG has cautioned that further rating downgrades could ensue.
This situation raises concerns about the confidence of aircraft lessors in India's aviation market, which ranks as the world's third-largest.
The Aviation Working Group (AWG), comprising major lessors and financial institutions like Aircastle, BOC Aviation, SMBC Aviation Capital, Deutsche Bank, Goldman Sachs, and Morgan Stanley, has issued warnings regarding potential consequences.
SMBC, one of the world's largest aircraft lessors, had previously expressed dissatisfaction in May when India prevented leasing companies from repossessing Go First's aircraft. Such actions could erode lessors' trust in the Indian market.
Moreover, other companies like Jackson Square Aviation and Bank of China Aviation have also voiced concerns about the situation.
The recent compliance rating downgrade by the aviation watchdog, primarily stemming from Go First's ongoing legal dispute with lessors, may have ramifications for other Indian carriers. They could encounter increased expenses, including higher deposits for leased planes and elevated monthly lease payments.
It is important to note that leasing deposits and monthly lease payments are already relatively high in India, partly due to the past financial challenges faced by airlines like Kingfisher and Jet Airways.
