Centre planning to bring in two-month asset freeze rule for bankrupt airlines: Report

The Centre could bring in a two-month moratorium rule for the aviation sector to ensure that the aircraft of a bankrupt airline isn't taken away immediately by lessors after its operations stop.

 In October, the Union Ministry of Corporate Affairs (MCA) had exempted aircraft, helicopters and engines from moratorium under the insolvency law, a report in the Economic Times said.
This was in line with the Indian government's decision to adopt the Cape Town global convention that allows airlines to keep leased aircraft for at best two months in case of rental defaults.

The Cape Town Convention (CTC) is a global treaty that guarantees the rights of lessors to repossess leased high-value equipment such as aircraft, engines, and helicopters in case of payment defaults. The treaty was adopted at a conference in Cape Town in November 2001 under the International Civil Aviation Organisation (ICAO) and the International Institute for the Unification of Private Law (UNIDROIT).

The convention aims to solve problems of obtaining certain rights to aviation assets such as aircraft engines, helicopters and airframes, which, by their nature, have no fixed location.

The Civil Aviation Ministry's planned Cape Town Convention Bill is yet to be introduced in Parliament. In between, the MCA could bring in the two-month moratorium on aircraft of insolvent airlines, if required, until the convention is formally adopted, sources told ET.

Under the Insolvency and Bankruptcy Code (IBC), once resolution proceedings are initiated, the transfer or disposal of assets of a stressed firm is effectively barred because of the moratorium.

Earlier this year, Go First filed for bankruptcy. The airline's total debt to financial creditors was Rs 6,521 crore as of April 28. The airline owes over Rs 2,600 crore to aircraft lessors, which include SMBC Aviation, CDB Aviation's GY Aviation Leasing, Jackson Square Aviation, and BOC Aviation. The case is now pending with the Delhi High Court.

For Go First, the National Company Law Tribunal (NCLT) had on May 10 ordered a moratorium on its assets, which prevented lessors from repossessing aircraft. The lessors argued that since the aircraft were not the property of Go First, they must not be subject to the moratorium rule.

On Monday (October 18), the Go First Resolution Professional (RP) told the court that aircraft lessors have proposed a third-party agency to provide documentation and maintenance of the aircraft.

The RP said that certain aircraft lessors, namely SMBC Aviation Capital, Aviation Capital Group, Jackson Square Aviation, and EOS Aviation (cumulatively owning 23 aircraft), held in-person meetings with them 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 to provide aircraft documentation and undertake maintenance of the aircraft.

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

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