India climbs the CTC ladder, but still  a long way to go – Lessors, stay tuned…

Indian aviation sector has recently crossed one more milestone in its journey towards compliance with the Cape Town Convention (‘CTC’).

The Aviation Working Group (‘AWG’) has increased India’s variable score from 50 to 61 and has elevated India from Low Compliance category to Medium Compliance category. India has now been placed in ‘Medium Probability Level’ with respect to compliance with the CTC (and applicable declarations’). Further, India has been removed from the CTC compliance index watchlist.

The aforesaid has been done by way of AWG’s Score Adjustment Notice dated November 25, 2024. The AWG has primarily relied on the following factors:

• The Notification dated October 3, 2023 issued by the Ministry of Corporate Affairs [by way of which aircraft and engine leases were taken out of purview of moratorium under the Insolvency and Bankruptcy Code, 2016].
• The Delhi High Court order dated April 26, 2024 in the Go First insolvency case [directing deregistration of aircraft within the specified period, thus upholding the primacy of the CTC].

The practical actions that have been recommended to further increase the score are:

• Enacting a specific legislation giving CTC primacy over any conflicting national law.
• Establishing CTC compliant practices by civil aviation authority and other concerned government agencies.

This positive shift is a result of the ongoing efforts to enhance the legal framework governing aircraft leasing and financing, which is vital for attracting foreign investment and boosting the overall growth of the aviation industry. As India navigates the complexities of global aviation standards, this improvement not only signals a commitment to international norms but also promises a more robust environment for lessors and airlines alike.

While these reforms are promising, India still lacks full eligibility for the OECD discount, which requires comprehensive alignment of its laws and practices with the CTC. To further improve its score, India must (i) enact a specific legislation prioritizing the CTC over conflicting national laws, (ii) ensure that the civil aviation authority implements CTC-compliant practices, and (iii) foster judicial consistency to increase the predictive value of court decisions.