In a significant development, the Aviation Working Group (AWG) has revised India's rating from "positive" to "negative." This downgrade follows the ongoing legal tussle involving Go First airline's inability to return leased aircraft, over seven months post its insolvency declaration.
The decision was announced on Thursday by AWG, a global consortium including airplane manufacturers like Boeing and Airbus and aircraft leasing companies. This move has raised concerns among Indian carriers, as aircraft leasing costs, a substantial part of their expenses, might see a hike due to the negative rating.
AWG keeps India under 'watchlist'
Furthermore, AWG has adjusted India's score on the CTC (Cape Town Convention) compliance index from 63.5 down to 50, keeping the country under its "watchlist." This index measures compliance with international standards for aircraft leasing and repossession.
The Wadias-owned Go First's financial woes came to a head on May 2 I'd this year, when it filed for insolvency. Aircraft lessors, who had attempted to terminate agreements prior to this filing, are now in legal battles to repossess their aircraft.
The situation escalated when India was initially placed on AWG's watchlist following a National Company Law Tribunal (NCLT) ruling preventing lessors from reclaiming planes from Go First. However, a temporary uplift in India's rating occurred in October after the Ministry of Corporate Affairs (MCA) exempted aircraft transactions from the Insolvency and Bankruptcy Code.
'Gaps in CTC primacy'
Despite this, the Directorate General of Civil Aviation's notification for retrospective application and ongoing High Court proceedings have led to AWG's recent downgrade. The group cited "gaps in CTC primacy" and "material non-compliance by India" as reasons for this change, highlighting substantial losses faced by lessors.
India, having signed the Cape Town Convention in 2008, committed to providing timely remedies for lessors in repossession cases. The MCA notification was a step toward honouring this treaty, which is intended to prioritise CTC over domestic insolvency laws. Yet, with Go First ceasing operations and the NCLT's moratorium, the lessors have been unable to reclaim over 40 of the airline's planes, leading to significant financial impacts and legal appeals.
This ongoing saga highlights the challenges in balancing international treaty obligations with domestic legal frameworks, and its implications on the Indian aviation industry's financial stability.