Go First Crisis: What is CTC? Why does India’s aviation sector need it? lecturer

What is Go First Crisis?

Go First is the latest airline in Indian aviation sector Due to which there has been chaos. The budget carrier has filed for bankruptcy – the second Indian airline to declare bankruptcy in four years. In 2019, Jet Airways filed for bankruptcy. Go First’s total debt to financial creditors was 65.21 billion as on 28 April. airline dues 2,600 crore (approx) to various aircraft lessors. Go First leases include SMBC Aviation, CDB Aviation’s GY Aviation Leasing, Jackson Square Aviation and BOC Aviation.

Go First is blaming its engine supplier Pratt & Whitney for the current crisis. Go First said that P&W supplied faulty engines that grounded their flights, resulting in direct losses to the carrier.

go first It also cited data to justify its claim. Grounded aircraft “due to Pratt and Whitney’s faulty engines” increased from 7% (in December 2019) to 50% (2022 December), cost 108 billion additional spending advertising in revenue.

Currently, the Wadia Group-backed airline has canceled flights till May 23.

What did Pratt & Whitney say about the Go First allegations?

P&W calls it a ‘case of trial’. “Pratt & Whitney is committed to the success of our airline customers, and we continue to prioritize delivery schedules for all customers,” the aerospace company said.

What does the government say about the Go First crisis?

Union Aviation Minister Jyotiraditya Scindia Said, “Critical supply chain issues with respect to their engines have affected GoFirst’s finances. The Center is assisting the airline by talking to various stakeholders.

Indian Airlines Vs Aircraft Lessors – An Old Controversy

Due to the increasing demand for air travel, Indian airlines are heavily dependent on overseas lessors to finance aircraft purchases. According to a report by Primus Partners, India has around 800 commercial aircraft of which 80% are on lease.

As the Indian court proceedings legally bar the lessors from reclaiming GoFirst’s aircraft, disputes between the lessors and the Indian airlines are likely to escalate.

According to experts, lessors may charge higher risk premium from other Indian airlines to protect themselves from future turbulence in any other Indian airline.

If the premium charged by the lessors increases, the business cost of the airlines will automatically increase. Air fares will also be higher due to this.

Aircraft lessors have already applied for cancellation of registration spicejet Aircraft that default on lease rentals.

Solution-Cape Town Convention

Aviation experts see the solution in the Cape Town Convention (CTC) Bill. It is a 2001 treaty designed to facilitate the development of aviation by protecting the rights of possession of aircraft. CTC The treaty eases the financing and leasing of aircraft, engines and spare parts by reducing lessors’ risk and expanding legal predictability in these transactions, including in case of bankruptcy.

India joined the CTC in 2018 but is yet to be ratified by the Parliament. As a result Indian law prohibits any such recovery after the commencement of bankruptcy proceedings for a company, lawyers and industry.

Having joined an international treaty known as the Cape Town Convention, India has made it easier for lessors to take back planes if airlines default on payments, a lawyer said. But the lack of proper legislation to implement the treaty means that India’s bankruptcy law will overrule lessees’ requests for possession.

The 11 lessors, backed by global banks, who had leased aircraft to the airline, will now move the appellate tribunal, challenging the bankruptcy order allowing them to regain their aircraft.

If GoFirst fails, it will follow other Indian carriers jet airwayswhich sank in 2019, and Kingfisher, which failed in 2012. The lessors of these airlines have also suffered losses in the past.

Why does India need the ratification of the Cape Town Convention Bill?

India is currently a signatory to the CTC, but needs legal protection due to conflicts between existing laws and the norms of the CTC.

In the interest of development of the aviation market, India should legalize the Convention provisions.

Inevitably, higher premiums by lessors will make it costlier for airline businesses and ultimately passengers will have to bear the brunt in the form of higher ticket prices.