Kingfisher aircraft leasing dispute could impact all Indian airlines

Indian airports have claimed international law must take a back seat to local courts in a row with foreign aircraft leasing firms over the future of grounded Kingfisher Airlines jets, according to government minutes seen by Reuters.

The stance taken by Mumbai and Delhi airports could further complicate the leasing firms’ attempts to recover jets supplied to Kingfisher, as other creditors also try to recoup some of the $2.5 billion of debt left when the airline, set up by liquor baron Vijay Mallya, halted flights in October.

That in turn could affect leasing firms’ willingness to deal with Indian airlines in future, or at least make financing for local carriers more expensive, aviation analysts said.

Aircraft leasing firms like ILFC are at the heart of the $100 billion-a-year passenger jet industry. Their role has grown dramatically as cash-pinched airlines try to contain their capital spending, and experts say lessors now account for about 40 percent of the modern jetliner fleet.

An international treaty aimed at making it attractive for leasing firms to invest offers lessors similar rights to repossess unpaid jets as in the United States.

The treaty, the Cape Town Convention, is a key part of efforts to harmonize trade with developing countries that now dominate demand for Airbus or Boeing planes.

However, efforts by foreign lessors to repossess over a dozen Airbus jets parked at airports around India have been hampered by disputes over competing claims and confusion over the power of international agreements to trump local courts.

Both lessors and airports are owed money by Kingfisher, along with staff, tax authorities and other creditors. Lessors say the jets do not belong to Kingfisher and can’t be touched.

At the March 26 meeting attended by airport officials, as well as government and tax authorities, it was agreed that jets already de-registered by India must be released, according to minutes of the gathering held at the aviation ministry.

“The concerned airport operators shall release all the de-registered aircraft to the respective owners/lessors immediately so that these aircraft can fly out of the country,” the document said.

Despite this, lessors led by U.S.-based ILFC have so far said most of the jets leased to Kingfisher remain stranded.

The chairman of Airports Authority of India, V.P. Agrawal, sought to defuse the row by announcing after the meeting that India is bound by international convention to let the planes go.

However, representatives of Mumbai and Delhi airports argued inside the talks that Indian laws prevailed over international laws, which meant they could not ignore a “stay” or freeze order from the Delhi High Court, according to the minutes.

Officials at the airports could not be reached for comment.

Bertrand Grabowski, a member of the board of managing directors at Germany’s DVB, a leading transport lender, said it was not clear that the international treaty would be upheld.

“Some of us, including DVB, are still sceptical that the Cape Town Convention will completely change the situation in India because courts tend to read the law so that Indian law prevails,” he said. “We will need a few more months to evaluate carefully the situation.”

REGULATOR BACKING

Arun Mishra, India’s Director General of Civil Aviation pledged to help ensure that aircraft financing in India was not disrupted.

“The government of India is fully committed to protecting the interest of the lessors so that the leasing business is not hampered in India,” Mishra told Reuters.

Mishra said the regulator had recently de-registered 19 of Kingfisher’s red-liveried jets, once famed for lavish but costly onboard service, and a total of 53 since 2009.

According to the minutes, however, airports convinced regulators at the March 26 meeting to consult them before de-registering any further Kingfisher jets. Two applications to de-register planes are still pending, according to the document.

Asked about the move, Mishra said it would not introduce any new conditions for de-registering the planes.

“It is not a regular thing; just that we need to be aware of all the facts. There are court cases going on between the lessors and airport operators. But we are not a party to these, so we are unaware of the facts,” he told Reuters.

When Hungary’s Malev went bankrupt last year, much of its fleet turned up overnight in Ireland, a traditional hub for air finance, after lessors quickly snapped up their planes.

The aviation industry argues that access to competitive finance relies in part on making rapid repossessions possible.

(Editing by Ryan Woo and Mark Potter)