Aircraft Objects Bill, 2025-Significance & Challenges- Explained Pointwise

The Parliament has recently passed the Protection of Interests in Aircraft Objects Bill, 2025 to address recurring disputes involving repossession of leased aircraft—exemplified by high-profile cases like Kingfisher, SpiceJet, and Go First. The Bill was introduced to address long-standing challenges in India’s aviation sector, particularly the legal uncertainties faced by international lessors & creditors. It also operationalizes the Cape Town Convention and Aircraft Protocol (CTC), a long-pending reform aligned with India’s aviation ambitions under India@2047. 

What is the Cape Town Convention and Aircraft Protocol?

1. The Cape Town Convention and Protocol, adopted by the International Civil Aviation Organization (ICAO) in 2001, is an international treaty that:

• Standardizes legal frameworks for transactions involving aviation assets like aircrafts, engines, and helicopters.
• Protects the interests of creditors and lessors, enabling faster repossession in case of default.
• Creates a global aircraft registry and lays out remedies for lessors, overriding conflicting domestic insolvency provisions.

2. India signed the Convention in 2008, but its implementation remained stalled due to the absence of ratification and legislative backing—until now.

What are the key Provisions of the Protection of Interests in Aircraft Objects Bill, 2025?

1. Implementation of Cape Town Convention: Gives statutory force to the CTC and Aircraft Protocol in India.

2. DGCA as Registry Authority: It empowers the Directorate General of Civil Aviation (DGCA) to manage registration and de-registration of aircraft as well as issue directions to implement the Convention. 

3. Time-bound Repossession: Creditors can reclaim aircraft within two calendar months of default or a mutually agreed period, whichever is shorter.

4. Debtor Obligations: Airlines must maintain accurate records of dues and comply with DGCA directions.

5. Overriding Effect: If any existing law conflicts with this Bill, the provisions of this Bill will prevail, including over the IBC.

What is the significance of the Bill?

1. Dispute resolution: The legislation establishes a legal framework to resolve the disputes between airlines & lessors over high-value aviation assets, such as, aircraft, helicopters & engines. 

2. Global integration: The legislation aims to align India’s aviation laws with international standards, in order to boost investor confidence amid rapid fleet expansion by IndiGo & Air India. 

3. Streamlined processes: Once enacted, the law will streamline the processes, allowing lessors to repossess aircraft for unpaid dues, avoiding lengthy court proceedings like those seen with GoFirst’s 2023 shutdown. 

4. Improving Legal Clarity: According to the Civil Aviation Minister, the Bill provides much-needed legal clarity, citing delays in GoFirst and SpiceJet cases. 

5. Enhancing Investor Confidence: 

• The Bill will reduce the perceived risks, bringing India closer to global leasing hubs like Dublin, Singapore, and Hong Kong. Helps attract international financiers and domestic leasing activity at GIFT City. 
• The Bill will also lower the risk of doing future business in India, which will positively impact an airline’s net income. 

6. Cost Reduction: Airlines estimate leasing costs may fall by 8–10%, which will have a trickle down effect like fleet expansion and financial sustainability as well as potentially reducing the airfares – benefiting the customers. 

7. Support for Domestic Leasing Ecosystem: The Bill promotes Gujarat’s GIFT City as a hub for aviation financing, aligned with India’s Financial Sector Development Council’s goals.

8. Support for Startups: Smaller airlines may benefit from EXIM Bank’s 10% interest rebate for leasing.

9. Training Hub Vision: With a demand for 30,000 pilots in the next 15–20 years, the Bill complements the goal of making India a pilot training hub.

What are the challenges with respect to aircraft leasing in India?

1. Challenges in Aircraft Leasing & Repossession:

• Kingfisher Airlines (2012): Lessors faced years-long legal battles to reclaim the aircraft.
• Go First (2023): Insolvency proceedings under IBC imposed a moratorium, blocking lessors from reclaiming aircraft for months.
• SpiceJet-BBAM Dispute ($132 million): Legal ambiguities led to prolonged settlement.

2. Conflict with Domestic Laws: Despite India’s accession to the Cape Town Convention (2008), the absence of enabling legislation has led to conflicts of domestic laws like IBC and SARFAESI Act with international standards. Also, courts have often interpreted the treaties differently, creating uncertainty for lessors. This led to difficulties in repossessing aircraft during airline insolvencies, as seen in the case of GoFirst (2023). 

3. Lag in AWG Rating: The inconsistencies between the domestic laws & international standards has increased the risks of lessors & lowered India’s compliance score on Aviation Working Group’s (AWG) Cape Town Convention Index. Though India’s compliance rating has improved from 50 to 62, it is still far from the target score of 90 required to match leading jurisdictions.

4. Challenges Faced by Lessors: Moratoriums under the Insolvency and Bankruptcy Code (IBC) prevented lessors from reclaiming assets. Operational dues to airports and oil companies were unfairly passed onto lessors. Complex tax laws and ad-hoc arrangements created an unpredictable business environment.

What are the concerns associated with the Bill?

1. Unsubstantiated claims:

• Executives in the international leasing industry explain that the claims promoted of reduced leasing costs as a result of proposed law are not entirely true as the creditworthiness of an airline, its financial & volume of orders are the real driving factors, especially for airlines like Air India & IndoGo. 
• Similarly, airline executives state that the claims of a likely respite in airfares are exaggerated as ticket prices are driven by market forces of demand & supply for air travel, and that costs incurred by airlines don’t drive the fares. 

2. Taxation and Regulatory Burden: Industry executives describe India’s tax regime as “whimsical, suspicious, and inconsistent.” Lessors face Income Tax notices for using SPVs to lease aircraft without a “permanent establishment,” reducing ease of doing business.

3. Market Dominance & Viability: Concerns over dominance of IndiGo and Air India. Debt burdens and high aviation fuel costs remain unresolved.

4. Lack of Comprehensive Arbitration Reform: Aviation disputes still fly overseas for resolution. Bharatiya Vayuyan Adhiniyam, 2024 lacks detailed arbitration provisions.

What should be the way forward?

1. Harmonize with IBC: A formal amendment or override clause in the Insolvency and Bankruptcy Code to ensure smooth operation of repossession rights. E.g. Ireland’s Cape Town Convention Act, 2005

2. Comprehensive Arbitration Reform: Enact a sectoral dispute resolution mechanism or amend the Bharatiya Vayuyan Adhiniyam, 2024 to include arbitration panels under DGCA. E.g. Singapore International Arbitration Centre (SIAC) with a specialized aviation dispute desk.

3. Simplify Taxation and SPV Norms: Align tax structures with international leasing norms, removing ambiguity around SPVs and permanent establishments. E.g. Introduce ‘safe harbor’ tax rules for SPVs operating within IFSC-GIFT City.

4. Boost Domestic Leasing: Incentivize domestic lessors and financial institutions to invest in aviation through policy support and EXIM Bank rebates. E.g. Japanese Operating Lease (JOL) scheme.

5. Improve Compliance Ratings: Work with Aviation Working Group to reach a compliance score of 90, sending a strong signal to international markets. E.g. UAE, Malaysia, and New Zealand maintain high scores by implementing CTC-based repossession timelines.

6. Ratification Monitoring: Regular review of India’s compliance with Cape Town Convention. Leverage the AWG Compliance Index as a benchmark. E.g. Institute a CTC Implementation Oversight Committee (CIOC).

7. Regulatory Integration: Implement recommendations from the High-Level Committee for Regulatory Reforms across aviation and financial domains. E.g. UK’s Better Regulation Task Force.

Conclusion

The Protection of Interests in Aircraft Objects Bill, 2025, is a landmark reform that addresses long-standing legal ambiguities in aircraft leasing. While it boosts investor confidence & will align India with global norms, challenges like taxation disputes and delayed implementation remain. For India to become a global aviation hub by 2047, consistent policy reforms, tax rationalization, and faster dispute resolution are crucial. The Bill is a step in the right direction, but sustained efforts are needed to unlock its full potential.