Government Intends to Impose a Two-month Asset Freeze on Bankrupt Airlines

By Consultants Review Team Wednesday, 20 December 2023

The center may impose a two-month moratorium rule for the aviation sector to ensure that a bankrupt airline's aircraft is not immediately taken away by lessors after its operations cease.

According to the Economic Times, the Union Ministry of Corporate Affairs (MCA) exempted aircraft, helicopters, and engines from the moratorium under the insolvency law in October. This was consistent with the Indian government's decision to accept the Cape Town global convention, which enables airlines to detain leased aircraft for no more than two months in the event of rental default.

The Cape Town Convention (CTC) is a global treaty that protects lessors' rights to repossess leased high-value equipment such as airplanes, engines, and helicopters in the event of nonpayment. The treaty was agreed in November 2001 at a conference co-hosted by the International Civil Aviation Organisation (ICAO) and the International Institute for the Unification of Private Law (UNIDROIT) in Cape Town. The agreement seeks to resolve issues concerning the acquisition of certain rights to aviation assets such as aircraft engines, helicopters, and airframes, which, by definition, have no fixed location.

The Civil Aviation Ministry has failed to introduce the Cape Town Convention Bill in Parliament. Until the convention is formally accepted, the MCA could impose a two-month ban on aircraft of insolvent airlines, according to ET sources. The transfer or disposal of assets of a stressed corporation is effectively forbidden under the Insolvency and Bankruptcy Code (IBC) once resolution proceedings are commenced.

Go First declared bankruptcy earlier this year. As of April 28, the airline's overall debt to financial creditors stood at Rs 6,521 crore. Over Rs 2,600 crore is owed to aircraft lessors such as SMBC Aviation, CDB Aviation's GY Aviation Leasing, Jackson Square Aviation, and BOC Aviation. The case is presently before the Delhi High Court.

The National Company Law Tribunal (NCLT) issued a moratorium on Go First's assets on May 10, preventing lessors from repossessing aircraft. The lessors contended that because the aircraft were not Go First's property, they were not subject to the moratorium regulation.

The Go First Resolution Professional (RP) informed the court on Monday (October 18) that aircraft lessors had recommended a third-party organization to supply paperwork and maintenance of the aircraft.

The RP stated that certain aircraft lessors, namely SMBC Aviation Capital, Aviation Capital Group, Jackson Square Aviation, and EOS Aviation (collectively owning 23 aircraft), met with them in person on November 9 in Mumbai, where the lessors proposed a third-party agency as the MRO/CAMO (Maintenance, Repair, and Overhaul/Continuing Airworthiness Management Organisation) tasked with providing aircraft documentation and performing aircraft maintenance.

ALSO READ: SpiceJet Shows Interest In Acquiring Go First

The RP informed the court that once a contract with the proposed MRO is executed, a communication will be issued to the Directorate General of Civil Aviation (DGCA) seeking the necessary approvals to allow the said MRO to proceed with maintenance activities on the aircraft.


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