India: An Aviation Overview

India’s Aviation Reset: Cape Town Compliance, Lessor Rights and the Rise of GIFT City

India’s aviation sector has long presented a paradox: India has one of the world’s fastest-growing markets for air travel, yet it is historically perceived as a high-risk jurisdiction for aircraft leasing and financing. This disconnect has been driven not by demand-side constraints, but by structural legal and enforcement challenges – most notably, delays in repossession and uncertainty arising from the interplay between the Cape Town Convention (CTC) and India’s insolvency framework.

Recent legislative and regulatory developments signal a decisive shift. With the enactment of the Protection of Interests in Aircraft Objects Act, 2025 (the “PIAO Act”) and parallel efforts to operationalise a leasing ecosystem within Gujarat International Finance Tec-City (“GIFT City”), India is seeking to recalibrate its position in the global aircraft leasing and financing landscape.

Structural challenges in India’s aviation leasing market

These reforms aim not only to align India more closely with international standards but also to address longstanding concerns of lessors and creditors.

Prior to the recent wave of reforms, India’s aviation financing framework was marked by a disconnect between its formal international commitments and domestic legal realities. While India acceded to the CTC and the Aircraft Protocol in 2008, the absence of a comprehensive enabling framework resulted in significant enforcement uncertainty for lessors and creditors. A key area of concern was the interplay between the Convention and the Insolvency and Bankruptcy Code, 2016 (IBC).

In practice, insolvency proceedings often imposed a moratorium that restricted the ability of lessors to repossess aircraft, notwithstanding remedies contemplated under the Convention. This tension was brought into sharp focus in high-profile airline insolvencies such as GoFirst, where delays in the deregistration and export of aircraft undermined creditor confidence and raised questions regarding India’s adherence to its international obligations under the CTC. In addition, the lack of statutory timelines for deregistration and export, coupled with the need for regulatory and, in certain cases, judicial intervention contributed to prolonged enforcement processes.

From legal uncertainty to commercial cost: the impact on lessors and airlines

The Directorate General of Civil Aviation (DGCA), while central to the deregistration process, operated within a framework that did not always provide clarity or speed in execution, particularly in contested scenarios.

From a commercial perspective, these structural inefficiencies translated into tangible costs. Lessors usually priced in enforcement risk through higher lease rentals, more stringent security structures and, in some cases, a reluctance to deploy newer or higher-value assets in the Indian market. Indian carriers in turn faced constraints in accessing competitive leasing terms, impacting fleet expansion strategies in an otherwise high-growth environment.

The PIAO Act 2025: aligning domestic law with the CTC

India’s recent legislative intervention marks a significant attempt to bridge the gap between its international commitments under the CTC and the realities of domestic enforcement procedure. The enactment of the PIAO Act, together with the notified rules thereunder, represents a dedicated effort to provide a coherent statutory framework governing aircraft-related interest.

At its core, the PIAO Act seeks to give primacy to the Convention and the Aircraft Protocol, and to give full effect to key remedies available to lessors and creditors thereunder. These include the recognition and enforceability of irrevocable deregistration and export request authorisations (IDERAs), as well as the ability to exercise remedies upon default without undue procedural impediments. By expressly incorporating these concepts into domestic law, the legislation reduces the ambiguity that previously characterised enforcement actions. A critical feature of the new framework is its treatment of insolvency scenarios. The PIAO Act clarifies that, in the event of inconsistency, its provisions, and by extension, Convention remedies will prevail over other domestic laws, including the IBC.

Taken together, the statutory and regulatory framework aims to reduce administrative discretion and introduce a degree of predictability in enforcement processes. That said, the effectiveness of these reforms will ultimately depend on their implementation in practice.

While the legislative framework introduced by the PIAO Act represents a clear shift towards creditor protection, the critical question for lessors and financiers is whether this translates into meaningful improvements in enforcement outcomes. In aviation finance, the value of reform lies not merely in statutory language, but in the speed, certainty and consistency of its implementation.

A key metric in this regard is the efficiency of deregistration and export processes following a default. Under the revised regime, the recognition of IDERAs and the introduction of defined timelines are intended to facilitate a more streamlined process, with reduced scope for debtor-led delays. The DGCA is central to this shift, particularly in ensuring that administrative actions align with the time-bound framework contemplated under the legislation.

However, practical challenges may persist. Enforcement scenarios often involve competing stakeholder interests, including those of insolvency professionals, operational creditors and airport authorities. The extent to which the statutory override in favour of Convention remedies will be upheld in such multiparty disputes remains to be tested. Judicial interpretation, especially in early cases under the new regime, will therefore play a decisive role in shaping market confidence.

Another area of focus is the extent of court involvement in enforcement actions. While the PIAO Act is designed to minimise procedural intervention, contested repossessions may still require recourse to judicial forums, potentially affecting timelines. The consistency of judicial outcomes across jurisdictions will be equally important in determining whether India can offer the predictability expected by global lessors.

Running parallel to its efforts to strengthen creditor protections, India has also taken deliberate steps to position itself as a competitive jurisdiction for aircraft leasing and financing through the development of GIFT City. Regulated by the International Financial Services Centres Authority (IFSCA), GIFT City is envisaged as a specialised financial ecosystem offering a combination of regulatory flexibility and fiscal incentives tailored to global market participants. From a structural perspective, GIFT City enables aircraft leasing transactions to be undertaken within an offshore-like environment, including the ability to denominate transactions in foreign currency and access a more liberalised regulatory regime. This is particularly relevant in the aviation context, where leasing structures are inherently cross-border and capital-intensive.

A key driver of interest in GIFT City has been its tax and regulatory incentives. These include exemptions or concessions in relation to goods and services tax on certain aircraft-related transactions, relief from withholding tax in specified scenarios and a broader effort to provide tax neutrality comparable to established leasing jurisdictions. In addition, the regulatory framework seeks to streamline approvals and reduce friction in structuring leasing arrangements. The ecosystem has seen a gradual but notable uptake, with several leasing entities and financial institutions establishing a presence within GIFT City. Early transactions have included operating leases and financing arrangements involving Indian carriers, signalling initial market acceptance of the platform.

The combined effect of enhanced creditor protections and the development of a domestic leasing ecosystem is expected to have tangible implications for Indian airlines and their access to capital. Historically, enforcement-related uncertainties have translated into higher risk premiums for Indian carriers, reflected in elevated lease rentals, tighter security packages and, in some cases, limited access to newer or more efficient aircraft. The reforms introduced through the PIAO Act, along with the development of GIFT City, could help change this position. Clearer rules on repossession and timelines may reduce the risk perceived by lessors, which in turn could improve access to lease financing and pricing for Indian airlines. Over time, this may allow airlines to secure better lease terms and explore a wider range of financing options.

In parallel, GIFT City offers airlines greater flexibility in how leasing transactions are structured. Using GIFT City entities may provide tax and structuring benefits, and reduce dependence on traditional offshore jurisdictions. This could be particularly useful for newer or fast-growing airlines looking for cost-effective ways to expand their fleets.

That said, any reduction in financing costs is likely to take time. Market participants will continue to watch how the new framework works in practice, and pricing will depend not just on the legal changes but on how they are applied in real situations. The benefits of these reforms are therefore expected to build gradually as confidence in the system grows.

Conclusion

India’s recent aviation reforms mark more than a technical alignment with international standards; they reflect a deliberate effort to reset how the jurisdiction is perceived by global lessors and financiers. By addressing long-standing gaps in enforcement and creating a parallel ecosystem in GIFT City, India has signalled its intent to move from a high-growth but high-risk market to one that offers both scale and increasing certainty.

The real test, however, lies in execution. The credibility of the new framework will be determined not by legislative intent alone, but by the speed, consistency and predictability with which rights are enforced in practice. Early enforcement outcomes, particularly in stressed scenarios, will play a decisive role in shaping market behaviour and pricing.

For now, India stands at an inflection point. The foundations of a more creditor-friendly and globally aligned regime are in place, but sustained confidence will depend on their consistent application. If this trajectory is maintained, India has the potential not only to reduce its risk premium, but to emerge as a credible and competitive jurisdiction in the global aviation finance and leasing landscape.