Aircraft Leasing and Financing into India

March 2006

1.

Introduction

This note summarises a number of the principal issues and considerations for non-Indian lessors and financiers of aircraft to Indian lessees. It has been prepared by the aviation finance team at Clyde & Co. and is based on our transactional experience in India, which extends to the leasing and/or financing of 35 passenger aircraft for a number of Indian carriers in the last 5 years. For the purposes of this note, we have assumed a transaction structure involving the leasing of an aircraft (on an operating or finance lease basis) by a non-Indian lessor to an Indian lessee, the lessor’s acquisition being financed in part by non-Indian lenders (except in relation to paragraph 6, which covers pre-delivery payments financing). Despite the rapid growth of the Indian aviation market in recent years, the Indian legal, tax and regulatory environment continues to represent a challenge for lessors and financiers of aircraft – both at state and national level. A variety of issues will present themselves to any non-Indian lessor or financier of an aircraft to an Indian operator. These issues will arise in the context of:

• • •

the leasing of the aircraft the making of lease and guarantee payments the security package

and are often magnified by the lack of clear authority and precedent in India.

2.

Typical Issues

A “typical” range of considerations for any inward lessor or financier is likely to include:

• • • • •

the fact that a withholding tax exemption must be obtained from the Indian Ministry of Finance in relation to lease rental payments the fact that exchange control approval from the Reserve Bank of India will be required in relation to certain lease / lease-related and guarantee payments the fact that Indian statutory law does not make provision for mortgages over aircraft the fact that traditionally written assignments of insurances are likely to attract significant stamp duty costs the likelihood that Indian stamp duty will apply in relation to a variety of the transaction documents. The amount of stamp duty will vary from state to state and can be charged on copy documents that are brought into certain states

3.
3.1

Leasing of Aircraft
Ownership Interest

Registration It is possible record a lessor’s proprietary interest as the owner of an aircraft with the Indian Directorate General of Civil Aviation (the “DGCA”) and this will be reflected on the aircraft’s certificate of registration. As with a number of other aircraft registries (such as the UK CAA), such recordation will not however in itself act as conclusive evidence of the lessor’s title to the aircraft (i.e. the DGCA does not operate as a title registry). Apart from the DGCA filing, it is not necessary to take any other steps with any other Indian public authority so as to record and/or perfect an owner’s interest in an aircraft. Registration documents The type of documents to be submitted to the DGCA in connection with any transfer of title and/or the issuance of the certificate of registration will be determined by the nature of the transaction: new delivery; sale and leaseback; or sale of aircraft subject to existing lease. As the DGCA does not operate as a title register, neither the underlying aircraft purchase agreement nor the related bill of sale will need to be recorded

a formal approval for the aircraft to be flown out of Indian airspace at closing. The issue is invariably of greater significance in the case of domestic operators. whose aircraft might never normally be in the desired location for title transfer.5%. in the case of domestic operators. a lessor or financier will inevitably only be agreeing to defer the cost to a date when the lessee is unlikely to pay (e. Apart from the DGCA filing. . being in all likelihood the state in which the airline is incorporated or has its operational base (depending on the particular circumstances).with the DGCA. Registration fees No registration fees are payable to the DGCA in connection with the recordation of an ownership interest. it will invariably be necessary to locate the aircraft in international airspace or in another tax-friendly jurisdiction at the time of title transfer (although. As such. Effective title transfer Indian law will generally recognise as effective an English law title transfer pursuant to an English law aircraft purchase agreement and an English law bill of sale. The rate of VAT in most Indian states (where VAT has been introduced) is 12. sales tax (instead of VAT) would apply at a rate between 8% and 15%. it will represent a significant concern in any transaction involving a transfer of title when the aircraft is already in service. depending on the particular circumstances.000 Rupees is payable in relation to the issuance of a new certificate of registration upon change in aircraft ownership.g. The provisions of the stamping legislation in a number of the states relevant to Indian airlines are not necessarily clearly or consistently (as between states) drafted. the cost is likely to be prohibitive and more inventive solutions will need to be found. 3. there are no execution formalities (such as notarisation or legalisation) associated with the lease agreement as a condition to its validity or enforceability. certain DGCA approvals might be required. In the context of the sale of an aircraft subject to an existing lease. it will still be necessary to stamp the lease agreement in the relevant state. although a nominal fee of 1. Sales tax and VAT Sales tax or VAT will apply if the aircraft is located in India at the time of title transfer. In the context of a transfer of title (except on delivery from the manufacturer). The DGCA will however often require that a notarised copy of the lease agreement be filed with it (and the airline will usually arrange for this to be done). The stamp duty cost is likely to be manageable in certain states. Unless stamping is effected at lease commencement (with the lessee agreeing to bear the related costs). Place of stamping Careful consideration will invariably need to be given to the right state or states in which to stamp so as to balance the need to stamp against the cost of stamping. Stamping requirement Stamping is necessary so as to ensure that the lease agreement can be used in the relevant Indian courts in case of need. DGCA approvals Depending on the nature of the transaction. Registration fees No registration fees are payable to the DGCA in connection with the filing of the lease agreement. Other than stamping. Stamp Duty As with a variety of other transaction documents. where VAT has not been introduced. Registration documents A copy of the lease agreement must be filed with the DGCA in New Delhi. DGCA approvals Depending on the nature of the transaction. a variety of DGCA approvals might be required. This means that there will usually be no DGCA-driven execution formalities (such as notarisation or legalisation) associated with the title transfer documents. Although the copy document will not attract stamp duty in the State of Delhi. these are likely to include a formal approval in relation to the change of ownership and. Although the issue is unlikely to be of any real concern in the context of new Airbus or Boeing deliveries. Relying on the lessee’s covenant to pay the stamp duty “as and when necessary” is likely to mean that the lessor’s or financier’s only option will be to pick up the costs and tack them onto any judgment award. A possible solution may be to require a letter of credit or increased cash security deposit to cover this risk. with the result that the applicable rate of stamp duty varies from state to state.2 Lease Interest Registration It is possible to record the lease agreement with the DGCA. these are likely to include a formal approval in relation to the change of ownership and a formal approval for the continued leasing of the aircraft pending the issuance of a new certificate of registration. in dispute or insolvent). this might not always work to eliminate the tax risk). stamp duty might be payable in relation to a sale and purchase agreement and/or bill of sale as a condition to its enforceability in India. in others (such as those which base the rate on the market value of the lease or the market value of the aircraft). it is not necessary to take any other steps with any other Indian public authority so as to register a lease agreement and/or record or perfect a lessor’s interest under an aircraft lease agreement.000 Rupees is payable in relation to the issuance of a new certificate of registration upon change in aircraft ownership. prior to filing with the DGCA. when it is in default. although a nominal fee of 1.

(b) a similar letter addressed to the Customs Authority (although such a letter is only likely to be or real value if inland travel tax is reintroduced) and/or (c) a regular certificate from the airline’s auditor confirming that all relevant amounts have been paid in full within the applicable time limits (a lessee will often baulk at such a request). the legislation does however allow its reintroduction and it is to be noted that the Customs Authority had a fleet-wide lien under the suspended legislation.3 Cape Town Convention1 India has signed. 3. The Indian courts will generally uphold any choice of English law as the governing law of the lease agreement (and any related submission to English jurisdiction). the Cape Town Convention. It is separately to be noted that Indian law will generally recognise as effective any choice of English law and any choice of English jurisdiction in a lease agreement. 2 The requirement that Indian airlines pay inland travel tax was suspended in January 2004. subject to the various familiar exceptions set out Convention on International Interests in Mobile Equipment and the Protocol thereto on Matters Specific to Aircraft Equipment (adopted in Cape Town on 16 November 2001). Foreign judgments A lessor or financier should if possible ensure that the lease agreement is governed by a user-friendly law and that a familiar court system has jurisdiction (English law and English jurisdiction being a common choice for leases to Indian airlines). 1 . which came into force on 1 March 2006 in all of the countries that have ratified the Convention to date (except Senegal). In terms of requisition risk. 3. parking. In such circumstances.Alternative to stamping If the cost of stamping is prohibitive. the availability of interim relief and protection on airline insolvency.5 Enforcement and Repossession No self-help remedies In the absence of a consensual repossession of the aircraft following any lease termination. but not yet ratified. Local advice might also be sought as to the level of compensation payable by the government in the event of any state requisition. a lessor or financier might decide to proceed without stamping (especially if the airline operates internationally) on the basis that a judgment under an English law lease agreement would be obtained in the English courts and then enforced (hopefully without the need for a separate action) by the relevant Indian courts. These will include: • • • • detention rights in favour of the Airports Authority of India for unpaid landing.Indian law does not recognise self-help remedies. 3. it will be important for a lessor and/or financier to be able to agree appropriate monitoring provisions with the lessee. lessors and financiers will be able to expect greater certainty in terms of recognition and registration of their interests. This might include (a) a letter addressed by the airline to the Airports Authority authorising the release of payment/account information to the lessor and/or financier (although there is no guarantee of a response to any request made). the availability of self-help remedies (which Indian law does not currently permit). the lessor or financier would hope that the Indian courts would not independently require the production of the lease agreement. Once ratified (and if India makes the relevant declarations).4 Competing interests The supremacy of a lessor’s (or a mortgagee’s) interest can be threatened for a variety of familiar reasons. it will be advisable to assess whether or not state of registration risk is excluded from the insurance coverage. The Indian courts will also generally recognise a judgment obtained against an Indian lessee in the English courts. The transaction documents should if possible nevertheless be drafted in an appropriate “Cape Town-compliant” manner. an aircraft can only be repossessed through the courts . the ability to repossess. navigation and x-ray charges arrest and sale rights in favour of the Customs Authority of India for unpaid import duties or for unpaid inland air travel tax2 governmental ability to detain and/or requisition aircraft under sections 6 and 8 of the Aircraft Act 1934 in certain circumstances (e. if it is in the interests of public safety to do so) governmental ability to introduce legislation for the detention and/or requisition of aircraft under Article 352 of the Constitution in a state of emergency Needless to say. unless the choice is not made in good faith or is contrary to Indian public policy.g.

experience has shown that the relevant Indian authority might nevertheless refuse to issue the relevant consent or approval. A viable mode of enforcement (especially if the airline operates internationally) will therefore be for the lessor/financier to obtain a judgment in the English courts and have it enforced (without the need for a separate action) by the relevant Indian courts. the English courts would have discretion as to whether or not to accept jurisdiction. Repossession It is likely that the following consents/approvals will be required so as to enable the export of an aircraft from India following lease termination: • • • • • an export permit from the DGCA an export certificate of airworthiness issued by the DGCA consent from the RBI consent from the Airports Authority of India consent from the Customs Authority of India Even if the Indian courts were to grant a court order for repossession or enforce the judgment of an English court. T The exemption applies to all agreements executed before 1 April 2006 in relation to which an exemption is granted. and have been successfully challenged in the Indian courts. it is necessary to file the signed lease agreement with the Indian Ministry of Finance. involve the appointment of an agent to receive service of process on behalf of the lessee. the usual yardstick for the granting of an order for repossession (as a form of interim relief) is anything between 2 and 24 months. including any rights of appeal. Enforcement timeframe It is difficult to accurately predict the likely timeframe for the contested repossession of an aircraft operated by an Indian airline. 4. However. Without the exemption. together with a letter requesting exemption under section 10(15A) of the Income Tax Act 1961. the airline and its operations will be regulated by the local aviation authority and other relevant governmental bodies. duties or taxes (as detailed in paragraph 3. the airline will have to deduct tax at the relevant rate and pay it to the tax authorities (although this requirement might not always be consistent with practice). The exemption was renewed from its previous expiry date of 30 September 2005 and is likely to be further renewed (the Indian Finance Minister indicated as much in his February 2006 pre-budget speech).in Section 13 of the Civil Procedure Code 1908 (the “CPC”). Without a valid appointment. operation and deregistration/export of the aircraft. the parties will need to carefully plan the transaction timetable so as to accommodate this potential time lag (unless the lessee is willing to take the risk associated with an application for exemption following closing). although waiting periods of 2-3 months are not uncommon. Refusals to consent are however open to challenge by the affected lessor or financier. It is not always possible to predict with any accuracy how long it will take to obtain the exemption. Observers suggest that it could take between 10 and 15 years to exhaust all legal avenues. 3. The DGCA. So as to benefit from the exemption. This will. but are beyond the scope of this note given that (generally speaking) the regulations do not differ dramatically in nature and ambit from those applicable in other jurisdictions. which is due to expire on 31 March 20063. Service of process The lessor and financier will need to ensure that any court proceedings can be validly served on the lessee in the appropriate jurisdiction. Although all participants are familiar with process agent appointment letters in cross-border transactions. in the case of English proceedings. Pending receipt of the exemption. 4. the Airports Authority and the Customs Authority would be more likely to be obstructive if there are unpaid charges.4). The relevant civil aviation requirements will of course apply to the import.6 Other As with any other jurisdiction.1 Lease and Guarantee Payments Withholding Tax Exemption Indian lessees currently benefit (under section 10(15A) of the Income Tax Act 1961) from a rental withholding tax exemption issued by the Indian tax authorities. 3 . some care needs to be taken when selecting / agreeing to the process agent. As a result. withholding tax at a rate of up to 40% would apply in relation to lease rental payments to a non-Indian lessor (subject to the terms of any applicable double tax treaties).

000 per aircraft. (DIR Series) Circular No. an authorised dealer is not permitted to allow a lessee to remit any other monies to a lessor (i. 6 By virtue of A. If the cash security deposit exceeds US$1. any amount payable pursuant to any gross-up provision and any indemnity payments.000 or less letters of credit in any amount The relevant underlying legislation is the Foreign Exchange Management Act 1999 which regulates the payment of foreign currency obligations in India.000. There is no limit on the amount of lease rentals that can be paid or the amount in which a letter of credit can be issued without exchange control approval.24 dated 1 March 2002. payments which are not specifically covered by the Circulars referred to above). the security package is taken to include security over the aircraft.13 dated 27 September 2005. the lease agreement and the insurances / reinsurances and also a guarantee and deregistration power of attorney.4.000.P.000 non-scheduled lease payments and is not required for: • • rental and other scheduled lease payments cash security deposits of US$1. RBI exchange control approval is required for: • • • any guarantee payments cash security deposits of more than US$1. It is to be noted that approvals for finance leases must be sought on a case by case basis. an “authorised dealer” in foreign exchange (being in most cases the airline’s Indian banker) is permitted to allow a lessee to remit lease rental payments (and other scheduled lease payments.e. such as maintenance reserve payments4) and open letters of credit in respect of aircraft imported into India on an operating lease basis5. We understand that RBI approval in relation to such payments can only be obtained at the time the relevant payment becomes due (i. Guarantees The approval of the RBI is also required for payments to be made under any guarantee. (DIR Series) Circular No. 4 Maintenance reserves will usually be categorised as “supplemental rent” so as to bring the payments squarely within the wording of the RBI Circular. Cash security deposits Authorised dealers may permit airlines (other than certain public sector companies and governmental entities) to remit up to US$1. This will include (without limitation) the following non-scheduled payments which are usually provided for in lease agreements: default interest.000.P. 5.e. the RBI approval must also cover the security assignment so as to enable guarantee payments to be made to the financier. then the lessor will have to provide the lessee with a standby letter of credit or a guarantee issued by either (a) a foreign international bank or (b) an authorised dealer in India supported by a counter-guarantee from a foreign international bank. It is to be noted that the guarantee cannot be executed until RBI approval has been obtained. To the extent that the benefit of a guarantee executed in favour of the lessor is assigned by way of security to the financier.2 Exchange Control Approval A lessor or financier will need to ensure that the lessee takes effective responsibility for the exchange control approvals that are likely to be required from the Reserve Bank of India (the “RBI”) in relation to the lease agreement and any payment guarantee that is provided by an Indian entity in the context of the transaction.000 per aircraft as a security deposit (for the payment of lease rentals) to a non-Indian lessor in relation to the import of an aircraft / an aircraft engine on operating lease6. there can be no pre-approval). 5 By virtue of A. .000. Security Documents This section of the note details the key considerations that are likely to be relevant in the context of the security package that is to be taken in the context of a particular transaction. For these purposes. Other payments Without the permission of / a clarification from the RBI. Lease rental payments and L/Cs Subject to certain due diligence in relation to the relevant transaction (such as confirming that all required DGCA approvals have been obtained).

7 If moveable property (including aircraft) were owned by an Indian company.2 English Law Aircraft Mortgage The Indian courts will generally recognise the effectiveness of an English law mortgage to create a security interest in an aircraft in accordance with its terms and will generally recognise a judgement obtained against an owner in the English courts. the mortgage need not satisfy any Indian (being the lex situs) legal requirements. Accordingly. inter alia. executed outside India and subsequently brought into India.3 Lease Security Assignment For a financed aircraft. Stamp duty concerns relating to the aircraft mortgage represent another reason for the parties to seek to ensure that the aircraft is located outside India at closing. 5. As such. 8 Pledges of aircraft will be familiar to those who have financed aircraft in other jurisdictions such as Belgium. Stamp duty might be payable in India in relation to the English law aircraft mortgage as a condition to its enforceability (as noted above).5. subject to Section 13 of the CPC. the security arrangements. that company would be required to register any mortgage over such moveable property with the Registrar of Companies under the provisions of Section 125 of the Companies Act 1956. . the rate of stamp duty would be the rate applicable in that state. As Indian statutory law does not contemplate mortgages over aircraft. the prevailing view is that such an arrangement would be likely to complicate. It will however be advisable to ensure that notice of any English law aircraft mortgage is given to the DGCA . 8 Pledges of moveable assets are possible as a matter of Indian law . no fees are payable in India in relation thereto). while the aircraft is located in India. rather than facilitate. it is not possible under statutory law to take an Indian law mortgage over an aircraft. 5. the security package will (assuming underlying English law rights and obligations) usually include an English law security assignment in relation to. as such. If the aircraft were located in an Indian state at the time of execution of the aircraft mortgage. the DGCA will sometimes make such an annotation. However. Any enforcement action against an owner under an English law aircraft mortgage will of course be subject to the airline’s rights under the lease agreement – and (consistent with financings for other airlines) it is likely that the airline would expect this to be recognised either in any required quiet enjoyment letter or in the notice / acknowledgement of security assignment. It is therefore conceivable that a financier could take an Indian law pledge over an aircraft and appoint the airline as its third party aircraft possessor.1 Indian Law Aircraft Mortgage Indian statutory law does not make provision for mortgages over moveable assets (including aircraft). no annotation of the interest of a mortgagee can be made on an aircraft’s certificate of registration under statutory law in India (subject to the comments made in the following sentence). the rights of the owner under the lease agreement and any related lease document (such as any guarantee). It will also invariably be advisable for the rights of a mortgagee to be recorded as clearly as possible in the lease agreement so that constructive notice of the aircraft mortgage can be given as effectively as possible (the lease agreement being of course the document that is filed with the DGCA). No other taxes are payable in India in relation to an English law aircraft mortgage or as a condition to its enforceability. It is not possible to register an English law aircraft mortgage with the DGCA or any other public authority in India under Indian statutory law (and. The DGCA has however historically in certain instances annotated the mortgagee’s interest on an aircraft’s certificate of registration. Although there is no legal basis for the annotation of the mortgagee’s interest on the certificate of registration. The interest of a mortgagee cannot therefore be registered with the DGCA under the provisions of the Aircraft Act and/or the related rules and regulations7. except that the document might be liable to stamp duty if (a) executed in India or (b) if.no particular form for such notification is required. since it would in all likelihood usually be easier to obtain a judgment outside India in relation to an English law aircraft mortgage and enforce that judgment in India (as opposed to seeking to obtain judgment in relation to an Indian law pledge in India). Indian courts do however recognise mortgages over moveable property.

As a condition to registration. such letter would be liable to nominal stamp duty and in all probability the security assignment would not have to be brought into India for enforcement purposes and would not have to be provided to the airline (and each other relevant Indian counterparty). subject to the exceptions set out in Section 13 of the CPC. It is not possible to register an English law security assignment with the DGCA or any other public authority in India (and. However. There is no Indian law requirement that a percentage of the insurances be retained locally and not reinsured in the international markets. it is typical for a percentage of the insured risk to be retained by the Indian insurers (the retained percentage varying but being typically between 10% and 20%). However. the assignment of insurances must however be stamped. A hypothecation is the rough equivalent of what an English lawyer would call a legal charge.As with an English law aircraft mortgage. The lessor’s and financier’s aim will of course be to ensure. As a related point. In light of these considerations. if the airline (and each other relevant Indian counterparty) acknowledges the rights of the assignee under a separate acknowledgement letter (as would usually be the case in the context of a security assignment). An assignment of insurances is registrable against an Indian airline with the Registrar of Companies in the airline’s state of registration. 5. There are no particular legal requirements as to the form of such acknowledgement letter. Subject to state by state variations. The exception to the observation that an absolute assignment is likely to attract relatively low stamp duty is that an absolute assignment of requisition proceeds might be treated as a conveyance and attract a much higher rate of stamp duty (subject to legal debate as to the ascertainability of the future value of requisition proceeds). it is to be noted that it is currently not customary / market practice to require assignments of reinsurances from Indian insurers. no fees are payable in India in relation thereto). that the security is creditor. it will in all likelihood be necessary to ensure that the assignment of insurances is written either as an English law legal charge or as an Indian law hypothecation – either type of document would generally be effective from the Indian law perspective. Similarly.4 Insurance Security Assignment For a financed aircraft.and insolvency-proof if at all possible. a conventional security package would usually include an English law security assignment in relation to certain of the airline’s rights in relation to the insurances and/or reinsurances.9 We are not aware that such power has been exercised. as such. the amount of stamp duty is likely to be high if the assignment of insurances operates as a mortgage (which would be the case for a traditionally drafted English law assignment of insurances. which is a security interest over the asset that does not involve a transfer of title but which restricts the chargor’s ability to deal with the asset and gives the chargee various remedies on enforcement. the Indian courts will generally recognise the effectiveness of an English law security assignment to create a security interest in relation to the lease agreement and any other relevant collateral in accordance with its terms and will recognise a judgment obtained against the owner in the English courts. . However. 9 By virtue of the Insurance Regulatory Development Authority (General Insurance-Reinsurance) Regulations 2000. which operates to transfer all of the airline’s legal title to the insurances subject to the airline’s equity of redemption) or relatively low if the assignment operates as an absolute assignment or as a hypothecation (as categorised by Indian law). Stamp duty might be payable in India in relation to an English law security assignment or as a condition to its enforceability in India. through appropriate registration against the relevant debtor. although the Insurance Regulatory Development Authority does have a statutory power to require that a minimum amount of the insurance cover is retained locally. it is recommended that notice of the security assignment be given to the DGCA – there is no particular form for any such notification. any enforcement action against the owner under an English law security assignment would be subject to the airline’s rights under the lease agreement – and it is likely that the airline would expect this to be recognised either in any required quiet enjoyment letter or in the notice / acknowledgement of security assignment.

6. It is recommended that a copy of the deregistration power of attorney be filed with the DGCA. in each case above 6-month US$ LIBOR It is to be noted that there are various other criteria set forth in the ECB Guidelines. It is expected that this requirement will fall away once India has ratified the Cape Town Convention and opted into the relevant deregistration provisions. . the main guarantee-related issue will invariably be the requirement for RBI exchange control approval prior to execution. exchange control approval from the RBI will normally be required in relation to a PDP financing. If RBI exchange control approval is required.7 Competing interests The comments made at paragraphs 3. As a result. the DGCA will only deregister an aircraft pursuant to a court order.1 PDP Financing RBI Exchange Control Approval Although it is possible for a PDP financing to qualify for automatic exchange control approval under the RBI’s Guidelines on External Commercial Borrowings (the “ECB Guidelines”). 5. fees and expenses) must not exceed 200bps (for loans of less than US$20m) and 350bps (for loans of more than US$20m). It is however customary for the lessor/financier to require that the airline execute a deregistration power of attorney in favour of the lessor and the financier as several attorneys. Although currently of little or no legal effect. the parties will need to factor this into the timeline of the transaction. practice dictates that a lessor/financier will often request that the airline issue in its favour a letter consenting to the deregistration of the aircraft in the relevant circumstances. and that a PDP financing might not satisfy one or more of such other criteria. Once India has ratified the Cape Town Convention (and opted in to the relevant deregistration provisions). 6. 5. Documentary formalities also apply to guarantees executed by Indian entities – the guarantee must be stamped (at a rate of 100 Rupees) and notarised so as to be enforceable against the guarantor. deregistration powers of attorney that are “Cape-Town compliant” will of course enable a lessor or financier to deregister and export an aircraft without DGCA or other interference.5 Deregistration Power of Attorney The DGCA has in most (if not all) instances refused to recognise the exercise of powers under deregistration powers of attorney. this letter and the deregistration power of attorney are regarded as being of potentially persuasive value before the Indian courts.5 similarly apply in relation to a financier’s interest as mortgagee and/or security assignee. This (Indian law) document would have to be executed under the airline’s company seal. it is unlikely since a PDP financing will normally not satisfy the following criteria for automatic approval: • • the term of the loan must be more than 3 years (for loans of less than US$20m) and more than 5 years (for loans of more than US$20m) the “all-in-cost” (which includes interest.4 and 3. As noted at paragraph 4.5. including of course the anticipated timing of the payments to be financed under the manufacturer purchase contract.6 Guarantee The lessee’s obligations under the lease documents might be supported by a parent or other third party payment and / or performance guarantee.2. in the case of a dispute. In addition. notarised and stamped (nominal stamp duty of 100 Rupees will apply). It is to be noted that the RBI might attach certain conditions to any approval (including for example limitations as to the amount of the all-in-cost). The Civil Aviation Requirements also provide that. which letter should be filed with the DGCA.

that the security is creditor.com. It will therefore invariably be necessary to analyse the provisions of any applicable double tax treaties so as to establish whether the requirement to withhold can be minimised or eliminated. No part of this summary may be used. As with any other security granted by the airline.com Jim Edmunds james.6.com Clyde & Co 51 Eastcheap London EC3M 1JP Tel: +44 (0) 20 7623 1244 Fax: +44 (0) 20 7623 5427 Withholding tax will normally apply in relation to interest payments made by an Indian airline to a non-Indian lender. A PDP security assignment would usually be registrable against the airline with the Registrar of Companies in the airline’s state of registration. the amount of stamp duty can be prohibitive for PDP security assignments.com aircraftfinance@clydeco.edmunds@clydeco. the PDP security assignment must however be stamped. All of our aviation finance partners have experience of leasing and/or financing aircraft to Indian airlines. Please feel free to contact any of us if you have any questions related to this note. Clyde & Co LLP accept no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this summary. aviation finance contact or e-mail us at aircraftfinance@clydeco. 7.hill@clydeco. As a result.subramaniam@clydeco. electronic. Further Information This note is intended as a guide to assist in the development of your business with Indian airline customers and summarises our experiences when leasing and financing aircraft into India. Regulated by the Solicitors Regulation Authority. Further advice should be taken before relying on the contents of this summary. © Clyde & Co LLP 2007 .com Philip Perrotta philip. 6. mechanical. Clyde & Co LLP is a limited liability partnership registered in England and Wales. If you would like to receive a copy of any of our other jurisdictional summaries or any of our other aviation finance publications. photocopying.3 PDP Security A key element of any PDP security package is likely to be the security assignment by the airline to the financier of its relevant rights under the manufacturer purchase contract. As a condition to registration.com Siva Subramaniam siva. Subject to state by state variations. reproduced.perrotta@clydeco. the financier’s aim should be to ensure. alternative and innovative structures will in many cases have to be adopted. stored in a retrieval system or transmitted in any form or by any means. reading or otherwise without the prior permission of Clyde & Co LLP. The note should of course not be considered as a substitute for detailed advice from your English and Indian lawyers and other advisers (especially tax advisers) in the context of each given transaction. through appropriate registration against the airline. please get in touch with your usual Clyde & Co.2 Withholding Taxes Further information If you would like to have further information on any issue raised in this update please contact: Gavin Hill gavin.and insolvency-proof.

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