Introduction

Ten years in, the Insolvency and Bankruptcy Code, 2016 (“IBC”) has not quite lived up to its billing, at least not where airlines are concerned. The statute was ambitious by design. But ambition, as the rusting hulks of Jet Airways aircraft at CSMIA demonstrate, is no substitute for sector-sensitivity. The IBC’s architects conceived of a general-purpose insolvency architecture; aviation insolvency, it turns out, demands something far more specific. Jet Airways commenced its Corporate Insolvency Resolution Process (“CIRP”) in June 2019 after a petition was filed by the State Bank of India in the National Company Law Tribunal (“NCLT”). Go First, on the other hand, entered into voluntary insolvency with hopes of recovery in May 2023. Despite the difference in the commencement of the CIRP proceedings, the fate of both these airlines ultimately ended in a similar manner: Liquidation. While Jet Airways’ resolution plan was declined on the ground that the company had already stopped its operations before the CIRP began, Go First’s plans were repeatedly rejected by the Committee of Creditors (“CoC”). Now, SpiceJet is on the verge of insolvency as new petitions of insolvency for INR 58 Crore in unpaid lessor dues have arisen, thus indicating another crisis in the Indian Aviation sector. The essay analysis the IBC’s inability to resolve airline insolvencies in a timely manner and proposes a tailored framework for speedy CIRP proceedings for the same.

The Uniqueness of Airline Insolvency

Airlines are fundamentally different from most corporations. Their principal assets are the aircraft, which are intrinsically volatile and are often based on transnational leasing agreements. Airlines also rely on intangible assets such as airport slots, trained professionals- all of which may be exhausted once the flights cease. Even if a flight is grounded for a mere week, it may lead to reallocation of these slots, resignation of crew members, and irrevocable brand damage. The Regulatory licenses allotted by the Directorate General of Civil Aviation (“DGCA”) further complicate the situation, while the IBC’s automatic stay halts creditor enforcement with no protection against license suspension or slot forfeiture. The case of Go First exemplified these gaps as the lessors had repossessed the aircraft under the Cape Town Convention, and in response, the DGCA had started inquiring, thus leading to operational chaos. However, the current IBC regime fails to fill these gaps in a time bound manner.

Systemic Failures in IBC Timelines and Committee Incentive

Traditionally, the IBC has been designed for time-bound resolutions- between 180 and 330 days, which the IBC has underdelivered across sectors. The median resolution time is nearly double the maximum time prescribed, that is, 590 days. Only one in every eight cases admitted results in approval of the resolution plans, while nearly one in every three petitions admitted end up in liquidation. Creditors lose roughly 70% of their dues due to haircuts. While the backbone of the aviation industry, which includes the operational creditors- airports, fuel suppliers, employees- recovers a meagre 6%, compared to the financial creditors at 24%.

Over 85% of the cases exceed the prescribed limit, with roughly two in every three cases getting delayed beyond 270 days. In aviation, the margins are already too skewed for the companies to generate profits; these delays lead to self-inflicted liquidation, each day leading to corrosion of the intangible assets and customer confidence.

The crisis in delay is further compounded by the misaligned incentives as the Indian Law follows the creditor-in-control model, therefore, under Section 21 of the IBC, the Committee of Creditors holds decisive power, with voting rights in proportion to their respective claims.

In the aviation industry, banks and other creditors prioritise liquidation over restructuring so as to avoid the complex operational revival that would demand industry expertise. The IBC’s stated aim is to “maximise value for all stakeholders”, which leads to creditor-centric outcomes, which disproportionately place the operational suppliers, employees, and lessors in a disadvantaged position. Provided these systematic deficiencies exist in timelines, the unique character of airline insolvency thus demands a tailored approach.

Delta Airlines’ Tailored Approach

The filing of Delta’s Chapter 11 case in September 2005 has some instructive value. It is far more than a mere number in comparative insolvency law but a demonstration that airline rescue can be achieved if the law is tailored for the task. Nineteen months later, Delta emerged out of bankruptcy. This was no coincidence. The airline sold more than 100 underperforming planes, targeted profitable corridors and worked hard to win back trust by investing in their digital infrastructure. Both the debtor-in-possession (“DIP”) model under Chapter 11 and the aircraft-specific protections of Section 1110 of the Bankruptcy Code were important components of the structure of this bankruptcy, as the latter provision brings with it the predictability that Indian lessors, in my view, are lacking entirely. It is worth emphasizing also that the “cramdown” feature exists – in this respect, the courts have the authority to order a reorganisation even against the objections of creditors, which is something that the model used in India, where the creditors’ committee is the deciding factor, rules out.

Proposed Reforms

At this juncture, SpiceJet is more of a going concern than a slow-motion cautionary tale. Having only 2% market share, a fleet reduced to 20 aircraft by September 2024, and INR 3,700 crore raised what appears to be more of a holding action. The irony of this is that, under the present rules, an NCLT admission, which is supposed to be the means of rescue, would cause a cascading effect. Moratorium triggers, aircraft is repossessed by overseas lessors (usually legally under the Cape Town Convention) and the CoC shifts into financial recovery with the operational skeleton of the airline falling around it. The 2025 Amendment Act points in the right direction, but the loopholes in the act are the ones that are the most critical to aviation.

Firstly, adopting an Aviation Fast-Track CIRP under a dedicated chapter could limit the resolution time frame to 120 days (plus one 30-day extension), and simultaneously appoint an insolvency professional who possesses sector expertise.

Secondly, Rebalancing the CoC by expanding membership to include airports, fuel suppliers, employee representatives, and a nominee of the Ministry of Civil Aviation is crucial. Granting major decision-making power, such as that of liquidation or sale, to a 75 per cent super-majority would prevent banking interests from monopolising outcomes of these proceedings.

Thirdly, Statutory DIP Financing can be adopted along with super-priority status for new funds, which would further enable the airlines to maintain operations. Appointment of Resolution professionals, with CoC approval and NCLT ratification within 14 days, would secure working capital free from challenge under Sections 43–51, which would be similar to Delta’s US$2 billion DIP facility.

Fourth, Cross-Border Insolvency Cooperation can be modelled on the UNCITRAL Model Law which would lead to the formation of presumptive centre of main interests (“COMI”) for airlines, thus, streamlining recognition of foreign proceedings, and coordinating the asset management with major leasing jurisdictions, such as Ireland, Singapore, USA, etc., which would further prevent delay in repossession that currently impairs Indian carriers.

Finally, a Regulatory Coordination Committee, which would be composed of the DGCA, AAI, Ministry of Civil Aviation, and IBBI, would safeguard operating licences and slot allocations during CIRP, which would enable resolving conflicts between moratorium protections and statutory obligations to maintain essential air services.

Conclusion and the Way Forward

The Insolvency Bankruptcy Code was passed with the aim of balancing the interests of all the stakeholders; thus, it demands recognition of its heterogeneous asset dynamics and stakeholders. The invocation of Chapter 11 in the United States shows that quick and effective restructurings are possible when the goal is to protect the company’s revival rather than liquidation, when all stakeholders are actively involved. In India, the Insolvency and Bankruptcy Code must cease to adopt a single methodology to all insolvencies and instead draft special provisions to tackle the aviation industry. This can be in the form of quicker airline recovery process, enhanced involvement of all creditors, legal assistance in interim financing, explicit regulations on cross-border cases, and robust regulatory oversights. The Amendment Act 2025 is, at best, a starting point. However, the start is not sufficient when airline companies are losing value every day. The way ahead is not dark but follows more accelerated schedules, CoC which is attuned to the real creditor ecosystem of aviation, DIP funding with claws, cross-border coordination based upon UNCITRAL, and a regulatory buffer which retains the DGCA licences intact by CIRP. The question of whether Parliament is enthusiastic about such level of sector-specificity is yet to be answered.