India has implemented the Protection of Interests in Aircraft Objects Act to align with global standards, aiming to reduce lease rentals by improving asset recovery for financiers. By strengthening GIFT IFSC and cutting import duties, the government intends to lower operational costs for domestic airlines as they expand their fleets to meet growing demand.
India is reshaping its aviation finance framework, moving to address the regulatory uncertainty that has historically pushed up the cost of leasing aircraft for domestic carriers. The government's core strategy centers on the Protection of Interests in Aircraft Objects Act, 2025, which provides a stronger legal foundation for international lessors and aims to restore confidence in the Indian market.
Impact on Leasing and Asset Recovery
For years, foreign lessors viewed the Indian market with caution, largely due to complications faced during airline insolvencies. The previous lack of a clear, fast-track process for repossessing aircraft caused risk premiums to rise, which in turn increased lease rentals for Indian airlines. The 2025 Act now aligns India with the Cape Town Convention, a global standard for aviation finance. A critical feature of this legislative change is the introduction of a 5-day deregistration window, which allows lessors to recover assets more predictably when an operator defaults. The Aviation Working Group has already signaled a recovery in sentiment, upgrading India’s compliance score in 2026, which is an early indicator that global financiers are beginning to recognize these improvements.
GIFT IFSC as the Financial Hub
The government is positioning Gujarat International Finance Tec-City (GIFT IFSC) as the primary platform for this activity. By providing tax holidays and enabling foreign currency transactions, GIFT IFSC offers a competitive environment for aircraft leasing companies to set up domestic operations. The shift aims to capture business that previously went to global leasing hubs like Ireland or Singapore. By localizing this finance, the government hopes to reduce the reliance on overseas hubs, potentially lowering the cost of capital for domestic airlines over the long term.
Holistic Cost Reduction Measures
Beyond leasing reforms, the government has introduced additional measures to ease pressure on airline margins. In August 2026, the Cabinet approved a Price Stabilization Fund for Aviation Turbine Fuel (ATF) to help airlines navigate volatile fuel prices. Furthermore, the Union Budget 2026-27 introduced customs duty exemptions for aircraft manufacturing components and raw materials for Maintenance, Repair, and Overhaul (MRO) services. These moves are intended to lower the day-to-day operating costs for airlines, which remain sensitive to fuel prices and currency fluctuations.
Monitorables and Operational Risks
While the legislative framework is now in place, the practical benefits will depend on judicial efficiency. The success of the 2025 Act rests on the ability of courts to ensure that the 5-day repossession window is enforced without delays. Investors should note that despite these reforms, the domestic aviation sector remains inherently high-risk, characterized by thin profit margins and a heavy reliance on leased aircraft—estimated at nearly 80% of the active fleet. Additionally, the industry remains vulnerable to global geopolitical tensions that can cause sudden spikes in fuel costs. The key monitorable for the coming quarters will be whether these policy changes lead to a measurable reduction in lease rentals and whether airlines can improve their fleet utilization while managing these broader macroeconomic pressures.