India’s new Cape Town Convention act enforces global rules for aircraft financing, boosting investor confidence and lowering leasing costs. It streamlines repossession in insolvencies and aligns India’s aviation laws with international standards, encouraging growth and efficiency. The reform is set to attract foreign lessors and benefit passengers with better service and pricing.
In this article, Olivia Shaw, Elaina Bailes, Muizz Drabu and Sherina Petit from Stewarts, together with Aparna Ravi and Niti Dixit from S&R Associates in India, discuss the implications and expected benefits of the Protection of Interests in Aircraft Objects Act 2025 (“the CTC Act”), which gives legal effect from 1 May 2025 to the Convention on International Interests in Mobile Equipment (known as the “Cape Town Convention” and referred to here as the “CTC” or the “Convention”) and the Protocol to the Convention on Matters Specific to Aircraft Equipment (the “Protocol”), which were adopted on 16 December 2001 in Cape Town, South Africa.
The Convention entered into force on 1 April 2004 and is applied to different sectors through individual protocols, one of which is the Protocol, which entered into force on 1 March 2006.
What is the CTC and Protocol?
The CTC and Protocol provide a uniform set of rules guiding the creation, registration, protection, prioritisation and enforcement of certain rights in high-value, uniquely identifiable mobile equipment, such as aircraft, aircraft engines and helicopters.
It is intended to give parties involved in the financing, leasing and sale of aircraft objects greater confidence and predictability by providing an international legal framework for all contracting states. It establishes an international registry for the registration of international interests, which will give notice of their existence to third parties and enable the creditor to preserve its priority against subsequently registered interests and against unregistered interests and creditors in the event of a debtor’s insolvency.
The CTC and Protocol provide creditors with a range of basic default and insolvency-related remedies. Where there is evidence of default, they provide a means of obtaining quick relief pending final determination of their claim on the merits.
Their system of declarations allows a contracting state to make a number of choices at the time of ratification of the treaty. This is designed to address potential inconsistencies with a contracting state’s domestic legal system to ensure the broad availability of the CTC and Protocol’s benefits.
Ultimately, the main aim of the CTC and Protocol is to resolve the problem of obtaining certain and opposable rights to high-value aviation assets, which, by their nature, have no fixed location. This problem arises as legal systems have different approaches to securities, title retention agreements and lease agreements, which creates uncertainty for lending institutions regarding the effectiveness of their rights. This can impede the provision of financing for aviation assets and increase the borrowing cost.
What are the benefits of the CTC and Protocol?
The CTC and Protocol provide financiers with greater confidence to provide credit in countries where they were previously unwilling to do so. In countries that have ratified the CTC and Protocol, this results in a reduction in borrowing and, therefore, financing costs for the acquisition of aircraft equipment. By enhancing legal rights, increasing the availability of credit and lowering the cost of credit, it benefits both debtors and creditors.
Under the CTC and Protocol, companies in the aviation sector can acquire new equipment, which in turn increases operational efficiency and profitability by decreasing operating costs and risks. Aircraft manufacturers benefit from higher demand for their equipment, increased output and higher employment.
Investors benefit through higher returns and valuations of their investments in airlines and aircraft manufacturers, as well as enhanced security over their assets. Governments benefit through reduced debt levels in the form of sovereign guarantees or national debt used to finance aircraft acquisitions, and reduced risks in providing export credit for aircraft sales.
Benefits can also reach passengers through price reductions and improved service levels.
At present, the CTC has 88 contracting states, and the Protocol has 85. Early signatories included the USA, Ethiopia, Malaysia, Nigeria, Oman, Panama and Pakistan.
India and the CTC Act
The Protection of Interests in Aircraft Objects Act 2025 came into force in India on 1 May 2025, having been introduced in the Rajya Sabha (the upper house of the Indian Parliament) on 10 February 2025. It was passed in the Lok Sabha (the ‘house of the people’ or lower house of the Indian Parliament) on 3 April 2025.
The CTC Act implements the CTC and Protocol. It aims to align India’s aircraft leasing and financing ecosystem with international standards, marking a key step in building investor confidence in India’s fast-growing aviation market. Although India formally adopted the CTC and Protocol in 2008, their provisions were not (until the passage of the CTC Act) implemented under domestic law. As a consequence, domestic laws and regulations relating to the deregistration of aircraft and default remedies conflicted with the relief provisions of the CTC, leading to a loss of confidence among lessors and higher leasing costs (approximately 8 to 10% higher than those in other nations). These issues were evident during the insolvency of the low-cost Indian carrier, Go First, where international lessors were unable to repossess their aircraft for several months after the airline’s admission into insolvency owing to the moratorium under Indian insolvency law. This, in turn, led the global aviation watchdog, the Aviation Working Group, to downgrade India’s compliance rating for aircraft financing and leasing.
Through the CTC Act, the Indian government has resolved these ambiguities and ensured that the CTC and Protocol prevail, providing legal certainty to aircraft financiers and reducing costs for Indian airline carriers. This comes at a time when the number of airports, the number of aircraft and the total number of passengers flying annually in India are rapidly increasing.
Expected benefits of the CTC Act in India
The CTC Act is expected to make India a more attractive destination for foreign investors and aircraft lessors. With the CTC Act coming into force, all registered international interests in aircraft have priority over subsequently registered interests and unregistered interests, except for certain non-consensual rights that India has excluded through a declaration under the CTC and Protocol. The non-consensual rights that have priority over registered interests are liens in favour of airline employees for unpaid wages after the date of default declaration, the rights of a government authority in India for taxes or other unpaid dues and liens in favour of repairers of aircraft objects in their possession to the extent of services performed and value added.
On an airline’s insolvency, India has opted for “Alternative A” of Article XI of the Protocol with a two-month waiting period, which would enable an aircraft lessor or financier to gain possession of the aircraft if the default is not cured within two months of the insolvency event.
This is a far better outcome for lessors than having to wait for the corporate insolvency resolution process under Indian insolvency law to conclude, which could take up to two or three years. In addition to legal certainty and protecting creditors’ and lessors’ interests, these provisions protect aircraft assets from the inevitable and rapid deterioration in value that occurs if defaults are not resolved in a timely manner.
By aligning India’s aircraft financing and leasing regime with international standards, the CTC Act is expected to bring significant benefits, including easier access to aircrafts on lease, lower leasing and insurance costs for Indian carriers, the entry of more international lessors and lenders into the Indian aircraft leasing and financing markets and more protection with enhanced dispute resolution mechanisms. In the medium to long term, these benefits are likely to be passed on to consumers in the form of reduced costs and greater options for air travel.
Conclusion
The implementation of the CTC and Protocol into domestic law in India marks a significant development for the country’s booming aviation sector. The move aligns India with international best practices, which will improve its presence in the market and provide benefits for its economy.
It will attract investments, boost lenders’ and lessors’ confidence, help airlines grow their fleet, and give them more flexibility to meet passenger demand.
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