Aircraft Leasing in India After the PIAO Act: What the New Framework Means for Lessors, Financiers and Airlines

Introduction

India’s aviation sector has historically depended heavily on leased aircraft. For airlines, leasing provides access to aircraft without the substantial upfront capital required for outright acquisition. For lessors and financiers, however, the attractiveness of an aircraft transaction depends on a fundamental question: how effectively can their interests be protected and enforced if the airline defaults? That question has assumed greater significance following the enactment of the Protection of Interests in Aircraft Objects Act, 2025 (“PIAO Act”) and the subsequent notification of the Protection of Interests in Aircraft Objects Rules, 2026 (“PIAO Rules”).

The PIAO Act came into force on 1 May 2025 and provides the domestic statutory framework for implementing India’s obligations under the Convention on International Interests in Mobile Equipment (“Cape Town Convention”) and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (“Aircraft Protocol”). The PIAO Rules, notified on 30 January 2026, provide the procedural and administrative framework necessary to operationalise several aspects of the Act.

For aircraft lessors, financiers and Indian airlines, the significance of this development extends beyond insolvency. The new framework affects the structuring, documentation, registration, enforcement and risk assessment of aircraft financing and leasing transactions.

Why Legal Certainty Matters in Aircraft Leasing

Aircraft are highly mobile and capital-intensive assets. An aircraft may be owned by an international lessor, financed by lenders in another jurisdiction, leased to an Indian airline and registered or operated in India. This multi-jurisdictional structure creates a fundamental legal challenge. If an airline defaults, the creditor needs to know:

• whether its interest is legally recognised;
• whether that interest has priority over competing interests;
• how the interest is registered;
• whether the aircraft can be deregistered and exported;
• what remedies are available following default; and
• how quickly those remedies can be exercised.

The commercial value of the legal framework therefore lies not merely in recognising a creditor’s rights, but in making those rights predictable across jurisdictions. The Cape Town Convention was developed against precisely this background: to create an international system for recognising and protecting interests in high-value mobile equipment. The PIAO Act now provides the principal Indian statutory framework for aircraft objects within that system.

From Contractual Protection to Registered International Interests

An important feature of the Cape Town framework is the concept of an international interest. The Convention establishes an international registration system through which qualifying interests in aircraft objects can be registered. The objective is to provide creditors with a recognised and searchable priority position. This has practical consequences for aircraft finance transactions.

A lender or lessor should not view the lease agreement or financing documents in isolation. The transaction must also be structured with the applicable registration and priority framework in mind. The PIAO Act expressly incorporates the Convention and Protocol into the Indian legal framework. Its long title states that the legislation is intended to protect interests in aircraft objects and implement India’s obligations under the Cape Town Convention and Aircraft Protocol. The result is a shift towards a system in which registration and internationally recognised interests become central components of aircraft finance risk management.

What Is an Aircraft Object?

The PIAO framework applies to specified aircraft objects covered by the Cape Town Convention and Aircraft Protocol. These include airframes, aircraft engines, and helicopters, subject to the definitions and applicable requirements under the Convention and Protocol. This matters because aircraft transactions frequently involve several layers of financing.

An aircraft may be subject to one interest while an engine installed on that aircraft may be separately financed or owned. The legal analysis therefore cannot always stop at the aircraft registration certificate. Each relevant aircraft object and the interests created over it may need to be separately examined.

The Importance of Registration

Registration is one of the central features of the Cape Town system. The international registry enables qualifying interests to be recorded and searched by parties assessing an aircraft transaction. For financiers and lessors, this provides an important mechanism for establishing priority and giving notice of their interests to third parties.

For airlines, the registration framework creates a corresponding transaction-management obligation. Before acquiring or leasing an aircraft, an airline should undertake appropriate searches and ensure that interests intended to be created in favour of the lessor or financier are correctly documented and registered. The PIAO Rules also provide for an information system and procedures relating to information and registration-related matters.

The practical lesson is straightforward: Aircraft leasing documentation and aircraft-object registration should be treated as complementary parts of the same transaction.

IDERA: Why the Irrevocable Deregistration and Export Request Matters

One of the most important protections in aircraft leasing is the Irrevocable Deregistration and Export Request Authorisation (“IDERA”). An IDERA is intended to facilitate deregistration and export of an aircraft following the occurrence of specified circumstances, subject to the applicable legal requirements. The PIAO Act specifically addresses deregistration and export request authorisations.

Section 7 provides a statutory framework concerning the enforcement of such authorisations. The underlying objective is to give effect to the Cape Town mechanism under which an authorised party may seek deregistration and export of an aircraft following the relevant default and satisfaction of applicable conditions.

The PIAO framework is therefore significant because it places IDERA within a domestic statutory structure rather than leaving the enforcement question entirely to contractual documentation and administrative practice. For lessors and financiers, ensuring that the relevant authorisations are properly executed, recorded and maintained should form an important part of transaction closing and post-closing compliance.

What Happens When an Airline Defaults?

Aircraft leasing agreements generally contain detailed provisions identifying events of default. These may include:

• failure to pay rent;
• insolvency or bankruptcy;
• breach of maintenance obligations;
• failure to maintain insurance;
• breach of financial covenants;
• unauthorised subleasing;
• regulatory violations; or
• other material breaches specified in the lease.

The PIAO framework does not replace the underlying contract. Rather, it provides a statutory and international framework within which certain creditor remedies may be exercised. This distinction is important.

The existence of a PIAO remedy does not mean that every contractual dispute automatically results in immediate repossession. The creditor must still establish the relevant default and satisfy the conditions applicable to the remedy being exercised. The PIAO Rules provide for procedures relating to default notifications and other steps relevant to the exercise of remedies. Consequently, careful drafting of the underlying aircraft lease remains essential.

Priority: Why It Matters to Aircraft Financiers

Aircraft financing can involve multiple stakeholders, including the aircraft owner, operating lessors, lenders, security trustees, manufacturers, insurers, operators, and other creditors. If several interests exist in relation to the same aircraft object, their respective priority becomes commercially significant.

The Cape Town Convention addresses priority through its international registration system, allowing registered interests to be ranked according to the Convention’s rules. The PIAO Act incorporates this framework into Indian law. This can reduce uncertainty for lenders because the legal analysis becomes less dependent on fragmented domestic rules concerning competing claims and more closely aligned with the internationally recognised registration framework.

For a financing institution, this can influence not only enforcement risk but also:

• pricing;
• security requirements;
• loan-to-value calculations;
• covenant packages;
• insurance requirements; and
• overall credit assessment.

Non-Consensual Rights and Interests

An important aspect of the Cape Town framework concerns non-consensual rights or interests. These are interests arising by operation of law rather than solely through an agreement between the parties. The PIAO Act and Rules recognise categories of such interests in accordance with India’s declarations under the Convention.

The 2026 Rules provide for registrable non-consensual rights or interests in the categories contemplated by the applicable Convention framework. They also expressly preserve the treatment of unpaid airline employee wages in accordance with India’s relevant declaration. This is important for aircraft financiers because the existence of non-consensual interests can affect priority analysis.

A lender undertaking aircraft financing should therefore not limit its due diligence to consensual security interests created under the financing documents. Applicable statutory or non-consensual interests should also be considered.

The Role of the Registry Authority

The PIAO Act establishes a statutory framework for a registry authority, including powers to issue directions concerning matters governed by the Act. The Rules further provide mechanisms for directions, information management and stakeholder interaction. This institutional framework is significant because the effectiveness of an aircraft-finance regime depends not only upon legislation but also upon the administrative systems through which registrations, authorisations and related information are processed.

For industry participants, procedural clarity can be as important as substantive rights. A theoretically strong creditor remedy becomes commercially useful only if the relevant administrative steps can be completed predictably and efficiently.

What Does the PIAO Act Mean for Indian Airlines?

The new framework is not solely a protection for foreign lessors. It also has implications for Indian airlines. Greater protection for lessors can potentially improve the willingness of international financiers and lessors to place aircraft with Indian operators. That can have a positive effect on access to aircraft and financing.

At the same time, airlines must expect greater contractual and procedural discipline. Aircraft lease documentation is likely to receive closer attention in areas such as:

• default provisions;
• security and guarantees;
• IDERA documentation;
• maintenance obligations;
• insurance;
• deregistration;
• export;
• payment defaults; and
• cross-default provisions.

Airlines should also ensure that internal teams understand the consequences of default well before financial distress occurs.

What Does It Mean for Lessors?

For lessors, the PIAO framework provides a more structured legal environment for protecting aircraft interests in India. However, statutory protection does not eliminate the need for careful transaction management. Lessors should consider:

1. Proper documentation: Lease agreements, security documents, guarantees and authorisations should be consistent with the applicable Cape Town framework.
2. International registration: Qualifying interests should be properly registered and maintained.
3. IDERA compliance: The relevant deregistration and export documentation should be properly executed and maintained.
4. Default procedures: Notice and cure provisions should be followed carefully.
5. Aircraft records: Technical, maintenance and ownership records should be maintained and readily accessible.
6. Cross-border enforcement: The legal and regulatory implications of deregistration, export and re-import should be considered when structuring the transaction.

The 2026 Rules also contain procedures concerning access to aircraft and technical and maintenance records in specified circumstances, making document management an increasingly important aspect of enforcement preparedness.

Implications for Aircraft Financing

The PIAO framework could also influence the economics of aircraft financing in India. The stronger the creditor protection framework, the lower the uncertainty surrounding recovery of the underlying asset following default. That can potentially influence financing costs. This is particularly relevant because aircraft are mobile assets whose value depends significantly on their ability to be redeployed across markets.

For lenders, therefore, the key issue is not merely whether the borrower is an Indian airline. It is whether the lender can establish and enforce its interest in the underlying aircraft object in accordance with a predictable legal framework. The PIAO Act’s alignment with the Cape Town Convention may consequently contribute to greater confidence among international aircraft financiers considering Indian transactions.

A New Compliance Checklist for Aircraft Transactions

The PIAO framework makes it advisable for parties involved in aircraft leasing and financing to adopt a transaction checklist covering both contractual and statutory requirements. Before closing an aircraft transaction, parties should consider:

This approach is particularly important for transactions involving multiple financiers or separately financed engines and other aircraft objects.

Looking Ahead

The enactment of the PIAO Act and the notification of the PIAO Rules represent an important development in India’s aircraft finance framework. The Act came into force on 1 May 2025, while the PIAO Rules were notified on 30 January 2026 and came into force upon publication in the Official Gazette. The next phase will be determined by implementation.

Questions of practical significance will include how efficiently registration and administrative processes operate, how courts interpret the interaction between the PIAO framework and other applicable laws, and how consistently creditor remedies are implemented. For the aviation finance market, the ultimate test will be whether the framework provides the predictability that international lessors and financiers require when pricing Indian aviation risk.

Conclusion

The PIAO Act, 2025 represents more than a legislative recognition of India’s obligations under the Cape Town Convention. It introduces a structured domestic framework for protecting interests in aircraft objects and creates greater clarity around the rights of lessors and financiers in relation to registration, priority, default remedies and deregistration.

For Indian airlines, the framework may facilitate access to international aircraft financing by strengthening confidence in the enforceability of aircraft-related interests. For lessors and financiers, it provides a more defined legal architecture within which transactions can be structured and risks assessed.

The practical significance of the PIAO regime will ultimately depend on implementation. Aircraft leasing is inherently cross-border, and the value of creditor protection lies in whether rights can be exercised efficiently when a transaction encounters financial or contractual distress. For that reason, the PIAO Act should be viewed not merely as an insolvency statute, but as an important component of India’s broader aircraft leasing and aviation finance infrastructure.

As India’s airline fleet continues to expand and international lessors remain central to fleet financing, the ability to establish, register and enforce interests in aircraft objects will increasingly become a key consideration in the structuring of Indian aviation transactions.

Frequently Asked Questions

Last Updated on 1 September, 2026