CAPE TOWN CONVENTION AND IDERAs

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Context: Government notification exempting transactions and agreements related to aircraft, aircraft engines, airframes, and helicopters from certain sections of the Insolvency and Bankruptcy Code (IBC).

Details

• The exemption from the IBC's moratorium on asset recovery provides much-needed relief to aircraft leasing firms. These firms had faced difficulties in repossessing their aircraft from airlines like Go First when the latter filed for insolvency. The inability to recover assets had adversely affected the reputation of India as an aviation market among global aircraft financiers and lessors.

Cape Town Convention and IDERAs

About

• The Cape Town Convention (CTC) and its associated protocols, including the Aircraft Protocol, play a crucial role in the international aviation industry by providing a legal framework for the financing and leasing of high-value mobile assets like aircraft.
• The Irrevocable De-Registration and Export Request Authorisation (IDERA) is a key feature of the Aircraft Protocol, designed to enhance the security and rights of creditors and lessors in the event of default or insolvency of the aircraft owner or operator.

Key points about the Cape Town Convention and IDERAs

• Purpose of CTC and Aircraft Protocol: The CTC and its protocols were established to create a standardized legal framework that promotes the financing and leasing of high-value mobile assets while safeguarding the interests of creditors and lessors.
  • The Aircraft Protocol, a part of the CTC, specifically deals with aircraft and helicopters that meet certain criteria in terms of size and capacity.
• IDERA: An IDERA is a critical tool provided by the Aircraft Protocol. It allows the owner of an aircraft to authorize a creditor or lessor to de-register and export the aircraft from the country where it is registered without needing the owner's consent. Importantly, an IDERA is irrevocable, meaning it cannot be cancelled or withdrawn by the owner once issued.
  • IDERAs provide greater security and certainty to creditors and lessors. They allow for the swift and efficient repossession and recovery of the aircraft in the event of default or insolvency, reducing the need for lengthy legal processes or interference from local authorities.

Challenges in India

• While India ratified the CTC and the Aircraft Protocol in 2008, the full implementation of these agreements has faced challenges, as mentioned in the text. These challenges include issues with the clarity and consistency of procedures for IDERAs, delays in obtaining necessary approvals, conflicts with local laws such as the Insolvency and Bankruptcy Code (IBC), and reluctance by some Indian courts to recognize and enforce IDERAs.

Impact on Aviation Financing

• These challenges have affected the confidence of creditors and lessors in the Indian aviation market. The case of Go First, mentioned in the text, illustrates the practical difficulties faced by creditors and lessors when attempting to enforce their IDERAs.

Way Forward

• To enhance its reputation as an attractive destination for aviation financing and leasing, India needs to address these challenges. This includes aligning its legal and regulatory framework more effectively with the CTC and its protocols and ensuring timely and effective enforcement of IDERAs. Achieving this would benefit the Indian aviation industry by improving access to capital, reducing costs, and facilitating fleet expansion.

Conclusion

• The Cape Town Convention and its associated Aircraft Protocol provide essential mechanisms, such as IDERAs, to facilitate international aviation financing and leasing. For India to fully benefit from these agreements, addressing the identified challenges is crucial to enhance the confidence of creditors and lessors in the Indian aviation market.

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INSOLVENCY AND BANKRUPTCY CODE:  https://www.iasgyan.in/daily-current-affairs/insolvency-and-bankruptcy-code-39#:~:text=The%20proceedings%20of%20the%20resolution,the%20final%20decision%20of%20creditors.

PRACTICE QUESTION Q. What are the key benefits and challenges associated with the implementation of the Cape Town Convention and its Aircraft Protocol, particularly in the context of aircraft financing and leasing in India?