INTRODUCTION

The airline industry is unpredictable by nature, and financial instability often ends with declaration of insolvency. As airlines are handled with very thin margins of profit, even minor disturbances like a rise in fuel prices, changes in governing regulations or failures in supply changes can cause financial distress.[1] Go First Airlines has recently gone into insolvency, and this has again brought to light gaps in the Indian legal framework regarding airline bankruptcies, specifically regarding rights of lessors.

A significant concern in airline insolvencies is the imposed moratorium under the Insolvency and Bankruptcy Code, 2016 (“IBC”).[2] This does not allow aircraft lessors to reclaim their assets, and leaves them helpless for months or even years. This has decreased the confidence of investors in the Indian aviation sector, and led to questions about compliance with various international treaties, like the Cape Town Convention.[3]

Apart from financial concerns, a neglected angle of airline insolvency is data privacy concerns. A mammoth amount of passenger data is stored by airlines, and this data can be misappropriated, released or even sold without the customer’s knowledge or consent. A pertinent example in this regard would be the Jet Airways insolvency where the personal frequent flying data of the customer was treated as an asset.

BACKGROUND AND CONCEPTUAL FRAMEWORK

Airlines encounter high costs of operation, dependence on fluctuating fuel prices, hurdles due to regulators, and high competition, all of which make them susceptible to insolvency.[4] The Indian aviation sector has already seen multiple airlines fail, with some of the most notable instances being Kingfisher Airlines and Jet Airways, with the most recent being Go First Airlines.

The IBC applies to corporate insolvency in India, including airlines. Section 14 of the Code, however, stipulates a moratorium period that does not allow lessors to repossess aircraft on commencement of insolvency proceedings. This has led to disharmony between Indian law and the Cape Town Convention (“CTC”). In the Go First case, lessors could not reclaim their aircraft during the moratorium and this led to major monetary losses and a regulatory predicament.

Apart from financial concerns, airline insolvency can cause major data privacy concerns. Airlines have access to sensitive personal data of their passengers, including personal information, financial information and travel histories.[5] In cases like Air India’s data breach in 2021, data of millions of customers was endangered and was unprotected from potential misappropriation.[6] Indian legal frameworks fail to regulate how passenger data is handled after and during the insolvency process, and this leads to fears of unauthorised data transactions.

CASE STUDIES

Go First Airlines and the Lessors’ Dilemma

The insolvency of Go First Airlines, filed before the National Company Law Tribunal (“NCLT”) on May 3, 2023, has underscored the conflict between the IBC, and international aircraft leasing protections. The airline owed more than ₹2,660 crore to lessors, as it operated on a lease-based model. The lessors thus were important stakeholders in the insolvency process.[7] However, Section 14 of the IBC imposed a moratorium, preventing lessors from reclaiming their leased aircraft, even though Go First had defaulted on its payments.

This legal conflict created significant financial uncertainty for lessors. India has ratified the CTC, which grants lessors the right to repossess aircraft when airlines default.[8] However, due to the lack of full implementation of CTC through domestic law, the NCLT ruled in favour of IBC provisions, effectively barring lessors from reclaiming their assets. The Delhi High Court later allowed some relief, directing the Directorate General of Civil Aviation (“DGCA”) to deregister certain aircraft, but the damage to investor confidence had already been done.[9]

In response, the Indian government issued a notification on October 3, 2023, exempting aircraft leases from the moratorium under IBC.[10] While this amendment aligns India with global standards, it raises new concerns about whether such exemptions should apply retrospectively and how they will affect future insolvency proceedings in the aviation sector.[11]

Data Privacy in Airline Insolvency – The Jet Airways Case

Beyond financial concerns, data privacy remains a critical gap in India’s airline insolvency framework. As already mentioned, airlines have access to gigantic amounts of passenger data. The Digital Personal Data Protection Act, 2023 (“DPDP”) still does not explicitly provide for how such data should be handled after insolvency.

A concerning situation had arisen during the Jet Airways insolvency case in 2019. JetPrivilege, a program set up by the airline for frequent flyers, was weighed as one of its most valuable assets during the insolvency proceedings. It was deliberated whether passenger data from this program was to be treated as a saleable asset. Although the program was actually under the ownership of Etihad Airways and worked in isolation, its customer data was heavily discussed in negotiations.

This case highlighted the pitfalls of not having clear restrictions on data monetization in similar cases. This is an alarming privacy risk, and could allow potential acquirers, creditors or lessors access to passenger information without their knowledge or consent. To protect its consumers, India must bring in provisions explicitly forbidding the use of passenger data as a sellable and monetizable asset during bankruptcy or insolvency proceedings.

INTERNATIONAL FRAMEWORK

There is conflict which exists between IBC and the CTC which has raised concerns about India’s credibility in the global aircraft leasing market.[12] However other international jurisdictions have implemented frameworks that protect lessors’ rights as well ensuring smooth insolvency resolution.

United States

Chapter 11 of the Bankruptcy Code of the US provides for a balanced approach for IBC, unlike India’s IBC, as the repossession under S.1110 of the US Bankruptcy Code allows lessors to reclaim aircraft within 60 days unless the airlines continues payments.[13] In the American airlines restructuring case of 2011, the airline continued operation under the Bankruptcy protection while renegotiating lease agreements with lessors.[14]

Now, moving onto the Data privacy aspect, the US airline passenger data is protected under the Federal Trade commission Act and the state level privacy laws. The sale of customer data is strictly regulated, requiring regular oversight.

European Union

EU also has a similar provision as that of the US Bankruptcy Code that ensures quick asset recovery for aircraft lessors. The EU regulations 2015/848 on Insolvency proceedings provides that there shall be not automatic suspension of the aircraft leasing contract  upon insolvency, ensuring lessors to recover assets efficiently. The case of Alitalia’s insolvency of 2020 where the lessors were able to successfully repossess the aircraft without prolonged legal dispute serves as a good example.[15]

Under Art. 5 of the EU’s General Data Protection Regulation, personal data cannot be transferred or sold without user consent, even in insolvency proceedings. The mere failure of an airline does not give creditors the right to access passenger data, ensuring customer privacy. In the Thomas Cook’s insolvency (2019), data privacy authorities ensured that passenger information was not misused, blocking any unauthorized transfers.[16]

The Cape Town Convention

The CTC of 2001 is the global treaty safeguarding lessors’ rights in airline insolvency. Over 80 countries have adopted CTC. Under Art. XI (Alternative A), lessors have the option of repossessing an aircraft within a set timeframe is an airline defaults. The timeframe is typically 60 days.

GAPS IN THE INDIAN LEGISLATIVE FRAMEWORK

A key issue in Indian airline insolvency law is the conflict between the IBC and the CTC. The IBC imposes a blanket moratorium under Section 14, preventing lessors from repossessing their aircraft once insolvency proceedings commence. This has led to prolonged legal battles, as seen in the Go First insolvency case, where lessors were unable to reclaim their assets for months.

While India ratified CTC in 2008, it has not fully implemented its provisions, particularly Alternative A under Article XI, which allows lessors to repossess aircraft within a fixed timeframe of typically 60 days. Countries like Singapore, China, and the UAE have effectively incorporated CTC, ensuring swift aircraft recovery, whereas Indian courts have continued to prioritize IBC over CTC.[17]

The October 3, 2023, notification issued by the Ministry of Corporate Affairs (MCA) exempting aircraft leases from the moratorium partially resolves the issue, but it lacks clarity on retrospective application and may not be sufficient to restore investor confidence.[18] Unless India fully incorporates CTC provisions into domestic law, global lessors may continue to see India as a risky jurisdiction for aircraft leasing.

While financial concerns dominate airline insolvency discussions, data privacy is an equally pressing issue. Airlines store massive amounts of passenger data, including personal details, passport information, travel history, and payment data. However, DPDP Act, 2023, lacks specific provisions on how customer data should be handled when an airline goes bankrupt.

The Jet Airways insolvency (2019) highlighted concerns about customer data being treated as a saleable asset, with discussions around the valuation of its frequent flyer program (“JetPrivilege”).[19] Without strict laws, there is a real risk that airline data could be misused, either by creditors, lessors, or acquiring entities.

FILLING THE GAPS

The Go First insolvency case has revealed significant weaknesses in India’s legal approach to airline bankruptcies, particularly regarding aircraft lessors’ rights. The IBC, 2016, imposes a moratorium under Section 14, preventing lessors from repossessing their aircraft, leading to prolonged legal battles and financial uncertainty.[20]

Although India ratified this treaty in 2008, there has been no clear implementation of the same in domestic law. Indian Courts routinely prioritise IBC over this convention, and thus lessors could not access aircraft for two months in the Go First case. In regard to these concerns, the Ministry of Corporate Affairs did release a notification dated October 3, 2023 to exempt aircraft leases from the moratorium period.[21] However, the retrospective application and enforcement of this notification are still in question. India has currently lost a lot of investor confidence. Some steps that should be mandatorily considered are as follows:

i. Incorporation of the provisions of the CTC into domestic law, and enforcing it such that aircraft lessors can reclaim their assets within two months, as per Alternative A under Article XI of the Convention.

ii. Ensuring that Indian courts follow the international trend of upholding leasing protections by letting CTC provisions supersede local insolvency law, as done in China, Singapore and the UAE.

iii. Creation of specialized aviation insolvency guidelines within IBC, similar to the Aviation Working Group protocols adopted by other jurisdictions. [22]

2.     Protecting Passenger Data in Airline Insolvency – The Jet Airways Case

As previously mentioned, data privacy remains a critical gap in India’s airline insolvency framework. Airlines store large volumes of passenger data, including personal details, travel records, and financial information. However, there is no explicit provision under the DPDP Act, 2023, regulating how passenger data should be handled post-insolvency. With reference to the Jet Airways case, it is important that specific provisions are introduced in the DPDP Act, and it ensures that:

CONCLUSION

Airline insolvencies affect lessors, passengers, and the aviation sector. The Go First case exposed leasing loopholes, while Jet Airways highlighted risks of monetizing passenger data. India must fully implement the Cape Town Convention and strengthen the DPDP Act to protect lessors and ensure data security, boosting investor confidence

[1] Business Today, Why Private Airlines Fail So Often in India, May 3, 2023.

[2] The Insolvency and Bankruptcy Code, 2016, §14.

[3] ICAO, Cape Town Convention and Its Implications for Aircraft Leasing, 2023.

[4] The Economic Times, Why Airlines Keep Folding in India’s Booming Market, May 6, 2023.

[5] Economic Times, How Airlines Collect and Use Passenger Data: Privacy Risks Explored, June 2021.

[6] The Hindu, Air India Data Breach: 4.5 Million Passengers’ Information Compromised, May 2021.

[7] Business Today, Go First Files for Bankruptcy, Owes ₹11,000 Crore: Check Debt Breakdown, May 3, 2023.

[8] ICAO, Cape Town Convention and Aircraft Leasing Protections, 2023.

[9] Delhi High Court, Accipiter Investments Aircraft 2 Ltd. v. Union of India, 2024 SCC OnLine Del 3125.

[10] Ministry of Corporate Affairs, S.O. 4321(E): Exemption of Aircraft Leases from IBC Moratorium, October 3, 2023.

[11] Economic Times, India’s Aircraft Leasing Market: Impact of the IBC Moratorium Exemption, October 2023.

[12] Srinath Sridharan, Why India’s Aviation Sector has Aborted Take-offs for Decades Now, DECCAN HERALD, May 9, 2024, available at https://www.deccanherald.com/opinion/why-indias-aviation-sector-has-aborted-take offs-for-decades-now-3015079

[13] U.S. Bankruptcy Code, 11 U.S.C. §1110 – Rights of Aircraft Lessors in Bankruptcy.

[14] American Airlines Bankruptcy Case, U.S. Bankruptcy Court, Southern District of New York, 2011.

[15] Reuters, Alitalia’s Aircraft Lessors Win Repossession Rights in EU Court, 2021

[16]The Guardian, Thomas Cook Insolvency: Data Protection Authorities Intervene to Prevent Unauthorized Data Transfers, 2019.

[17] UNIDROIT, CTC Implementation Status – UAE, China, and Singapore Case Studies, 2023.

[18] Ministry of Corporate Affairs, S.O. 4321(E): Exemption of Aircraft Leases from IBC Moratorium, October 3, 2023.

[19] Moneycontrol, Jet Airways’ Frequent Flyer Data Considered a Key Asset in Insolvency Proceedings, 2019.

[20]  The Insolvency and Bankruptcy Code, 2016, §14(1); Go First Fallout: India Considers Passing Cape Town Convention Bill to Comfort Foreign Aircraft Lessors, The Times of India, May 14, 2023.

[21] BUSINESS STANDARD, Delhi HC Tells DGCA to Clarify Stand on MCA Notification on Moratorium, October 19, 2023.

[22] Aviation Working Group (AWG), Impact of India’s IBC on Aircraft Leasing Market, December 2023.