Travel by air is the safest and fastest mode of transport in the world and has seen tremendous growth over the years. The global aircraft leasing market is estimated to reach US$247bn by 2026.[1] With US$180bn required for funding to meet the rising aircraft demand, the necessity of entering into a lease is borne by the need to acquire an aircraft without increasing debt obligations.
The Indian leasing market is expected to grow to 4.8 times of its 2018 value by 2026, thus making India the third largest aviation market in the world.[2] Owing to factors such as financial fragility, operational incentives, price sensitivity of consumers and infrastructure, about 80 per cent of the total commercial fleet in India is leased, compared with 53 per cent globally.
One might ask why it is that despite such incentives being available in India itself, airlines look for lessors abroad? The answer being dearth of aircraft leasing companies in the country. Local presence of lessors would not only help the lessees in creating better opportunities with favourable terms and conditions but also give a major impetus to the Indian economy as a whole, while leading to increased GDP, better infrastructure, retention of financial business and services.
With the aim of developing a robust and indigenous leasing and financing structure, the Ministry of Civil Aviation, Government of India constituted a Working Group on Development of Avenues for Aircraft Financing and Leasing Activities namely ‘Project Rupee Raftar’, comprising of number of stakeholders, regulatory bodies, academicians, lawyers[3] and various financial institutions to discuss policy and implementation issues. In order to unlock the unbridled potential of India in the leasing, on 20 December 2019, the International Financial Services Centre Authority Act (IFSCA) was enacted by the Parliament to establish an IFSC Authority. As a result, Gujarat International Finance Tec-City (GIFT City) was born.
On 16 October 2020, the Central Government notified the following as financial products under the IFSCA Act 2019[4]: aircraft leases (including operating and financial leases); any hybrid of operating and financial leases of aircraft or helicopters; and engines of aircraft or helicopters, or any other part thereof. This move created an opportunity for the establishment of a viable aircraft leasing market in India, particularly in the GIFT City. Under the framework, leasing in GIFT City includes an operating lease, sale leaseback, novation, purchase, transfer, assignment and any other related activity.[5]
Located in a special economic zone in Gujarat, GIFT City is said to be the country’s first operational greenfield smart city equipped with high end infrastructure to enable business and commerce. An aircraft leasing company/lessor can consider establishing themselves either as an LLP or a trust with a minimum capital of US$200,000 (or equivalent) and can deal in freely convertible currency and can maintain a Rupee account to defray administrative expenses.
Besides the above regulatory regime, what makes GIFT City a differentiator from other foreign leasing jurisdictions are the tax incentives and competent options that it has to offer. In February 2021, with an aim to boost the confidence of lessors to establishing their units in IFSC. The government, through its Union Budget 2021-22, announced various tax breaks such as: tax holiday for lessors and exemption from payment of withholding tax concessional corporate tax rates.