The aviation sector anticipates fiscal policies supportive of aircraft leasing industry

The aviation sector anticipates fiscal policies supportive of aircraft leasing industry

In December 2023, when the global leasing watchdog Aviation Working Group (AWG) downgraded India from positive to negative, it shocked many Indian air carriers. The primary reason for the negative ranking was the delay faced by foreign lessors in repossessing aircrafts. The downgrade is anticipated to raise the cost of leasing plans for India’s commercial airlines.

In India, with its anticipated increase in demand for aviation service providers, developments related to aircraft leasing hold significant importance. As emphasized by PricewaterhouseCoopers in its report, ‘Aircraft Leasing in India: Ready to Take Off,’ approximately 80 percent of the total commercial fleet in India is leased, compared to 53 percent globally.

“Despite leading airlines in India placing substantial orders for new airplanes, the delivery of orders is a gradual process, and the surge in air travel in India will definitely prompt more airlines to engage in leasing to expand their operational fleet. This increase in leasing activities calls for some key fiscal incentives from policymakers,” says Jaideep Mirchandani, group chairman of aviation major Sky One, ahead of the announcement of the financial budget for the years 2024-25.

Regarding the anticipated measures, Mirchandani highlighted one of the key aspects—the necessity to explore the introduction of tax incentives, including reduced corporate taxes or tax credits for both lessors and lessee airlines. “There is a need to streamline regulatory processes, making it easier for lessors to operate in the Indian market. One area for improvement is the taxes on jet fuel – it is the single biggest cost, often more than half the expenses for some Indian low-cost carriers. High fuel costs and depreciation of the Indian rupee will always have a huge impact on the sector and the policies should address that,” he added.

Recently, the Government has exempted leased aircraft and engines from the moratorium under the provisions of the Insolvency and Bankruptcy Code (IBC). However, since the matter is sub-judice, lessors will have to wait for appropriate directions from the Court before proceeding further. “Such situations also highlight the need for bridging the impediments in aircraft recovery and repossession procedures. The removal of discrepancies between global and local legalities is sure to make it easier for the market to operate and grow,” says Mirchandani.

He also pointed out the critical importance of the effective implementation of the Cape Town Convention (CTC) in the present situation. The CTC provides a framework for addressing airline defaults and insolvencies, enabling lessors to recover airplanes within 60 days in insolvency cases. There is a collective call from various leasing companies for India to legalize and enforce CTC provisions in alignment with the country’s declaration at CTC.

“India, with its rapidly expanding aviation sector, is emerging as a key global aircraft leasing hub. To further attract international lessors to the country, there is a need for favourable fiscal policies, exploring standardized procedures for lease agreements to enhance transparency and efficiency for both lessors and lessees,” he added.