The Aviation Working Group (AWG), a worldwide aviation group composed of plane makers and lessors, demoted India to "negative" from "positive" on Thursday, citing lessors' inability to repossess their aircraft from Go First more than seven months after the airline declared insolvency. The cost of leasing is a significant burden for Indian airlines. With AWG's downgrade, lessors are likely to raise aircraft leasing rates for Indian carriers.

After the National Company Law Tribunal (NCLT) banned lessors from repossessing planes from Go First, AWG placed India on its monitoring list in May. AWG elevated India to the "positive" category after the Ministry of Corporate Affairs (MCA) issued a notification on October 3 exempting all aviation and engine-related transactions from the Insolvency and Bankruptcy Code.

Following that, the Directorate General of Civil Aviation notified the Delhi High Court that the MCA notification could be retroactively enforced. "However, hearings at the High Court on lessors' main writ petitions seeking relief to...deregistration applications remain ongoing, with no further judicial action," the AWG stated in its most recent notification, dated December 6, 2023. As a result, India has been rated to "negative" once more.

"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 on creditors (lessors)," the Advisory Working Group (AWG) stated.

India ratified the CTC in 2008, an international convention that provides time-bound remedies for lessors to seize planes, lowering their risks. Lessors have urged India to enact a parliamentary bill implementing this treaty, which would promote CTC over insolvency regulations. The Indian government has officially approved the pact with the MCA announcement.

After Go First stopped flying on May 3, its lessors applied to the Directorate General of Civil Aviation (DGCA) to reclaim more than 40 of the airline's 54 planes. However, on May 10, the NCLT imposed a freeze on all Go First assets, preventing lessors from reclaiming their planes. Go First's lessors have launched an appeal with the higher tribunal and courts to reclaim the planes. The resolution professional recently requested bids, but no one bid to purchase the airline.