Lessors move to seize Go First aircraft: How does the IDERA process work?

Timing is of the essence, as an admission of Go First’s plea under Section 10 of the Insolvency and Bankruptcy Code (IBC) would have led to an immediate and complete moratorium on recovery of assets leased to the debtor (Go First), making it extremely difficult for lessors to repossess their aircraft.

However, experts believe that since the order was reserved, lessors are well within their rights to seek deregistration and repossession of planes. This means that unless Go First is able to get legal relief that overrides international aviation conventions and protocols, IDERA’s in particular, it might lose over a third of its aircraft in a week’s time.

What is the purpose of IDERA, and how does it work?

Irrevocable Deregistration and Export Request Authorisation, or IDERA, empowers lessors to get their aircraft deregistered from the registry of the country where the lessee is based, repossess them, and fly them out, in cases like those of lease payment defaults.

The Convention on International Interests in Mobile Equipment, commonly known as the Cape Town Convention (CTC), and the related 2001 protocol on matters specific to aircraft equipment, are key elements of the global aviation structure that aim to protect lessors’ interests in case of defaults by the lessee.

As per the CTC, the lessor can seek deregistration and export of aircraft without consent of the airline using IDERA. The airline has no power to revoke the lessor’s IDERA rights without the latter’s consent.

Put simply, the objective is to simplify and improve the efficiency of aircraft leasing operations, while providing comfort to lessors that their assets (planes) would not get stuck for extended periods due to legal issues.

The quick deregistration process allows lessors to repossess planes and lease them to other operators, minimising the losses they would have to incur if their planes got stuck in litigation. This makes lessors ready and willing to lease out aircraft in countries that follow the CTC protocols in letter and spirit.

What has been the experience with IDERA in India?

Although India ratified the CTC back in 2008, its incorporation in India’s legal framework has been a work in progress. The last CTC-related amendments to India’s aviation rules took place in 2018, simplifying deregistration and export of aircraft through IDERAs.

However, experts see some provisions of the IBC pertaining to moratorium on assets in conflict with the CTC and IDERA provisions. This is the reason why lessors have vehemently opposed Go First’s NCLT plea, as its admission would put their aircraft under moratorium, placing significant legal hurdles for them in taking back their planes and leasing them to some other operator.

What is the procedure that the Indian aviation regulator follows when a lessor files to enforce an IDERA?

To begin with, the lessor (IDERA holder) or its representative must file an online application with the DGCA seeking to enforce an IDERA with regard to a specific aircraft. Usually, separate applications are filed for each aircraft that the lessor wants to repossess after deregistration.

The DGCA immediately posts on its website the application filed by the IDERA holder. The application includes requisite details including the operator’s (airline’s) name, Indian registration of the aircraft, and details of the lessor.

The date of the application is considered the date of declared default. The regulator also immediately notifies all airport operators in India about the IDERA filing.

The DGCA then moves to deregister the aircraft within five working days from the date of declared default, and informs airport operators about the date of deregistration.

Meanwhile, airport operators are required to compute outstanding dues of the aircraft for three months prior to the date of declared default. Earlier dues, if any, are not included in the calculation.

Airport operators then raise bills within the five-day window and send those to the lessor, with a copy marked to DGCA.

Other government entities, inter-governmental organisations, and private providers of public services in India can also raise bills in the five-day window, in case they have outstanding receivables related to the aircraft, and inform the regulator about it. The DGCA then intimates the lessor about any such pending payment.

A Goods and Services Tax (GST) certificate is also sought from the lessee to check for pending GST-related dues.

The lessor then proceeds to clear all such dues, and those collecting dues issue certificates of payment to it, and send an electronic copy to the DGCA. The lessor then submits all the payment certificates to the regulator, along with the request to export, or fly out, the aircraft from India.

After this, the DGCA issues all necessary permissions to export the aircraft.

At this stage, the lessor sends a copy of the DGCA’s permission to the operator of the airport where the plane is parked, along with the intended date to fly the plane out of India. The airport operator, within one working day, raises a bill for any dues for the period between the date of declared default and the date of the export of aircraft.

Once the lessor clears these dues, the aircraft is allowed to fly out with the DGCA’s permission.

What sort of precedents are there in India regarding IDERAs?

The bankruptcy of Jet Airways was the first big test pertaining to IDERAs for India. Most of the 100-plus planes in Jet’s fleet were on lease, and lessors were able to repossess their planes after deregistration in an efficient, regulated, and structured manner.

Except for a few aircraft for which deregistration and export was stuck due to court orders or other complex legal hurdles, the process was smooth and swift, something unprecedented in the context of India’s aviation sector.

Over the past couple of years, lessors have repossessed through the IDERA route a few aircraft that were being operated by no-frills carrier SpiceJet.