Reinforcing Aviation Finance in India: A Legal Analysis of the Protection of Interest in Aircraft Objects Bill, 2025

Introduction

The aviation industry in India has become one of the fastest-growing markets globally, fueled by increasing passenger traffic, policy reforms, and infrastructure development. However, the sector’s financial underpinnings—especially aircraft leasing—have long remained vulnerable due to a lack of legal clarity and enforcement mechanisms for repossession and asset protection.

While India became a signatory to the Cape Town Convention and its Aircraft Protocol in 2008, the absence of implementing legislation hindered its effectiveness. Lessors and financiers continued to face procedural hurdles and enforcement delays in repossessing aircraft upon lessee default, thereby inflating the cost of leasing in India. The Protection of Interest in Aircraft Objects Bill, 2025 seeks to address these long-standing legal and commercial concerns.

Legislative Background and Necessity

Aircraft leasing is a capital-intensive enterprise wherein lessors rely heavily on legal certainty and asset protection across jurisdictions. In India, despite ratifying the Cape Town Convention, courts and regulatory bodies often relied on existing domestic statutes—such as the Companies Act, Insolvency and Bankruptcy Code (IBC), and Civil Procedure Code (CPC)—which did not fully accommodate the Convention’s principles. As a result, lease defaults often led to protracted litigation, delayed repossession, and escalated costs.

India was also placed on the Cape Town Compliance Index with a low score, which negatively impacted the credit risk assessment of Indian carriers. Reports suggested that aircraft leasing costs in India were 8–10% higher than in other Cape Town-compliant jurisdictions.

Key Provisions of the Bill

The Protection of Interest in Aircraft Objects Bill, 2025 operationalizes the Cape Town Convention in Indian law, with the following notable features:

• Direct Enforcement of International Interests: The Bill provides for recognition and priority of international interests in aircraft objects in accordance with the CTC.
• Expedited Repossession: Lessors can enforce their rights to repossess aircraft without undergoing lengthy litigation, subject to limited defenses.
• Creation of National Aircraft Interest Registry: The Directorate General of Civil Aviation (DGCA) is designated as the registrar of interests, streamlining filings and transparency.
• Override Clause: In case of inconsistency, the provisions of this Act will prevail over other laws, ensuring supremacy of CTC obligations.
• Judicial Deference to Treaty Obligations: Indian courts are now required to interpret domestic aviation law in consonance with international instruments like the CTC.

Legal and Economic Impact

1. Legal Clarity and Certainty

   Prior to the enactment of the Protection of Interest in Aircraft Objects Bill, 2025, the enforcement of lessors’ rights in India remained uncertain, primarily due to fragmented statutory provisions and the absence of a dedicated legal mechanism to uphold international interests. Courts were often required to interpret conflicting domestic laws in conjunction with India’s obligations under the Cape Town Convention (CTC), resulting in inconsistent judicial outcomes.

   The new legislation resolves this ambiguity by statutorily incorporating the Convention and Aircraft Protocol into Indian law, thereby mandating judicial and administrative authorities to give full legal effect to international interests in aircraft objects. It also ensures that in the event of a conflict between the Act and other legislation, the provisions of the Act will prevail, thereby reinforcing the primacy of treaty-based obligations. This statutory backing greatly reduces judicial discretion in such matters, fostering predictability and legal uniformity—two factors crucial for the confidence of international financiers and lessors operating in India.

2. Reduced Leasing Costs

   One of the most tangible benefits of the legislation is the anticipated reduction in aircraft leasing costs for Indian operators. Historically, lessors viewed India as a high-risk jurisdiction due to procedural delays, non-compliance with the Cape Town Convention, and the difficulty in repossessing aircraft during disputes or insolvency. These risks were factored into leasing contracts in the form of higher premiums, security deposits, and restrictive terms, putting Indian airlines at a disadvantage compared to their global counterparts.

   By simplifying enforcement and ensuring speedy repossession procedures, the Act reduces credit risk for lessors. This is expected to lower the cost of capital and leasing rates, enabling Indian airlines to lease more aircraft at competitive rates. The resultant cost-efficiency could not only improve airline balance sheets but also potentially reduce ticket prices, indirectly benefiting the end consumer and contributing to aviation sector growth.

3. Boost to Investment and Fleet Expansion

   Aircraft financing is highly sensitive to legal and regulatory frameworks, particularly in emerging markets. With the formal legislative adoption of CTC principles, India now offers a more transparent and stable legal environment, conducive to attracting long-term investment in aviation infrastructure and fleet development.

   This legislative clarity is expected to:

   • Encourage foreign lessors and financiers to enter or expand their presence in the Indian market.
   • Facilitate access to global capital markets for Indian airlines seeking to expand or modernize their fleets.
   • Enable new entrants in the aviation sector to procure aircraft without facing excessive legal or financial barriers.

   Given India’s strategic ambitions to become an aviation hub in South Asia, this legislative reform can serve as a catalyst for fleet expansion, regional connectivity, and development of aircraft leasing hubs such as GIFT City (Gujarat International Finance Tec-City).

4. Compliance with International Standards

   Compliance with international aviation finance standards is crucial not only for investor confidence but also for maintaining India’s credibility in global forums such as the International Civil Aviation Organization (ICAO) and UNIDROIT, which co-sponsored the Cape Town Convention. Before this legislation, India had a low score on the Cape Town Compliance Index (CTCI), which signaled weak enforcement of international interests and deterred foreign investment.

   By aligning its domestic legal framework with the CTC and Aircraft Protocol, India demonstrates its commitment to:

   • Rule-based global aviation governance
   • Enhanced legal harmonization with other contracting states
   • Improved treaty compliance, thereby raising its CTCI rating

   This alignment is expected to significantly enhance India’s image as a credible, rule-abiding jurisdiction, capable of supporting sophisticated cross-border aviation finance arrangements.

Challenges and Considerations

1. Harmonization with Insolvency and Other Domestic Laws

   One of the critical challenges that may arise in the implementation of this Act is its interaction with the Insolvency and Bankruptcy Code (IBC), 2016. In cases of airline insolvency, moratorium provisions under Section 14 of the IBC may conflict with lessors’ rights under the Cape Town Convention.

   While the new Act aims to provide international interests with primacy, the judiciary will have to reconcile these competing frameworks, particularly in cases where aircraft repossession is sought during insolvency proceedings.

   Judicial pronouncements will thus play a key role in determining how conflicting statutory obligations are interpreted, especially when interests under the CTC intersect with public interest considerations under insolvency law.

2. Judicial Capacity and Training

   Another concern is the lack of technical familiarity among judicial officers and regulators with the principles of international aviation finance law. The Cape Town Convention involves complex legal concepts such as:

   • Asset-based financing
   • International registries
   • Priority of interests

   —all of which are relatively novel to Indian judicial institutions.

   To ensure consistent and informed adjudication, there is an urgent need for:

   • Capacity-building programs for judges, DGCA officials, and insolvency professionals
   • Specialized tribunals or designated benches for handling aviation finance matters
   • Institutional collaborations with international legal bodies to promote understanding of CTC jurisprudence

   Without these, the potential benefits of the Act may remain under-realized due to uneven enforcement and procedural bottlenecks.

3. Administrative and Registry Infrastructure

   The Act designates the Directorate General of Civil Aviation (DGCA) as the national authority responsible for maintaining the National Aircraft Interest Registry, which is intended to serve as the central repository for all registered international interests in aircraft objects within India.

   The efficacy of this registry is crucial to the successful implementation of the legislation, as it ensures:

   • Transparency
   • Priority of claims
   • Enforceability of rights under the Cape Town Convention framework

   For the registry to function effectively, it must:

   • Offer timely updates and real-time accessibility
   • Enable stakeholders to verify and record interests without delay or ambiguity
   • Achieve seamless digital integration with the International Registry under the Cape Town Convention

   Equally important is the need for:

   • Adequate staffing
   • Training
   • Oversight within the DGCA to manage the registry’s operations with accuracy and accountability

   Without the necessary technological infrastructure and administrative capacity, the registry risks becoming inefficient or unreliable—ultimately undermining the legal certainty and investor confidence that the legislation seeks to promote.

Conclusion
The Protection of Interest in Aircraft Objects Bill, 2025, is not merely a compliance instrument but a foundational legal reform that enhances India’s credibility as an aviation finance hub. By incorporating the Cape Town Convention into domestic law, India signals its commitment to global legal standards, investor protection, and aviation sector growth.

The Bill is poised to play a critical role in shaping India’s future as a preferred destination for aircraft leasing and finance. However, its long-term success will depend on coordinated efforts among lawmakers, regulators, judiciary, and the private sector to ensure seamless implementation and jurisprudential consistency.