Protection and Enforcement of Interests in Aircraft Objects Bill, 2024

January 18, 2025

The Protection and Enforcement of Interests in Aircraft Objects Bill, 2024, aims to transform India’s aviation sector by enhancing the leasing framework. This legislation is expected to lower costs, improve accessibility to air travel, and attract investment as India anticipates a surge in aircraft acquisitions.

Objectives of the Bill

The Bill seeks to protect aircraft lessors’ rights to reclaim leased equipment.
It aims to reduce leasing costs, thereby making air travel more affordable for consumers.
The legislation is designed to facilitate the acquisition of over 1,000 new aircraft by the end of the decade.

Ratification of the Cape Town Convention

If passed, the Bill will ratify the Cape Town Convention, a global treaty that secures lessors’ rights to repossess aircraft in default cases. India is a signatory but has yet to ratify it, leading to reliance on local court decisions.

Key Facts about the Cape Town Convention and Aircraft Protocol

The Convention on International Interests in Mobile Equipment and the Protocol on Matters Specific to Aircraft Equipment were signed in Cape Town on 16 November 2001.
These agreements are collectively referred to as a single instrument under Article 6(1) of the Convention.
They were adopted under the joint supervision of ICAO (International Civil Aviation Organization) and UNIDROIT (International Institute for the Unification of Private
The Convention and Protocol address issues related to securing rights over high-value aviation assets like airframes, aircraft engines, and helicopters.
These assets have no fixed location, making it difficult for creditors to enforce their rights due to varying legal systems across countries.
By reducing legal uncertainty, the Convention promotes easier financing and lowers borrowing costs for aviation assets.

Benefits of the Convention

Predictability and Enforcement:
- Establishes an international interest recognized in all Contracting States.
- Introduces an electronic international interest registration system to ensure quick enforcement.
- Reduces the global average delay in contract enforcement from 10 months to 2 months.
Cost Savings:
- Reduces risks for creditors, leading to lower borrowing costs for debtors.
- Encourages financing for fuel-efficient and modern aircraft.
- Airlines in member states can get a 10% discount on export credit premiums.
- Example of cost savings:
  - Australian airlines saved $330,000 on an ATR 72 aircraft and $2.5 million on an Airbus A380 purchase after adopting the Convention.

Impact on Ease of Doing Business

The Bill is expected to enhance the business environment for aviation by ensuring legal clarity and reducing conflicts.
It aims to address challenges faced by lessors, particularly brought into light during the Go First crisis, by aligning local laws with international standards.

Boosting Investor Confidence

By guaranteeing repossession rights, the Bill will boost the confidence of global lessors in Indian airlines. This legislative change is critical for attracting foreign investment in the aviation sector, which has been deemed a high-risk jurisdiction.

Reduction of Lease Costs

The Bill aims to lower lease rentals by reducing the current high-risk premium associated with leasing in India. This reduction is expected to decrease overall aircraft financing costs for airlines, leading to lower airfares for passengers.

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