ILFC Says Six Airbus A320s of Kingfisher ‘Held Hostage’

International Lease Finance Corp. is struggling to retrieve six Airbus SAS aircraft in India formerly operated by Kingfisher Airlines Ltd., saying it’s being “held hostage” by local government authorities.

The world’s second-biggest aircraft leasing company had sought to repossess the planes, saying the carrier was in default of contract conditions. While India’s civil aviation authority said it has deregistered four aircraft and will soon proceed with the other two, ILFC still can’t get them back because other government bodies have yet to cooperate, ILFC Chief Executive Officer Henri Courpron said today.

“Deregistration is only one of the steps you need to get the airplanes out of the country,” Courpron said in an interview in Dublin at a conference sponsored by Airline Economics. “There are other authorities in the country, like airports and tax authorities, who have an ax to grind against Kingfisher and we are being held hostage to this process.”

ILFC’s woes in India underscore the commercial constraints to fund growth in a country of 1 billion people that promises to be one of the fastest-growing aviation markets. Airbus SAS predicts demand in India for more than 1,040 planes valued at $145 billion by 2030, while Boeing has a more optimistic forecast for 1,320 jets by then.

Arun Mishra, director general of civil aviation in India, said the proper measures are being taken.

“As far as we’re concerned, we’ve deregistered four aircraft belonging to ILFC and the remaining two aircraft, we’ll be deregistering them soon,” he said by telephone.

India Growth

Carriers in India face rising aircraft financing costs after Kingfisher defaulted on leases and government authorities failed to help recover the planes, DVB Bank SE said this month. The lender suspended all financing to Indian carriers because of the situation.

India acceded to the Cape Town Convention in 2008, defining the rights of aircraft owners or lessors in case of a default on payments, allowing them to get their equipment back quickly if there is no resolution.

The Indian administration at this point isn’t adhering to the rules in the agreement, or to its own laws in place before that agreement, said Bertrand Grabowski, managing director for aviation at DVB Bank, who wants to repossess two Airbus A320 planes that DVB financed. The government has refused to de-register those planes, making it impossible for him to sell them elsewhere.

The two planes financed by DVB with Kingfisher were purchased before the Cape Town agreement was in place, he said.

Investor Confidence

“It’s not good news,” Nigel Taylor, Airbus’s director of aircraft finance said in an interview at the conference, talking about the difficulties faced by DVB and ILFC. “I think India should react to restore investor confidence in financing aircraft to India.”

Kostya Zolotusky, managing director at Boeing Capital Markets, the Chicago-based planemaker’s finance arm, said cooperation is needed with Indian authorities.

“What we need to do is essentially work on how India starts to apply the treaty and evolve from the past difficult resolutions of defaults and repossessions,” said Zolotusky.

ILFC is losing monthly revenue on renting the aircraft because it cannot commit to leasing the single-aisle planes to another customer. It doesn’t know when it may get the aircraft back, and negotiations with local authorities continue, Courpron said today.

India’s Civil Aviation Minister Ajit Singh said today that Kingfisher needs at least 10 billion rupees for a “restart” of the carrier. The government supports the company’s revival plan, and Kingfisher needs to get endorsement from all stakeholders, including employees, Singh said.

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