By Rupin Chopra and Shantam Sharma
Introduction
As one of the world’s fastest growing aviation market, India’s air travel sector has experienced exponential growth with estimated market size of USD 13.89 billion in 2024, which is expected to reach USD 26.08 billion by 2030, growing at a CAGR of 11.08%. Amidst this incredible growth, aircraft leasing has emerged as an important aspect of the aviation industry, facilitating global air travel by providing airlines and other operators with easy access to aircraft without burdensome upfront costs of ownership. It is a practice in which the airlines and aviation operator rent aircraft from leasing companies rather than purchasing them.
It offers Indian airlines a strategic opportunity for operation expansion and modernization and enabling them to meet the ever evolving demands of passengers while navigating through the complexities of the aviation sector. This article delves into types of aircraft leasing, benefits of aircraft leasing, Indian laws regulating aircraft leasing and procedure for aircraft leasing
Types of Aircraft Leasing
Aircraft leasing involves a wide range of agreements which are designed to meet the varied requirements of the airlines and aviation entities. The following are the types of aircraft leasing:
- Dry Lease: It is a lease arrangement whereby a lessor provides an aircraft without crew to the lessee.[1]
- Wet Lease: A lease arrangement whereby a lessor provides an aircraft with entire crew to the lessee for a specified period or defined number of flights. It does not include a code sharing arrangement.[2]
- Damp Lease: A lease arrangement whereby a lessor provides an aircraft with partial crew to the lessee.[3]
Benefits of Aircraft Leasing
Aircraft leasing has emerged as a strategic solution for customers, offering a multitude of benefits that cater to the dynamic needs of the aviation industry such as:
- Cost Effective: It allows the customer to divide the payment of aircraft and still operate fully.
- Time Efficient: Aircraft leasing gives customers the option to receive the aircraft within a few months or weeks, in urgent cases.
- Operational Flexibility: It allows customers to control their operations through short terms leases, based on demand
- Holistic Package: Certain aircraft leasing agreements often include maintenance and support services which are provided by the lessor. It relives the customer from managing maintenance tasks, arranging repairs, scheduling inspections etc. thereby allowing the customers to focus on enjoying the benefits of the aircraft ownership.
Laws regulating Aircraft Leasing in India
India does not have any specific law dealing with aircraft leasing and financing of airplanes. Presently, are the Aircraft Act, 1934[4] and the Aircraft Rules, 1937[5], coupled with leasing and financing regulations for contracts and foreign exchange, respectively.
Since leasing planes can involve different countries – like one where the plane is registered and India where it is used – it can result in operational ambiguity. So, to manage this, the Director General of Civil Aviation (DGCA) released the Aircraft Leasing Manual[6] (hereinafter referred to as “Manual”) in the year 2013, which was last amended in 2017. The manual set out the rules and guidelines to ensure that every party to the lease (i.e.) the plane provider, the operator and the regulator meet their responsibilities and keep flying the aircraft safely. As per the manual following are the steps for aircraft leasing:
- Chapter 7 (Leasing Procedure) of the DGCA Aircraft Leasing Manual[7] imposes an obligation on all the parties involved in the lease agreement to submit a written application for approval. The application should include a detailed description of the parties responsible for operational control and airworthiness of the aircraft. However, the DGCA, may request for additional documents to assess the airworthiness and operational issues of the aircraft.
- After receiving the application under the Chapter 7 (Leasing Procedure), the DGCA may convene a meeting with the Indian operator to finalize the operational details of the leased aircraft, which may involve representatives from the foreign operator and regulatory authority. The decision to proceed with an agreement under Article 83 bis[8] (Transfer of certain functions and duties) of the Chicago Convention, is made by DGCA considering the provisions in Chapter 7. The lessor must agree to comply with all relevant Civil Aviation Regulations in the lease agreement.
- After the DGCA approval, the Indian operator can formalize the lease agreement with the lessor, including the State of Registry[9] (The State on whose register the aircraft is entered), State of Operator[10] (The State where the principal place of business of the operator is located, or if no such business exists, the permanent residence of the operator) and DGCA. A copy of this agreement is to be submitted to DGCA within 7 days of the permission being issued by the DGCA.
- The applicant is required to submit three completed Aircraft Leasing Forms and a copy of the lease agreement to the DGCA at least 45 days before the proposed start of operations.
Conclusion
In conclusion, aircraft leasing in India presents a promising opportunity for both the domestic and international stakeholders. With the growing aviation industry and supportive regulatory environment, India has the potential to become a key player in global aircraft leasing market. As India continues to emerge as a hub for aviation leasing, stakeholders can expect to witness increased collaborations, investment and innovation, driving the industry to new heights of success and competitiveness on the global stage.
Ritvik Kashyap, Intern at S.S. Rana & Co. has assisted in the research of this Article.
[1] Rule 3.4 of CIVIL AVIATION REQUIREMENT SECTION 3 – AIR TRANSPORT SERIES ‘C’ PART I ISSUE IV: https://www.dgca.gov.in/digigov-portal/?page=jsp/dgca/InventoryList/RegulationGuidance/ManualsProcedures/cap3200.pdf&mainnull
[2] Rule 3.5 of CIVIL AVIATION REQUIREMENT SECTION 3 – AIR TRANSPORT SERIES ‘C’ PART I ISSUE IV: https://www.dgca.gov.in/digigov-portal/?page=jsp/dgca/InventoryList/RegulationGuidance/ManualsProcedures/cap3200.pdf&mainnull
[3] Rule 3.6 of CIVIL AVIATION REQUIREMENT SECTION 3 – AIR TRANSPORT SERIES ‘C’ PART I ISSUE IV: https://www.dgca.gov.in/digigov-portal/?page=jsp/dgca/InventoryList/RegulationGuidance/ManualsProcedures/cap3200.pdf&mainnull
[4] Available at: https://www.indiacode.nic.in/bitstream/123456789/2400/1/AAA1934____22.pdf
[5] Available at: https://upload.indiacode.nic.in/showfile?actid=AC_CEN_36_0_00013_193422_1523351174422&type=rule&filename=Aircraft%20Rules%201937.pdf
[6] Available at: https://www.dgca.gov.in/digigov-portal/?page=jsp/dgca/InventoryList/RegulationGuidance/ManualsProcedures/cap3200.pdf&mainnull
[7] Chapter 7 (Leasing Procedure): https://www.dgca.gov.in/digigov-portal/?page=jsp/dgca/InventoryList/RegulationGuidance/ManualsProcedures/cap3200.pdf&mainnull
[8] Article 83 bis of Chicago Convention (Transfer of certain functions and duties):https://www.icao.int/publications/Documents/7300_cons.pdf
[9] Rule 2.7 of CIVIL AVIATION REQUIREMENT SECTION 3 – AIR TRANSPORT SERIES ‘C’ PART I ISSUE IV: https://www.dgca.gov.in/digigov-portal/?page=jsp/dgca/InventoryList/RegulationGuidance/ManualsProcedures/cap3200.pdf&mainnull
[10] Rule 2.8 of CIVIL AVIATION REQUIREMENT SECTION 3 – AIR TRANSPORT SERIES ‘C’ PART I ISSUE IV: https://www.dgca.gov.in/digigov-portal/?page=jsp/dgca/InventoryList/RegulationGuidance/ManualsProcedures/cap3200.pdf&mainnull