Analysing the law on Airline Insolvency in India


Aviation sector is one of the most capital-intensive sectors where the costs are more due to high taxation, aviation turbine fuel charges, and airport charges. Due to the current Covid-19 pandemic, the aviation industry is among the worst affected industries and it is estimated that it would lead to a loss of contribution up to $3.2 billion in our GDP from the aviation sector when its total contribution itself amounts to $72 billion. As a result, some major airlines in India are struggling to survive. Thus, especially at these times, it is important for exercising special care on the laws governing airline insolvencies and the shortcomings associated with it so that the rights of stakeholders are not adversely affected. Note that previous two major airline insolvencies in India (Kingfisher and Jet) caused huge losses to stakeholders such as creditors, employees’ salary dues, etc. In this post, the aim is to provide an overview of the laws related to airline insolvencies, while analyzing the current Indian position and the shortcomings associated with it.

Complications in the Aviation Sector

There are a lot of complexities involved when it comes to Airline insolvencies when compared to other sectors. There are a number of factors contributing to this.

Firstly, aviation sector is highly capital-intensive. Thus, there has to be a lot of care taken while conducting the Airline insolvencies because keeping the airline fleet grounded for long during insolvency proceedings would lead to huge losses and deprecation to the value of assets which eventually would affect the creditors.

Second factor that contributes to the complexities of airline insolvencies is the passenger interests. When an airline company collapses, passengers have to be protected from losses. These losses can generally be categorized into two types, (i) financial loss accruing from payment of ticket costs and (ii) welfare loss from being stranded abroad. When the Monarch airline, the UK’s fifth biggest airline, had collapsed, the Government of UK’s Civil Aviation Authority had to personally undertake £60 million operation to repatriate citizens stranded abroad at the cost of taxpayers’ money.

Third factor which differentiates airline insolvency from most other sectors is the international mobility of the capital assets. At the time of default, the aircraft and the allied equipment might be in jurisdictions where creditor’s rights cannot be enforced.

The Indian Law

The insolvency resolution proceedings for airlines is same as that for other entities under Insolvency and Bankruptcy Code, 2016 (IBC), and involves four stages namely initiation of the Corporate Insolvency Resolution Process (CIRP), moratorium and appointment of an IRP (interim resolution professional), constitution of the committee of creditors (CoC) and passing the control to IRP and CoC, and approval of the resolution plan that CoC reaches by the adjudicating authority. However, as discussed in the subsequent sections, resolution under IBC has certain shortcomings associated with it when it comes to airline insolvencies.

In this regard, the Cape Town Convention, 2001 (i.e. the Convention on International Interests in Mobile Equipment) and the Protocol on Matters Specific to Aircraft Equipment are essential tools under the international aviation framework for easing aircraft finance and leasing. It also provides provisions related to insolvency of airlines. India is a signatory to this convention and protocol, and the Civil Aviation Ministry has introduced the Cape Town Convention Bill, 2018 in pursuance to discharging the treaty obligations and avail the benefits post accession to the treaty. However, the bill is yet to be enacted by the Parliament.

India has declared to adopt Article XI, Alternative A of the Protocol as per the Ministry of Civil Aviation’s notification in 2018. Article XI of the Protocol deals with “Remedies on Insolvency” and according to Alternative A to Article XI, the debtor must return possession of the relevant aircraft object to the creditor holding an international interest in it after the expiration of stipulated waiting period of 60 days if the defaults remain unsettled.

Shortcomings of IBC for Airline Insolvencies

The IBC has reformed the insolvency resolution process by putting the creditors and their interests on pedestal and sped up the process of CIRP in India. However, when it comes to specific sectors such as aviation sector, the IBC has shortcomings in dealing with insolvency processes which were demonstrated during the insolvency of Jet Airways in 2019.

  1. As discussed previously, Airline assets are capital-intensive and grounding them for long causes financial losses as well as results in massive maintenance expenditure and depreciation of asset value. In this respect, insolvency proceedings under IBC pose difficulties as time limit for CIRP is 180 days (extendable by 90 days) during which a moratorium is imposed as per section 14(d) of the IBC. This moratorium casts shadow over the leased aviation assets as aircraft owners, lessors and other creditors are barred from enforcing its security or repossessing their security during this period. Though the code provides for the interim resolution professional to take every step “to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern” as per section 20 of the act, it can be observed that doing so has proved extremely difficult in case of Jet airways, where all the flights of the airline were grounded for more than a year due to the lack of funds.

In this regard, the two calendar month waiting period stipulated by the Cape Town convention and Protocol after which the security holder can repossess the asset seems more effective due to the reduction of time period as the creditors, at least those with interests on the capital assets (such as lessees) would incur reduced losses on the capital assets.

  1. Due to the huge values of capital assets, most of the aircrafts operating under the airlines are acquired through capital/financial leasing. Capital/financial leasing is when airline companies enter into complicated financing arrangements with financial institutions, aircraft manufacturers or a special purpose company to lease the aircraft assets. Often, in such arrangements, on the failure to pay the dues on the leased products, the lessor would claim the repossession of the aircraft. Article XI of the CTC mainly provides for such arrangements. However, under IBC such repossession of aircraft becomes an issue and the lessors would find themselves at a loss due to the 180-day waiting period under IBC.
  2. Cross border insolvency resolution proves to be another obstacle when it comes to airline insolvencies in India. As aforementioned, most aircrafts operating are obtained through financial leases. These leases many a times are not restricted within the country, but take place through cross border agreements. At present, Section 234 and 235 of the IBC assist in dealing with cross-border insolvency disputes. Although these sections in the code were included to facilitate resolution of cross border insolvencies, it has been observed till now that no major steps had been taken to effectively implement the inter-governmental agreements.

In Jet Airways v. SBI (Jet airways insolvency case), the Dutch administrator was allowed to be a part of the Jet Airways’ Committee of Creditor meetings by the NCLAT, and parallel insolvency proceedings were allowed to happen both in India and Netherlands. The National Company Law Appellate Tribunal had directed the IRP to cooperate with the Dutch creditors and Committee of Creditors and also had permitted a Cross Border Insolvency Protocol when the parties were able to reach an agreement. Though this case proves to be a model case when it comes to cross border insolvency resolutions, there are still many unanswered questions like what would happen in case that the Committee of Creditors doesn’t reach an agreement with the foreign creditors, etc. The uncertainties and delays in the resolution process due to lack of proper provisions laid down for cross border interests have an adverse effect on the creditors’ interests. The main reason why the Cape Town Convention and Protocol were brought in effect in 2001 was taking in this cognizance of this fact that the existing regimes of various governments were inadequate to support secured asset-based financing which further brings in global participants. Thus, the central government by bringing in this bill into effect would be able to resolve this issue.


The recent lockdown and restrictions due to the COVID-19 had adverse effects on various sectors many of which stand at the brink of bankruptcy. The pandemic’s effects on airlines especially were huge due to the travel restrictions imposed in various countries, as well as the reduced passenger traffic. Nearly 23 major airline companies have already gone insolvent as a result and uncertainty looms over many more companies’ finances. In such a situation, it is important to go over the current insolvency laws in this sector and the problems associated with it. Airline industry in India is especially volatile due to the high costs required for procuring fuels, etc. As discussed above, applying IBC in aircraft insolvency resolutions has a lot of problems associated with it. In such a scenario, it is important for India to either revamp IBC taking examples from other jurisdictions where it is successful such as the UK which is attempting to reform its aviation insolvency law post the Monarch debacle and the recent Thomas Cook insolvency. As discussed implementing the Cape Town Convention and Protocol would also solve many of the shortcomings associated with IBC.

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(This post has been authored by Roopam Dadhich and Rutwik Rao. Roopam and Rutwik are 4th year law students at NALSAR Institute of Law, Hyderabad.)

Cite As: Roopam Dadhich and Rutwik Rao, ‘Analyzing the Law on Airline Insolvency in India’ (The Contemporary Law Forum, 13 March 2021) <> date of access

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