Repossession in Aviation Insolvency: A Comparative Legal Lens
One of the critical legal challenges arising from insolvency in the aviation sector is the recovery of high-value aircraft assets. It happens, however, that the answer is rather different in different jurisdictions. Although the internationalization process of the aircraft leasing sector has promoted the implementation of worldwide laws, like the Cape Town Convention (CTC), in many jurisdictions, domestic law is the factor that governs how fast and how sure repossessions can be made. The regimes of aircraft repossession in India are drastically different as compared to those in the United Kingdom and the United States. Whereas the UK incorporates the Cape Town Convention in the local statutes and the US has an excellent set of protection under the bankruptcy code and the Uniform Commercial Code, the framework in India, which operates under a moratorium provision, Section 14 of the Insolvency and Bankruptcy Code, 2016, allows it not to be advanced by the United States. Even though, in recent government notifications, one may observe the orientation of domestic law towards international obligations, there are still serious legal ambiguities. The difference the three jurisdictions take on this issue is compared in this blog, attending to the procedure clarity and enforceability of lessor rights under insolvency.
INDIA AND THE UNITED KINGDOM
The repossession of aircraft in the UK is regulated by a settled body of law which uses both the domestic laws and international treaties and conventions. The main legislations are the Civil Aviation Act 1982 and the Air Navigation Order 2009. Also, the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015 adapts the Cape Town Convention into the UK law by offering an organized system of repossession The UK repossessions of aircraft have relatively easy fees in accordance with the UK laws. Provided that the lessors act within the provisions of the lease agreement, they can dispossess the aircraft without having a court order. There will usually be default events in the lease, which are repossession rights. This is a low-cost and fast-track repossession self-help remedy, but its risks include worries of legal tussles should the repossession be contested. In case of failure of self-help measures or the case of dispute, lessors have the right to request a court order requiring repossession. Most of the cases involving aircraft financing and leasing are adjudicated by the Commercial Court of the Queen’s Bench Division. It is common to obtain a possession order within two months in the court, but faster procedures are available when the defendant fails to appear or defend. The UK provides two primary forms of aircraft deregistration: the Deregistration Power of Attorney (DPoA) and the Irrevocable Deregistration and Export Request Authorization (IDERA). DPoA enables the lessors to repossess aircraft on the basis of the contract terms, but it must be supplied to the CAA. The Cape Town Convention complies with IDER, Article A, which obliges the CAA to deregister the aircraft when such a form is lodged. The deregistration process also requires lessors to find an Export Certificate of Airworthiness (COA) that normally requires approximately 15 days working. It is an efficient process that can be seen in the Monarch Airlines administration of 2017, where it returned the leased planes to the lessors in less than a month.
The process of aircraft repossession in India is even more complex because of the dispute between insolvency laws of the country and the international conventions. The Aircraft Rules, 1937, as amended in 2015 and 2017, introduce some concepts put across by the Cape Town Convention, specifically in deregistering and exporting an aircraft. The Insolvency and Bankruptcy Code (IBC) 2016, however, provides a moratorium on repossession that mainly affects it. Section 14(1) of IBC introduces a moratorium at the very beginning of the insolvency proceedings and prohibits repossession of aircraft by lessors, so that it can only be repossessed after the insolvency resolution process. This moratorium may extend to 270 days, and it poses a conflict with the 60-day waiting period under the Cape Town Convention repossession. This mismatch sets high barriers to lessors who endure incredible delays and suffer economic losses. Due to these difficulties, the Indian government published Notification S.O. 4321(E) on October 3, 2023. The statement provides an exemption to the IBC moratorium in transactions involving aircraft under the Cape Town Convention in order to address the concerns of lessors. The efficiency of the notification has, however, been questioned, with questions being raised as to whether it is retroactive or prospective. Its retrospective application has been embraced in the High Court of Delhi, but the move has been viewed as a short-term band-aid aid than a long-term solution. The status quo in India, in which the IBC moratorium trumps the provisions of the Cape Town Convention, poses a great issue. The notification is a step in the right direction, but can not be seen as the solution to the problems. The Indian legislative and regulatory regimen should further harmonise with the Cape Town Convention to establish reference points on the clear and consistent policy on repossession and deregistration of aircraft.
III. INDIA AND THE UNITED STATES
Upon comparing the aircraft repossession frameworks of the United States and India, considerable variations appear as a result of their different legal structures and procedures.
The aircraft repossession in the United States is simplified by the developed and rather effective system of law. The Federal Aviation Act plays a key role in this structure because it monitors aviation activities and relations all over the nation. Additionally, the United States Bankruptcy Code, Chapter 11, holds clear statements of aircraft repossession. The section 1110 of the Bankruptcy code plays a critical role in this circumstance because it gives a lease and financer the right to repossess an aircraft in the case where its owner cannot overcome defaults within 60 days after his or her bankruptcy declaration is official. With this clause, a lessor can go around the automatic stay that may trigger during a bankruptcy case, thereby assuring him that he will be able to get his assets back quickly without giving much time to linger. Self-help remedies are also usable in the U.S. system, but it is regulated by the Uniform Commercial Code (UCC) in New York,k that also emerges as a favorite choice of law in aviation contracts. UCC 2A-525 (2) The lessor is allowed to repossess the aircraft after default, but in a peaceful and non-disturbing manner. Repossession is an expensive and lengthy process but this self-help remedy offers a cheaper and speedy access to repossession but it too has its share of dangers like the legal inconveniences that may follow should the repossession be disputed. The Federal Aviation Administration (FAA) simplifies registration and export of aircraft in the United States and the international treaty like the Cape Town Convention (CTC) supports.The Cape Town Convention (CTC) has an important mechanism used to grant the right to the lessor to deregister and export aircraft without difficulties, which is an IDERA (Irrevocable Deregistration and Export Request Authorisation). The FAA must act on the IDERA requests promptly and easily hand over the aircraft to leave the jurisdiction. IDERA process’s documentation and special procedures should be met according to the reconstruction of the processes, nevertheless it is largely a clear and safe way of giving back to the Easing up lessors their aircrafts and export them.
The Indian repossession of aircraft is more complex and full of challenges in comparison. The Insolvency and Bankruptcy Code (IBC) and Aircraft Rules of 1937 are a part of the Indian legal system. In the case of insolvency proceedings, the IBC places a stay on all actions for the progression of recovery of assets, such as repossession of assets. Such a moratorium is up to 270 days (accounting for extensions) during which lessors cannot repossess aircraft. This prolonged moratorium poses significant concerns to lessors and slows down repayment, and puts financial independence at risk. Even though India is a signatory to the Cape Town Convention, it has proved hard to implement it effectively. More recent changes, like the October 2023-issued Notification S.O. 4321(E), have the aim of relaxing those worries by exempting Cape Town Convention transactions from the IBC moratorium. This notification is meant to give lessors an easier repossession and export route. The efficacy of this measure has, however, been contested with arguments on whether it should be retrogressive or forward-looking. The repossession process is problematic in India as a result of the lack of a clear procedure, in addition to the fact that the IBC and the Cape Town Convention have been in a state of legal battle. Moreover, even though there are certain similarities between the Aircraft Rules in India and the Cape Town Convention, the procedure of their implementation remains discontinuous. The repossession can be complicated by the fact that deregistration and export are controlled by the DGCA (Directorate General of Civil Aviation), which is bureaucratic and slow, and also complicates the repossession.
India’s aircraft repossession regime remains entangled in procedural and statutory complexity, despite efforts to align with international norms. In contrast, the UK and US provide more coherent, creditor-friendly frameworks that prioritize asset recovery. For India to remain viable in global aviation leasing, substantive legal harmonization with the Cape Town Convention is imperative.
Author:– Shreyamsi Brahma, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing.
