Why aircraft lessors should be able to take their planes back

The Ministry of Civil Aviation, it is said, may soon allow global aircraft lessors to retrieve their planes from Indian airports if they have been de-registered by the Director General of Civil Aviation (DGCA). If the ministry, led by Ajit Singh, indeed issues a notification to that effect, it will be doing a world of good to the likes of IndiGo, Jet Airways and SpiceJet.

If they are able to get their planes back easily, aircraft leasing firms are likely to ease the terms of their rental agreements with airlines. Carriers may not have to pay advance lease rentals. There is even a likelihood of the rentals falling in the coming days. This will ease the cash flow problems of airlines.

The grounded Kingfisher Airlines owes the Airports Authority of India (AAI) around Rs 390 crore in airport charges. It has also defaulted on paying lease rentals to aircraft leasing firms. After receiving letters from overseas leasing firms, the DGCA de-registered the planes and the lessors were supposed to take them back.

The AAI, however, rebuffed their attempts to take control of the planes, insisting that Kingfisher had to clear its dues before the aircraft could be flown back.

India's approach in general and the AAI's in particular flies in the face of the Cape Town convention, to which India is a signatory. The Cape Town pact promises certain safeguards to companies that are in the business of leasing aircraft.

Foreign aviation experts have been warning that the cost of being in the airline business in India has gone up. According to Captain David Ralph Savy, former CEO of Air Seychelles, the rentals payable to global aircraft lessors have gone up. He blames the Indian government for the situation. "It is a black mark on India's civil aviation sector, and Indian carriers are paying the price by having to pay steep rentals on aircraft leases."

Mark D. Martin, CEO of Dubai-based aviation consulting firm Martin Consulting, says there was an atmosphere of trust and respect between the leasing companies and India's private airlines, but that has changed. The carriers used to settle rentals in the following month, but now leasing companies are demanding rentals six months in advance. "This can lead to a major cash flow problem for airlines," he says.

Captain Savy says that in most parts of the world, an aircraft leasing company can retrieve its aircraft in instances where a lessee airline has defaulted on payments. But this has not been possible in India because the government comes in the way. The carriers, Martin adds, also have to pay an increased fee on the parts contracts and steep premium for various insurance covers.

 

The civil aviation ministry is believed to be of the view that instead of punishing third-party entities such as aircraft-leasing companies, AAI should insist on bank guarantees from airlines to use airports. The bank guarantees can be invoked in the case of a default instead of impounding planes and punishing the owners of the aircraft.