India is trying hard to become a prominent player in the global aircraft leasing market, with GIFT City's IFSC (Gujarat International Finance Tech-city-based International Financial Services Centre) is at the forefront of this ambition. The recent budget proposal and the introduction of the Protection of Interests in Aircraft Objects Bill signal a positive shift, but can India truly compete with established giants like Ireland?
Roughly 90% of Indian airlines lease their fleets, primarily from companies based in Ireland, Hong Kong, Dubai, and Singapore. This reliance on foreign lessors highlights the significant potential for a domestic leasing market. Recognizing this opportunity, the government is promoting GIFT City as a leasing hub, offering attractive incentives such as a 10-year tax holiday on lease rentals and streamlined aircraft import processes.
However, despite these incentives, GIFT City faces an uphill battle. Previous challenges, including legal hurdles and financing constraints, have hindered its growth. The collapses of Kingfisher Airlines, Jet Airways, and Go First Airlines serve as stark reminders of these difficulties.
Lessors faced protracted legal battles to reclaim their aircraft after Kingfisher's bankruptcy in 2012, resulting in substantial losses. For example, one Boeing 777 leased to Jet Airways, initially valued at $38.9 million, was sold for a mere $9 million in 2023 due to lengthy insolvency proceedings. Similarly, the recent Go First crisis and the subsequent court ruling allowing lessors to reclaim 54 aircraft have jeopardized the airline's valuation and raised concerns about the ease of repossession in India. Go First's total dues, including claims from lessors, were estimated at ₹11,463 crore (US$1.3 billion).
These cases highlight the importance of the new bill, which aims to provide greater clarity and confidence for lessors. It allows for faster repossession of aircraft within two months of an airline default and ensures efficient dispute resolution through the High Court. This has led to an upgrade in India's risk rating by the Aviation Working Group, potentially lowering leasing costs for Indian airlines.
However, even with these improvements, India still lags behind Ireland, which controls over 50% of the global aircraft leasing market. Ireland's extensive network of Double Taxation Agreements (DTAs) minimizes tax burdens for lessors, while India's tax laws, including the General Anti-Avoidance Rule (GAAR), and are more stringent. Furthermore, India's history of retrospective taxation has made foreign investors wary. A prime example is Volkswagen facing a $1.4 billion tax demand in 2025 after 12 years of scrutiny.
Another critical challenge is financing. European banks readily support leasing businesses in Ireland, while Indian banks remain hesitant to fund aviation-related activities due to past experiences with airline bankruptcies. This forces lessors in GIFT City to rely on overseas funding, increasing costs and making it less competitive.
Concluding it the new bill is a step in the right direction, India needs a multi-pronged approach to truly compete with established leasing hubs. This includes providing clear, long-term policy assurances, strengthening legal protections, establishing a dependable financing framework, and addressing concerns regarding taxation. Only then GIFT City can realise its full potential and take flight as a leading aircraft leasing hub.
