Aircraft leasing Bill to cut airfares, reduce airline costs: Minister Naidu

The recently approved Protection and Enforcement of Interests in Aircraft Objects Bill, 2024 by the Union Cabinet is a ‘Game Changer’ for the aviation sector, said Union Civil Aviation Minister Ram Mohan Naidu. Speaking exclusively to Businessline, the minister elaborated that the Bill, once approved by Parliament as the proposed statute, aims to make airfares more affordable via reduced aircraft leasing costs.  “The Bill once approved as an Act will reduce leasing costs by a good margin, thereby providing a huge boost to the continuously growing aviation sector in India,” he said, adding, “The reduced cost incurred by the airlines will then be passed on to passengers via lower airfares.”

Naidu said the ministry was in consultation with the sector regarding the new Bill.  “In our consultation with the airline industry, we have observed that there was a strong requirement for this reform. In this context, we wanted to have a Bill that satisfies the needs of the industry, passengers, and all other stakeholders,” he said.

The proposed Bill is expected to reduce leasing costs by ratifying the Cape Town Convention (CTC), which guarantees the rights of lessors to repossess their leased high-value equipment, such as aircraft, helicopters, and engines, in case of payment defaults. At present, global aircraft lessors charge a ‘risk premium’ from domestic airlines because India’s Parliament has not yet ratified the convention, despite the country being a signatory to the CTC. This has given precedence to local courts’ judgements over the convention’s norms.  Consequently, the proposed Bill will avert legal conundrums by settling cases between lessors and airlines under the CTC provisions, lowering the ‘risk premium.’ It will also empower the Centre to make rules to implement the convention and its protocol in India.

Furthermore, global lessors have been demanding the ratification of the convention into an Act of Parliament to reduce the likelihood of issues that they had to face during the Go First crisis. For this purpose, an interministerial consultation process was launched to revise the Bill, which was first tabled in Parliament in 2018.

Presently, the majority of around 700 or so passenger commercial aircraft in the country are leased. Overall, the proposed Act will boost aircraft lessors’ confidence in India-based airlines. In addition, it will help achieve efficient financing of high-value mobile equipment, making airlines’ operations as cost-effective as possible.

According to Minister Naidu, the Bill will also help the leasing industry gain traction in the country. “We have more than 1,700 aircraft on order. We can capitalise on this by having a well-built ecosystem favouring the leasing business. Right now most of the leasing business is being undertaken through foreign financial centres like Ireland,” the minister said.

“The central government under the guidance of Prime Minister Narendra Modi wants to develop the country as a leasing financial centre not only for domestic airlines but for foreign airlines too.”