AWG had downgraded India after GoAir, which had a fleet of 56 all leased planes, went bust. A couple of months later when India issued a notification exempting aircraft and engines from the list of assets that are get a moratorium or protection from repossession from an airline under insolvency, the global watchdog upgraded India to positive. When this happened, the aviation ministry had said leasing costs for Indian carriers could drop by about $1.3 billion thanks to the upgrade to positive.
The Directorate General of Civil Aviation (DGCA) had told the Delhi High Court that the government circular applied retrospectively — meaning it covers GoAir planes. But the continued inability of GoFirst lessors to repossess planes even nine months after the airline went bust and even after the government circular has led to AWG downgrading India again.
“However, hearings at the High Court on lessors’ main writ petitions seeking relief with respect to…de-registration applications remain ongoing with no further judicial action,” AWG said in its notice issued on December 6, while downgrading India again to “negative”. “This….downgrade is necessary as gaps in CTC (Cape Town Convention) primacy, notably in respect of bankruptcy legislation, have resulted in material non-compliance by India, with substantial losses to relying creditors (lessors),” the notice adds.
AWG is non-profit entity co-chaired by Airbus and Boeing and comprises of the world’s biggest aviation manufacturers, leasing companies, and financial institutions.
The aviation ministry had admitted that a negative ranking could raise leasing cost for Indian carriers by “extra $1.2-1.3 billion” and lead to “a reduction in supply of aircraft on favourable terms to our airlines which would adversely affect the entire aviation industry… Further, the cost of higher lease rentals would be passed on to the public causing high fares on all routes…. there would be an overall impact on not only the aviation sector but all sectors dependent on connectivity.” It had said while giving the reason for the notification exempting aircraft and engines from moratorium given to insolvent airlines and added that “India is committed to keeping lessors’ confidence in the Indian aviation market intact by reducing their risks.”
The GoAir fiasco shook lessors’ confidence. In keeping with international norms, the DGCA de-registers aircraft on lessors’ request when a desi player has been defaulting on rental payment under Irrevocable De-registration and Export Request Authorisations (IDERA) in five working days. Lessors had filed requests for repossessing GoAir planes. But before the five working day period, NCLT admitted Go’s plea for voluntary insolvency. And as soon as that happened, Go got protection from these planes being repossessed as IBC got priority over IDERA.
This Go model set the alarm bells ringing in the global leasing community. AWG issued a “watchlist notice” for India, warning the Go case “would have a direct and material impact on future financings and leases to Indian airlines.”