Grounded Dreams: Why IBC Needs a Runway for Airline Insolvencies

Anisha Tripathi & Ananya Sonakiya*

As Jet Airways and Go First hit rough patches that ended in liquidation, the Insolvency and Bankruptcy Code, 2016 (“Code”) — designed to revive failing businesses — has come under scrutiny. While the Code has successfully steered many sectors out of financial distress, the aviation industry seems to be flying against the wind, with its unique challenges testing the very fabric of India’s insolvency framework.

Jet Airways and Go First serve as pivotal examples highlighting the challenges of reviving airlines within the framework of the Code. The lessons they offer are as critical as the reforms they demand — timely, industry-specific, and geared towards preserving what is often lost far too quickly.

This article explores the unique challenges of airline insolvencies, examines the limitations of the Code in addressing them, and discusses the reforms needed to bridge the gaps.

The Fall of Jet Airways & Go First

Jet Airways entered Corporate Insolvency Resolution Proceedings (“CIRP”) in 2019 with its resolution plan (“RP”) proposed by the Jalan-Kalrock Consortium, the successful resolution applicant (“SRA”) being approved by the National Company Law Tribunal (“NCLT”) in June  2021. Within ninety days of the approval date (with the option to extend by another 180 days), the SRA was required under the plan to complete a number of conditions precedent (“CPs”) and to pay the first tranche of ₹ 350 crore within 180 days of the effective date.

Despite these requirements, the SRA failed to fulfill all CPs, contending that certain conditions could only be met in phases — a provision not recognized in the plan. The NCLT initially accepted partial compliance; however, the SRA later failed to deposit the complete first tranche payment within the extended deadlines, managing only ₹ 200 crore and attempting to offset the shortfall by adjusting a performance bank guarantee of ₹ 150 crore. On November 7, 2024, the apex court rejected this adjustment and ordered the liquidation of Jet Airways, marking the end of its long insolvency saga.

Similarly, Go First filed for voluntary insolvency, attributing its financial collapse to the malfunctioning of Pratt & Whitney engines, which left much of its fleet grounded. As a result, with its fleet repossessed and its operational viability effectively extinguished, Go First had no assets left to revive its business. Despite efforts to find a resolution, the Committee of Creditors (“CoC”) unanimously opted for liquidation, as no viable bids emerged, leaving liquidation as the only means to resolve its debts.

Unveiling the Shortcomings in the Code

The unexpected liquidation of the major airline companies highlights the existing challenges within the Code when resolving complex insolvency cases. One of the most significant limitations of the Code is the lack of adequate provisions to ensure mandatory completion of the resolution process within the stipulated timeframe.

Section 12 of the Code states that the CIRP shall be completed within 180 days from the date of admission of the application for initiation, which is extendable up to 330 days at the discretion of the NCLT. Apart from this, the NCLT also has the power to order the liquidation of the company if the resolution process does not conclude within an extended period.

However, in practice, the average time taken by the courts to approve the RP is more than 600 days, far beyond the statutory limit. In the case of Jet Airways, no successful resolution was achieved even after five years of proceedings. Similarly, Go First’s insolvency proceedings, which were initiated in May 2023, are still ongoing, with no clarity on the success of the resolution process. The delays not only contravene the legislative intent of the Code but also cause deterioration in asset value. For instance, Jet Airways’ tangible assets saw a significant decrease from ₹13,595.13 crore in March 2012 to ₹1,070.97 crore in March 2024. This decline was a cumulative effect of depreciation, asset sales, and write-offs due to obsolescence and non-operation.

Further, the Code has limited provisions for dealing with the implementation of the RP; instead, it is the RP itself that details the implementation procedure. This creates significant challenges during the post-approval phase, as reflected in the case of Jet Airways. The approved RP submitted by the SRA faced multiple hurdles in its implementation. Although the plan promised payouts to financial creditors, there was no clear and binding schedule of payments. Similarly, there was no schedule for the payment of dues to employees and staff for their pending dues under the plan. These inadequacies in the RP, coupled with the absence of any monitoring mechanism within the Code, result in unwanted delays and operational inefficiencies.

The Code also lacks a comprehensive cross-border insolvency framework, which adds to the challenges of resolving airline insolvency cases. The industry inherently operates across multiple jurisdictions, with assets, creditors, and contractual obligations spread internationally. In the absence of clear legislative framework, proceedings become fragmented across multiple nations, and consequently, the process is delayed with no effective solution being reached. A similar situation arose in the case of Jet Airways, where parallel insolvency proceedings in India and the Netherlands led to jurisdictional conflicts and procedural delays. However, an effective reference can be made to the Comair Ltd. Case, which highlights the flexibility and adaptability of Chapter 15 of the United States Bankruptcy Code in recognising foreign insolvency proceedings, thereby providing “effective mechanisms for dealing with cases of cross-border insolvency.” In this case, the New York bankruptcy court recognized both Comair’s airline South African business rescue proceeding and its subsequent liquidation as part of a single foreign proceeding.

The deficiencies in India’s bankruptcy laws regarding airline insolvencies are compounded by the country’s partial adherence to the Cape Town Convention (“CTC”), a two-decade-old international treaty. The airline industry predominantly relies on leased aircraft, opting for a cost-effective and less risky alternative by renting planes for fixed durations instead of purchasing them.

While leasing itself is not problematic, challenges arise when the lessee faces insolvency, particularly regarding the repossession of aircraft under the Code. On October 3, 2023, the Ministry of Corporate Affairs issued a notification exempting agreements related to airplanes, engines, airframes, and helicopters from the moratorium under Section 14(1) of the Code. Without the protection of the moratorium over the airline’s most valuable asset—its aircraft—it becomes nearly impossible for an insolvent airline to operate as a going concern during CIRP. This, in turn, makes the Code a less viable option for resolving distressed airlines.

Suggestive Remedies for the Challenges Identified

Highlighting the case of Jet Airways as an “eye opener” towards various deficiencies in the Code and the functioning of company law tribunals, the Supreme Court (“SC”) went on to provide several important suggestions to strengthen the insolvency ecosystem.

Among these recommendations is the necessity of establishing efficient rules for CoC operations. In this context, the Court suggested that instead of relying on the current self-regulatory framework, the Central Government or the Insolvency and Bankruptcy Board of India must consider establishing an enforceable code of conduct for the CoC.

The rationale for a resolution plan’s approval or rejection should also be documented by the CoC. This would enable the NCLT/NCLAT to comprehend the reasoning behind the CoC’s decision-making and prevent erroneous interpretations.

Further, to ensure smooth implementation of the RP, the apex court also suggested that the SRA should make thoughtful and sustained efforts for the corporate debtor’s revival as well as its long-term viability. The SRA cannot simply shift the blame for delays onto other stakeholders. Also, implementation is a collaborative effort and not the sole responsibility of the SRA. Hence, lenders and creditors should actively participate in the resolution process, striking a balance between their financial interests and the prospective rehabilitation.

On the issue of extended timelines, the Court emphasized that the exercise of judicial discretion by the NCLTs and appellate tribunals in altering the binding terms of the RP, including timelines, must be minimized. It highlighted that unreasonable extensions granted by the tribunal undermine the legislative effectiveness of the Code and cause unnecessary delays. Therefore, strict adherence to the timelines and to the terms of the RP should be ensured.

Another important suggestion is the recording of steps to be followed by the respective parties for the implementation of the RP approved by the NCLT. This would ensure that parties remain more vigilant regarding their upcoming obligations under the plan, thus preventing unnecessary delays in implementation. The Court also highlighted the need to improve the existing infrastructure in NCLTs and appoint an adequate number of members to aid the government’s insolvency reform initiative.  

Additionally, to address the challenges of insolvency in the aviation sector, India could adopt a hybrid approach by modifying Alternative A under the Aircraft Protocol. Drawing inspiration from Alternative C of the Luxembourg Protocol, the legislature can enact provisions that allow courts to suspend deregistration and other obligations for a certain period while ensuring that creditors receive interim payments. Courts should resolve such disputes within a predetermined timeline, ideally aligning with the 330-day statutory limit for insolvency resolution outlined under Section 12 of the Code This approach would balance the revival of airlines with creditor interests and promote certainty and stability in the aviation industry.

Conclusion

India’s bankruptcy ecosystem urgently needs improvements, particularly to address sector-specific intricacies like those in aviation, as demonstrated by the insolvency processes of Jet Airways and Go First. The highest court’s recommendations provide a crucial roadmap, highlighting the necessity of legislative modifications to fortify the Code, which would expedite its application and establish efficient oversight procedures. However, changing the Code alone will not suffice. India must ensure the direct application of treaty obligations under the CTC and its Aircraft Protocol to conform to international standards in the aviation industry. A holistic approach—combining legislative enhancements, judicial efficiency, and international treaty integration—will be essential in equipping India’s insolvency framework to support the revival of its aviation industry, preventing grounded dreams from becoming permanent realities.

*The authors are third-year B.A., LL.B. (Hons.) students at National Law University Odisha.