Aircraft leasing in India - a new frontier

The Indian government has made significant progress with its ambitious project to develop a domestic aircraft leasing hub hoped to rival more established jurisdictions such as Ireland, Hong Kong, Singapore and China.

Much has been written about the opportunity in India for aviation market participants such as airlines, lessors, financiers and MROs. Although the COVID-19 pandemic undoubtedly had an impact on air travel and the development of the aviation sector in India, this appears to have been relatively short-term, with underlying fundamentals remaining much the same. 

While there are clear differences in demographics and the political structure in China and India, the Chinese civil aviation industry provides a useful basis for comparison with India given similar population sizes, geographic proximity, emergent levels of wealth and economic development, and a necessity for domestic air travel.  

  • India’s population is 1.38 billion and is predicted to overtake China to become the most populous nation within the next 10 years. 
  • In 2017 Indian airlines carried a total of 117 million passengers on domestic routes. By contrast, Chinese airlines carried a total of 497 million passengers on domestic routes. 
  • The current fleet size in India is approximately 750 mainline commercial aircraft and this is expected to increase to 1,200 aircraft by 2027. By comparison, as at July 2019, a total of 3,722 commercial aircraft were operating in China.  
  • As a jurisdiction, India has the third largest aircraft order book with pending deliveries of over 1,000 aircraft for its scheduled airline operators. China’s total order book is only marginally higher.

The above perhaps serve to illustrate that the Indian aviation market is currently underdeveloped - but has huge potential for growth. And while China has permitted the development of a number of ‘free trade zones’ which actively facilitate onshore aircraft leasing to the benefit of PRC airlines, India has not, yet…

Regulatory and legislative developments 

In early 2019 a working group constituted by the Ministry of Civil Aviation of India published its report, Project Rupee Raftaar, which addressed possible avenues for aircraft financing and leasing activities and set out a road map for developing the industry in India. The report also detailed potential strategies and made several recommendations for attracting aircraft financing and leasing businesses to set up in the Gujarat International Finance Tec-City (“GIFT City”) International Financial Services Centre (“IFSC”). 

The IFSC is designed to onshore financial services and transactions carried out by Indian corporate entities and overseas branches/subsidiaries of financial institutions that would usually be carried out in offshore financial services centres such as Singapore and Hong Kong. From an Indian legal and regulatory perspective, the IFSC will be deemed a pseudo foreign territory dealing in foreign currency; and an entity set up in an IFSC will be recognised as non-resident entity under the Reserve Bank of India regulations.  

Focussing on aircraft leasing, the Indian authorities have identified that the vast majority of aircraft financing and leasing to Indian carriers is carried out by entities based in Ireland. Against the global average of c. 45% of aircraft operated on lease, over 70% of commercial aircraft operating in India are leased – with the vast majority leased from entities in Ireland. Currently, there are no significant domestic commercial aircraft lessors in India. 

Moreover, the authorities have seen developments in China, notably Chinese banks promoting successful international leasing companies such as ICBC Leasing, CDB Leasing and BOC Aviation.

The IFSC aims to create a platform for such leasing businesses to operate out of GIFT City. 

The Indian Minister of Finance, Nirmala Sitharaman, signalled her support for development of an onshore aircraft leasing and financing hub in her 2019-2020 Budget Speech saying that  “as the world’s third largest domestic aviation market, the time is ripe for India to enter into aircraft financing and leasing activities from Indian shores” and “[the] Government will implement the essential elements of the regulatory roadmap for making India a hub for such activities.” 

By its notification on 16 October 2020 the Ministry of Finance designated an “Aircraft Lease” as a “financial product” under the International Financial Services Centres Authority Act, 2019. An “Aircraft Lease” includes operating and finance leases and any hybrid of operating and finance leases of an aircraft or helicopter and their engines.  

Most recently, in the 2021-2022 Union Budget, it was announced that further tax incentives would be provided to promote aircraft leasing in GIFT City, including: a tax holiday for capital gains income of aircraft leasing companies; tax exemptions for aircraft lease rentals paid to a foreign lessor; tax incentives for relocation of foreign funds to an IFSC; and tax exemptions to investment divisions of foreign banks located in an IFSC. 

GIFT City lessor requirements and benefits

To further drive development of Indian financial hubs, the International Financial Services Centres Authority (“IFSCA”) was established on 27 April 2020, headquartered at GIFT City. The IFSCA was established specifically to regulate all financial services being provided in IFSC(s) in India with a view to streamlining and simplifying the regulatory approach.  Businesses that operate outside of GIFT City are subject to a myriad of different rules and regulations.  

On 19 February 2021, the IFSCA released its regulatory framework to enable aircraft lessors to set up operations in GIFT City. To qualify, an aircraft lessor must register with the IFSCA and satisfy the following eligibility criteria

(i) The entity shall set-up operations in an IFSC in India by way of a company or a limited liability partnership or a trust or in any other form as may be specified by the IFSCA. 

(ii) The person(s) in control of the aforesaid entity shall be located in a Financial Action Task Force compliant jurisdiction. 

(iii) The entity shall deploy resources in such IFSC commensurate with the business operations under the IFSCA framework. 

(iv) The entity must meet a minimum capital requirement of USD200,000 or equivalent in freely convertible foreign currency.  

In addition, the lessor is only permitted to transact in a foreign currency. However, the lessor may defray its administrative expenses in INR by maintaining a separate INR account.  

Lessors that choose to set up aircraft leasing operations in GIFT City are proposed to enjoy the following tax benefits:

(i) A tax holiday (for 10 consecutive years out of 15 years);

(ii) No capital gains tax on disposal of an aircraft during the tax holiday period;

(iii) No withholding tax on aircraft lease payments in the nature of royalties paid to non-residents;

(iv) No withholding tax on interest payable to a non-resident by an IFSC lessor on overseas borrowings;

(v) No dividend distribution tax - shareholders will pay tax as per their local regime;

(vi) No basic customs duty; 

(vii) GST rates are equivalent to the Irish regime;

(viii) No stamp duty.  

It’s worth noting that to avail themselves of many of these tax benefits, a lessor would need to commence operations on or before 31 March 2024. 


While the developments described should prove attractive to Indian domestic banks wishing to set up aircraft leasing businesses, the established international leasing community may need further persuasion before flocking to GIFT City. 

Many lessors continue to experience significant challenges with the Indian tax authorities. Fundamentally, if the IFSCA hopes to attract established international players alongside domestic entrants, they will need to be persuaded that by setting up in GIFT City they won’t be deemed to have a permanent establishment in India, or otherwise become embroiled in any unwarranted tax investigations. The ability to distribute profits and other income streams to group businesses outside India will also be key - although on the face of it, this has been addressed.

Long-standing lessors also still remember the difficulties in repossessing aircraft following the demise of Kingfisher Airlines almost decade ago. Although India has made positive strides to more-properly implement the Cape Town Convention and the enforcement of IDERAs into domestic law since, this remains largely untested in an insolvency scenario (most lessors recovered their aircraft from Jet Airways consensually in 2019) – but it should be said that many established lessors do now lease aircraft into India, having largely got themselves comfortable with these risks.

Remaining with enforcement, unlike English and NY law, Indian law does not recognise self-help remedies and few lessors welcome the prospect of litigating and/or seeking to repossess aircraft in the Indian courts. It remains to be seen what the governing law of domestic lease agreements will be, however if lessors and financiers wish to retain the ability to transfer, finance and/or syndicate, it is likely that English or NY law will remain prevalent as the governing law of transaction documents.


These reforms undertaken by the Indian government certainly indicate a strong level of support and commitment to creating a robust aviation leasing industry in India and many Indian financial institutions in particular will undoubtedly be considering the opportunities. 

Indeed, at the time of writing, State Bank of India and Bank of India are reported to be considering setting up leasing arms in GIFT City, as are India’s Vman Aero, and business charter operator JetSetGo. On the international front, Ireland’s Acumen Aviation and Investec are also stated to have expressed interest. 

Further, Ajay Singh, Chairman and MD of SpiceJet, has been reported as saying: “If it works well, [possible leasing by SpiceJet of seaplanes via GIFT City] we may even set up our own leasing company there.”

As Hong Kong has found, it’s not easy to become an established aircraft leasing hub overnight, however with the right regulatory, legal and tax framework in place, GIFT City may well prove an attractive alternative to some in the leasing community, and introduce new sources of domestic finance to Indian carriers in this exciting and fast-growing market. 


Bird & Bird – 6 April 2021


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