The Indian air transportation sector or civil aviation industry is one of the fastest-growing sectors and it has the third-largest air transportation sector domestically in the world. According to the IATA report that it has been predicted that India will surpass China and the United States to become the third air passenger market in the world by 2030. The civil aviation sector has become a significant industry over the years in India and it plays a major role in global tourism and supply chain functions. This sector gives rise to significant employment and provides a significant contribution to global economic growth. It has been highly competitive after the arrival of low-cost airlines such as IndiGo, SpiceJet, etc., and has shown a prospectus in the segment of the domestic market in the country.
Upon analysing the backdrop of the air transportation sector growth in India, we can easily find that until 2005 air transportation in India was very costly and was only affordable by the class of elite or rich people or business executives, etc. However, the advancement of economical and low priced airlines in India, such as IndiGo (2006), SpiceJet (2005) and Go Air (2005) brought about a huge change in air travel and made it affordable for the people belonging to the middle class in the country.
The massive impact of Covid 19 on the civil aviation industry
Many sectors and industries have been badly affected by Covid 19 and the aviation sector is not an exception to that. The less demand for air travel has resulted in huge losses and Insolvency of airline companies. When the Covid 19 started to spread across the country then pre-scheduled domestic flights, as well as international flights, had been cancelled from March 23 and March 25 respectively. Again, from May 25, the scheduled domestic flights were restarted to fly. We can easily assess the effect of such disruptions by seeing the figures of loss incurred by India’s two big airline companies like IndiGo which incurred losses of Rs. 2,884 crore and Rs. 1,194 crore in quarter 1 and quarter 2 respectively and SpiceJet incurred losses of Rs. 600 crores and Rs.112 crores in quarter 1 and quarter 2 respectively. Recently, India’s premium airline company Jet Airways became bankrupt due to the default in repaying lease amounts owned to several aircraft lessors. However, it is again going to fly from 2022 as its resolution plan has been accepted. As we know that giving high-value aviation assets viz., aircraft, helicopters, airbuses, etc., on lease to the airline companies, is a prevalent business practice in this air transportation sector and all existing airline companies have leased several aviation assets in their fleet. A seizable debt in the books of these companies is about such leasehold arrangements.
Under the Insolvency and BankruptCy code, 2016 (IBc)
The air transportation sector of India is also covered by Insolvency Laws. As per the Insolvency and Bankruptcy Code, 2016 which states that in the event where the borrower (the company) becomes unable to repay the loans taken by it, the lenders (creditors) of the company can prefer an application in the Adjudicating Authority (AA) which is the NCLT under the Code. An application can be preferred by the Financial Creditors under Section 7, or by the operational creditor under Section 9, or by the corporate Debtor i.e., the company itself under Section 10 of the Code respectively. Section 14 of the Code is an important provision that provides for the implementation of Moratorium once the said application against the Corporate Debtor is preferred by any one of the entities (or persons) as mentioned above in the NCLT and the same is admitted by the NCLT. The period of Moratorium starts from the date of admission of the application by the NCLT and it remains in force till the completion of the CIRP or the completion of 180 days (with a one-time extension of 90 days) whichever is earlier.
Moratorium Period under the IBC
No judicial proceedings for recovery, enforcement of security interest, sale or transfer of assets, or termination of essential contracts can be brought up against the Corporate Debtor during the moratorium period. It is relevant to note that if the NCLT does not receive a Resolution Plan within the CIRP period, it shall compulsorily order the liquidation of the Corporate Debtor in respect of whom the application under the Code was preferred.
The Cape Town Convention and the Protocol, 2001
The Convention on International Interests in Mobile Equipment which is also known as the Cape Town Convention (CTC) and the Protocol on International Interest in Mobile Equipment on Matters Specific to Aircraft Equipment (Aircraft Protocol) held in 2001 in South Africa are important treaties under the international aviation framework which protect and safeguard the interests of creditors or lessors at the time when debtor or lessee becomes unable to repay the debt amounts. Its primary aim is to resolve the concerns of obtaining certain and opposable rights to high-value air transportation assets, such as aircraft engines, airframes, helicopters, etc. which by their nature, do not have a fixed location.
On March 31, 2008, the government of India assented to the Convention and the Protocol which became operative from July 1, 2008, after waiting 3 months. It is important to note that the Indian law does not allow the direct application of conventions, treaties, or agreements, nor they cannot come in force automatically unless the Government of India gets it ratified in the Parliament and prepares separate legislation or statute under Article 253 of the Constitution of India for implementing such conventions, treaties or agreements in India and therefore, in case of any conflict between the provisions of Convention and the provisions of local law, the provisions of local law shall prevail.
Introduction of Cape Town Convention Bill in the Parliament
India was one of the signatories in the Cape Town Convention and the Protocol. On October 8, 2018, the Cape Town Convention Bill was introduced by the Ministry of Civil Aviation (MoCA) in the Indian Parliament to implement the Cape Town Protocol in India but it is still waiting to acquire the status of an Act.
The Protocol on International Interest in Mobile Equipment on Matters Specific to Aircraft Equipment (Aircraft Protocol)
As opposed to the provisions of Insolvency and Bankruptcy code 2016, the Cape Town Convention’s Protocol provides that in the event of default by the debtor, the insolvency administrator or the debtor (as applicable) shall have to give the possession of the aircraft to the creditor no later than two calendar months or on the date on which the creditor would be entitled to the possession of the aircraft, whichever is earlier which is one of the benefitting provisions of the Protocol and if the Bill gets enacted in form of an Act then it will surely strengthen the interests of the Creditors or lessors and along with that it will provide for an overriding effect of the Convention and Protocol in case of any conflict with any existing Indian laws such as the Insolvency and Bankruptcy Code, 2016, Companies Act, 2013, Specific Relief Act, 1963 and Civil Procedure Code, 1908, etc.
As the main issue which is faced by the Indian Aviation Industry is the huge amount of lease which needs to be repaid to the lessors. Section 14 of the IBC, 2016 provides that till the completion of the moratorium period the lessors of any property would not be able to recover such property from the possession or occupation of the Corporate Debtor during the CIRP. This becomes a roadblock for the lessors for preserving the value of the aircraft. Keeping the high-value aviation assets in the ground not only causes the depreciation in the value of the assets but also leads to massive expenditure in the maintenance of such assets. As we have seen in the case of Kingfisher Airline Company. It had become the first airline company which failed to repay debts under various leasing arrangements after CTC became operative in India as most aircraft used by the Kingfisher were out of the purview of CTC, the default and the consequent bankruptcy of the airline marked an important milestone in the development of CTC in India
On the other hand, if the Bill gets passed then it will provide for an overriding effect of the Convention and Protocol in case of any conflict with the provisions of any existing laws of India and separate legislation having an overriding effect was a pre-requisite to overcome such conflicts and also the financing to the aviation companies will become cheaper after bringing down the lease rentals as the implementation of the Bill would lead to greater confidence of international investors or lenders in the Indian aviation market.
Author(s) Name: Priyanka Gupta (Adamas University, Kolkata)
 ‘Indian Aviation Market’ (INDIA BRAND EQUITY FOUNDATION, 17 December 2021) <https://www.ibef.org/industry/indian-aviation.aspx> accessed 18 December 2021
 ‘Financial Distress in Indian Aviation Industry: Investigation Using Bankruptcy Prediction Models’ (ResearchGate, May 2020) <https://www.researchgate.net/publication/341768345_Financial_Distress_in_Indian_Aviation_Industry_Investigation_Using_Bankruptcy_Prediction_Models> accessed 19 December 2021
 ‘Covid 19 had massive impact on India Aviation sector in 2020’ (mint, 20 December 2021)
 ‘Jet Airways restart approved by the bankruptcy court’ (The Times of India, 22 June 2021)
 Neha Singh ‘India: 20 Years Of Cape Town Convention – Indian Perspective On Aviation’s Lynchpin Framework’ (mondaq, 7 October 2021) https://www.mondaq.com/india/aviation/1119112/20-years-of-cape-town-convention–indian-perspective-on-aviation39s-lynchpin-framework- accessed 23 December 2021