Draft Protection and Enforcement of Interests in Aircraft Objects Bill, 2022

Source: The Hindu

Why in the news?

The Ministry of Civil Aviation recently released the Draft Protection and Enforcement of Interests in Aircraft Objects Bill, 2022.

At a time when many smaller carriers have been rejected jets for rental, the new legislation will make it easier for international aircraft leasing corporations to confiscate and transfer planes out of India in the case of a financial disagreement with an Indian airline.

The Draft law is being studied more than 14 years after India ratified the Cape Town Convention.

What are the main points of the draft legislation?

The bill puts into effect the obligations of the Convention on International Interests in Mobile Equipment and the Protocol on Matters Specific to Aircraft Equipment, both of which were ratified in 2001 during a meeting in Cape Town.

The two treaties were signed by India in 2008.

Creditor default remedies are enabled, and a legal framework for disputes is established.

Various Indian laws, including the Companies Act of 2013 and the Insolvency and Bankruptcy Code of 2016, are in conflict with the Cape Town Convention and Protocol, necessitating the new legislation.

When Jet Airways went bankrupt in 2019 and failed to pay its aircraft leases, international leasing businesses experienced difficulties in repossessing and exporting planes.

In addition, Indian firms have suffered as international financial institutions want legislation to be implemented.

The proposed legislation includes remedies such as seizure of an aircraft object, sale or lease of the aircraft object, or collection of money from its usage, as well as de-registration and export of planes.

It also offers remedies until final adjudication of a claim and protects a creditor's claim against its Indian buyer during bankruptcy procedures.

What are the terms of the Cape Town Convention and Protocol?

Background: On November 16, 2001, the Convention on International Interests in Mobile Equipment and the Protocol on Matters Specific to Aircraft Equipment were signed in Cape Town.

The International Civil Aviation Organization (ICAO) and the International Institute for the Unification of Private Law collaborated to develop the Convention and Protocol (UNIDROIT).

ICAO is a United Nations (UN) specialised organisation that was founded in 1944 to provide the rules and procedures for peaceful worldwide air navigation. India is one of the members.

Objective: To tackle the challenge of gaining specific and opposing rights to high-value aviation assets, including as airframes, aircraft engines, and helicopters, which have no permanent location by nature.

This issue originates principally from the fact that different legal systems treat leasing agreements differently, creating ambiguity for lending institutions about the effectiveness of their rights.

This makes it difficult to finance such aircraft assets and raises the borrowing cost.

The following are the benefits of the Convention and the Protocol:

Predictability and enforceability The Convention and Protocol promote predictability in terms of the securities' opposability and the interest held by sellers of aviation assets.

Cost savings: The Convention and Protocol are designed to minimise risks for creditors and, as a result, debtors' borrowing costs through enhanced legal certainty.

This encourages the provision of loans for the purchase of more contemporary, and hence more fuel-efficient, aircraft.

Airlines from countries that have ratified the Convention and Protocol may be eligible for a ten percent (10%) discount on export credit premiums.

What exactly is UNIDROIT?

The International Institute for the Unification of Private Law (UNIDROIT) is a non-profit intergovernmental organisation based in Rome's Villa Aldobrandini.

Its goal is to research the needs and techniques for modernising, harmonising, and coordinating private law, particularly commercial law, between states and groupings of states, and to develop standard legal instruments, principles, and norms to achieve those goals.

It was founded as part of the League of Nations in 1926.

Following the fall of the League, it was recreated in 1940 under a multilateral agreement known as the UNIDROIT Statute.

It now has 63-member countries and India as a partner.