The global aviation sector has long been a barometer of economic activity, signalling macroeconomic trends, trade flows, and consumer demand. In the past decade, India has emerged as one of the world's fastest-growing aviation market globally, driven by strong GDP growth, a budding middle class, and progressive liberalization of the civil aviation sector. Today, India ranks as the third-largest domestic aviation market, trailing only the United States and China.
Recent developments in India's aviation sector underscore a strong push for regional and last-mile air connectivity, with new seaplane operation guidelines issued in August 2024 and UDAN (Ude Desh ka Aam Naagrik) Round 5.5 implemented. The revamped UDAN initiative aims to add 120 new destinations having air transport connectivity and make affordable air travel accessible to an additional 40 million passengers over the next decade, with a focus on remote, hilly, and aspirational districts, specifically in the Northeast. Complementing these efforts, the Government plans to develop 50 new airports over the next five years, along with the ongoing development of the Noida (Jewar) and Navi Mumbai International airports and certain new greenfield airports in Bihar. Together, these initiatives reflect a comprehensive strategy to promote air travel and foster inclusive regional growth across the country.
To support the growing market, India's aviation sector is witnessing an unprecedented capital expenditure in the form of record-setting aircraft orders being placed by Indian airlines. This surge offers a strategic opportunity for India to evolve from being merely a high-demand market into a global centre for aircraft leasing and financing.
Aircraft leasing plays a pivotal role in modern airline operations. It allows carriers to expand and modernize fleets without the capital burden of outright purchase. Leasing supports liquidity, operational agility, and risk mitigation especially in a cyclical, high-cost industry. As airlines increasingly prioritize asset-light balance sheets, the relevance of efficient leasing and financing frameworks grows accordingly.
Traditionally, aircraft leasing and financing segment of the aviation value chain has been dominated by jurisdictions like Ireland, Singapore, and Hong Kong, due to their favourable tax and legal frameworks. A robust legal overhaul anchored by the Gujarat International Finance Tec-City (GIFT City) signals India's ambition to claim a significant share of the global aviation finance market.
Established under the Special Economic Zones Act, 2005, GIFT City hosts India's only International Financial Services Centre (IFSC), offering a globally competitive platform tailored to financial services and cross-border transactions. In alignment with its aviation finance ambitions, the Government and the International Financial Services Centres Authority (IFSCA) have rolled out a comprehensive incentive regime that includes the following:
- Tax Incentives: A suite of direct tax incentives, including tax holidays, capital gains exemptions on aircraft transfers, and waivers on interest and royalty payments to non-residents. Additional benefits include capital gains relief for non-resident shareholders, tax-exempt inter-unit dividends, and a concessional corporate tax rate post-exemption period. Further, indirect tax incentives are also extended in IFSC including customs duty exemptions on aircraft imports, subsidised IGST on leases within the IFSC, and a stamp duty waiver on aircraft-related transactions.
- Regulatory and Institutional Advantages: Single-window clearance and simplified compliance procedures administered by the IFSCA, flexibility in aircraft registration and transfer of ownership / possession to facilitate efficient repossession, and a key exemption from obtaining prior import approvals from the Directorate General of Civil Aviation (DGCA) for IFSC-based lessors.
The transformational potential of GIFT City was demonstrated in March 2025 when AI Fleet Services Ltd., a Tata Group subsidiary, secured long-term USD financing for the acquisition of 34 Airbus A350-900 aircrafts for Air India. Notably, the entire transaction—including lender, borrower, counsel, facility and security agents—was structured within GIFT City, without relying on traditional offshore jurisdictions. This landmark transaction marked a definitive pivot towards self-reliance in aviation finance and showcased the institutional readiness of India's IFSC ecosystem.
Establishing a favourable aircraft leasing and finance market requires a strong regulatory foundation, fiscal incentives, and alignment with industry needs. GIFT City delivers on these basics by providing progressive tax benefits which collectively incentivize global lessors to operate domestically, channelling gains back to India. Given the projected fleet expansion of Indian airlines over the next decade (which is estimated to require capital funding to the tune of tens of billions of dollars), developing an indigenous financing hub like GIFT City not only supports these funding needs but also ensures that the economic benefits, including tax revenues and market opportunities, remain within the country.
Legal certainty is one of the cornerstones of any asset-based financing regime. India's aircraft leasing framework has historically been weakened by procedural delays, inadequate creditor remedies, and jurisdictional ambiguity, especially in insolvency scenarios. Recognizing these gaps, the government has undertaken critical legislative reforms:
- IBC Carve-Out for Aircraft (October 2023): By way of a notification under Section 14(3)(a) of the Insolvency and Bankruptcy Code, 2016 (IBC), aircraft and aviation assets were exempted from the automatic moratorium, enabling timely asset repossession by lessors and creditors during insolvency proceedings.
- Bharatiya Vayuyan Adhiniyam, 2024: Replacing the almost century old Aircraft Act, 1934, this modern legislation enhances the DGCA's enforcement powers and aligns Indian aviation law with International Civil Aviation Organization norms. This Act introduces provisions to detain aircraft for non-compliance or public interest, including strict penalties for safety violations, and expands the scope to include provisions in relation to aircraft design, manufacture, and maintenance. It defines key terms like “design”, “maintenance” and “manufacture” for clarity in the Maintenance, Repair and Overhaul (MRO) sector.
- Protection of Interests in Aircraft Objects Act, 2025: India's most consequential aviation finance statute to date, this Act implements the Convention on International Interests in Mobile Equipment (CIIME) and Protocol to the CIIME on Matters specific to Aircraft Equipment, which India ratified in 2008. Effective from May 1, 2025, the Act introduces internationally harmonized protections for lessors, financiers, and secured creditors.
Key Features Include:
- Registry Framework: DGCA designated as the national registry for aircraft objects.
- Default Remedies: Creditors may repossess aircraft without judicial intervention within 60 days of default (or as contractually agreed), upon notification to DGCA.
- Adoption of Alternative A: India's implementation of Article XI, Alternative A ensures creditors can reclaim assets post-insolvency with legal certainty.
- Detention Provisions: Government entities may detain aircraft for unpaid dues, balancing sovereign interests with creditor rights.
- Supremacy Clause: The Act overrides conflicting legislation, including the IBC, barring limited exceptions under the Bharatiya Vayuyan Adhiniyam, 2024.
The 2023 insolvency of Go First Airlines was a watershed moment that exposed vulnerabilities in India's aviation legal framework. Lessors were unable to reclaim grounded aircraft due to a moratorium imposed by the National Company Law Tribunal, despite lease agreements providing clear repossession rights. The resulting legal gridlock severely impacted investors' confidence. The 2025 Act directly remedies this, ensuring enforcement of cross-border leasing contracts and removing ambiguities around asset recovery, which is critical for aligning India's reputation with global lessor expectations.
Consolidations such as the merger of Air India and Vistara, the entry of fresh players like Akasa Air, and aggressive fleet expansions by market leaders are driving a surge in capital requirements. Aircraft financing (particularly through leasing) will be vital to sustain this momentum. GIFT City is already delivering tangible outcomes, with 33 registered lessors managing a portfolio of 242 aviation assets, including 90 aircraft and 67 engines. India's strategic blend of progressive regulation, fiscal incentives, legal certainty and early transactional success is positioning GIFT City as a credible and competitive alternative to established global leasing hubs. This transformation aligns with the broader vision of Atmanirbhar Bharat by embedding critical financial capabilities within the country's institutional framework.
With the implementation of the Protection of Interests in Aircraft Objects Act, 2025, and the continued development of GIFT City as an international financial centre, India is gradually positioning itself as an emerging player in the global aviation finance landscape. With sustained stakeholder alignment, India is poised not only to enter the global aircraft leasing arena but shape its future trajectory.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
