Whalesbook
India is strengthening its aviation finance and leasing sector with new policies. Key moves include developing rules for fractional aircraft ownership and potentially treating aircraft as infrastructure assets. These initiatives are tied to making Gujarat International Finance Tec-City (GIFT City) a global center for aviation finance. The aim is to build stronger domestic leasing and financing capabilities, keeping more value in India and reducing reliance on foreign markets.
The global aircraft leasing market is large, expected to grow from about $238 billion in 2026 to $458 billion by 2035. Europe, especially Ireland, dominates with 35-50% market share. India's role is still small compared to these established centers. GIFT City offers attractive tax breaks, including a 20-year tax holiday, a 15% corporate tax rate afterward, and capital gains exemptions during the holiday. As of December 2025, 38 leasing firms were registered at GIFT IFSC, overseeing 196 aircraft and 89 engines. This policy, combined with Air India's recent A350 lease through GIFT IFSC, shows concrete progress. However, GIFT City, ranked 46th-52nd globally, needs to develop its ecosystem and liquidity further to match mature hubs like Dublin and Singapore.
The plan for fractional ownership, with a dedicated operator category and simpler taxes expected by June 2026, could make aircraft ownership more accessible. Classifying aircraft as infrastructure assets aims to draw more investment. These steps aim to overcome past issues, like most of India's fleet being leased from abroad, which leads to large foreign exchange outflows and reliance on foreign legal systems. The regulations are designed to bring India in line with global standards like the Cape Town Convention. However, significant hurdles remain. The Indian aviation sector faces major financial stress, with projected net losses of ₹170-180 billion in FY2026. This is driven by high fuel costs (30-40% of expenses), currency drops, and global disruptions. This financial strain makes it harder for airlines to get favorable leasing terms. Regulatory delays, such as up to three months for bank approvals and issues with repossessing aircraft, also hinder progress.
Challenges and Risks Ahead
The proposed policies are still being developed, with few firm implementation dates beyond government statements. For example, classifying aircraft as infrastructure assets is currently vague and needs specific rules to provide clear benefits. Fractional ownership faces challenges from unclear taxes (GST, depreciation, import duties) and a lack of standard contracts, creating legal and financial risks. India's framework is still developing, unlike mature leasing hubs with decades of experience and strong legal backing. The financial health of Indian airlines, marked by high debt and sensitivity to fuel prices, poses a significant risk for lenders and lessors involved in domestic deals. Although GIFT City offers tax incentives, its overall ecosystem maturity and talent pool lag behind global leaders, potentially limiting its appeal to major international lessors used to the efficiencies of hubs like Dublin or Singapore. Over 80% of India's fleet is leased from overseas, showing the strength of existing international relationships and the challenge in quickly replacing them.
The government aims for India to become a major player in global aviation finance, working alongside existing hubs rather than competing directly. Success hinges on turning policy announcements into practical regulations, especially on taxes and clear contracts for fractional ownership. Experts predict India's leasing market could reach nearly $100 billion, offering opportunities for domestic capital and reduced foreign exchange outflows if challenges are overcome. Developing GIFT City as a financial hub is key to this strategy, with the goal of creating a self-sufficient aviation finance ecosystem by 2047.