Ajay Kumar
Managing Partner, KLA Legal, Gurgaon
ajay.kumar@kla-legal.com

Anchal Nanda
Senior Associate, KLA Legal, Gurgaon
anchal.nanda@kla-legal.com

Introduction

The growth of civil aviation has significantly influenced global mobility patterns. The Indian aviation sector has demonstrated sustained growth over the past two decades. Ranked behind only the United States and China, it now holds the position of the world’s third-largest domestic aviation market^[1] and is poised to become the world’s third-largest overall air passenger market by 2030. Per International Air Transport Association (IATA), the country’s commercial aircraft fleet is set to nearly double, reaching approximately 1,100 aircraft by 2027. In FY 2024–25, up to December 2024, total passenger traffic – including both domestic and international segments – reached approximately 196.9 million. Domestic passenger traffic grew by seven to eight per cent year-on-year, reaching 15.3 million in December alone, while international traffic recorded a 14–15 per cent increase over the same period. Freight volumes also registered modest but continued growth. India’s aviation industry has undergone a remarkable transformation over the past two decades, emerging as one of the most vibrant markets in the global aviation landscape. This growth has been driven by multiple factors, including the rise of an expanding middle class with greater disposable income, accelerating urbanisation, and supportive government initiatives – most notably the UDAN (Ude Desh ka Aam Nagrik) scheme, which aims to enhance regional connectivity and make air travel more accessible to the general population. Significant investments in airport infrastructure have further underpinned this expansion, highlighted by major upcoming projects such as the Navi Mumbai International Airport. Additionally, ongoing modernisation efforts at existing airports, coupled with a renewed policy emphasis on sustainability, capacity enhancement and increased private sector participation, are establishing a foundation for long-term, inclusive and resilient growth within the aviation sector.

Early days of Indian aviation

Historically, civil aviation in India commenced in 1911 with the world’s first official airmail flight between Allahabad and Naini. This milestone was soon followed by the inauguration of the Karachi–Delhi air route in 1912 and the establishment of India’s first airline by Tata Sons in 1915. Key developments in the sector’s early evolution included the creation of the Department of Civil Aviation in 1927, the founding of Tata Airlines in 1932 and the establishment of Hindustan Aeronautics Limited in 1940.^[2]

In the post-independence era, India undertook the nationalisation of its airlines in 1953, alongside significant expansion of civil aviation infrastructure. The 1990s ushered in a period of liberalisation, highlighted by the implementation of the Open-Sky policy and the entry of private carriers such as Jet Airways and Sahara Airlines. The 2000s saw the emergence of low-cost carriers, development of public-private partnerships in airport infrastructure, major airline consolidations and key regulatory reforms including the creation of Airports Economic Regulatory Authority (AERA) in 2009, shaping the trajectory of modern aviation in India.^[3]

Driving infrastructure growth

India continues to advance its aviation infrastructure through strategic investments and forward-looking innovations. The aviation ecosystem consistently attracts significant capital inflows and builds on critical infrastructure milestones. According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI inflows in India’s air transport sector, including air freight, amounted to US$3.93bn (approx.) between April 2000 and December 2024.^[4]

The Adani Airport has unveiled an ambitious capital expenditure plan of approximately US$11.5bn over the next five years, aimed at expanding and modernising six major airports.^[5] As part of this initiative, the group has successfully secured US$750 million in funding from global banks. The objective is to increase passenger handling capacity to 300 million annually by 2040 nearly tripling current levels. In parallel, the Noida International Airport at Jewar, a flagship greenfield project, exemplifies the government’s strategic vision.

Innovation in India’s aviation sector is increasingly propelled by active private sector engagement, particularly in emerging technologies such as unmanned aerial systems. Companies such as Garuda Aerospace are playing a key role in promoting drone innovation through research and development, pilot training programmes and support for startups. These efforts align with the Government of India's regulatory push under the Drone Rules, 2021 and the Production-Linked Incentive (PLI) scheme for drones and drone components, which aim to create a robust domestic drone ecosystem. Together, these initiatives are positioning India as a potential global hub for drone technology and applications.

In the MRO segment, stakeholders such as Magellan Aerospace and Aequs have entered into a Memorandum of Understanding (MoU) to establish a state-of-the-art engine maintenance facility in Karnataka which aims to enhance infrastructure supporting both civil and military aviation needs. Meanwhile, The Regional Connectivity Scheme UDAN has entered its ninth year of operation, having successfully operationalised 619 routes and 88 airports, with plans to expand to an additional 120 additional destinations. The launch of UDAN Yatri Cafes at Kolkata and Chennai Airports has been met with strong positive feedback from passengers, particularly for the quality, affordability and taste of offerings. Owing to high demand, the initiative is now being scaled nationwide. Rapid infrastructure development continues across the aviation sector, marked by significant advancements in the operationalisation of greenfield airports and the modernisation of existing facilities across the country.

Driving change through policy

India’s aviation landscape has undergone significant transformation through a series of impactful policy reforms. Liberalisation of Foreign Direct Investment (FDI) norms has played a pivotal role in attracting global capital, permitting up to 100 per cent FDI under the automatic route for greenfield airport projects and up to 49 per cent for scheduled air carriers without prior government approval. These measures have enhanced investor confidence and facilitated greater private and international participation in the sector’s development.

The National Civil Aviation Policy (NCAP) introduced in 2016^[6] and subsequently updated, outlined a comprehensive framework aimed at enhancing connectivity, promoting air cargo and rationalising tax and fee structure within the sector. Key measures included the reduction of excise duty on Aviation Turbine Fuel (ATF), capping of charges such as the User Development Fee (UDF) and the provision of tax incentives under the UDAN scheme to encourage regional connectivity. Additionally, the policy advocated for the adoption of standardised and transparent tariff models at airports, with the broader objective of making air travel more affordable and accessible to the public.

The Bharatiya Vayuyan Adhiniyam, 2024 marks a pivotal advancement in modernising India’s civil aviation legal framework. By aligning domestic regulations with international standards set by International Civil Aviation Organization (ICAO), the legislation reinforces aviation safety and airspace security. It also promotes the development of domestic aircraft manufacturing by establishing a clearer, more supportive regulatory environment. Collectively, these reforms provide a strong legal and institutional foundation, enhance operational efficiency, ensure compliance with global benchmarks and cultivate an investor-friendly climate conducive to the sector’s long-term growth.

Recent advancements

India’s aviation industry has undergone historic consolidation and strategic restructuring aimed at enhancing competitiveness, operational efficiency and long-term sustainability. The National Company Law Tribunal (NCLT) approved the merger of Air India Express and AirAsia India, resulting in the formation of a unified low-cost carrier under the Tata Group. Simultaneously, the merger of Vistara and Air India has been completed, resulting in the formation of a single full-service national airline. This consolidation has enabled significant synergies in fleet management, route optimisation and human resource integration.

The insolvency proceedings of GoFirst served as a pivotal regulatory test, exposing critical gaps in India's bankruptcy framework concerning aircraft lessors. The National Company Law Tribunal imposed a moratorium on aircraft repossessions, which was later challenged as the Delhi High Court upheld lessors’ rights under international treaties. This legal divergence highlighted the misalignment between India's domestic insolvency laws and its obligations under the Cape Town Convention. The resulting judicial interpretations introduced uncertainty into aircraft leasing contracts, underscoring the need for clearer legal harmonisation. These developments mark a maturing phase in the sector, driven by regulatory introspection and market-driven adaptation.

The leasing landscape

A quiet revolution is unfolding in India’s aircraft leasing sector, led by GIFT City and supported by a robust framework of tax, legal and policy reforms. The exemption on withholding tax and the introduction of a ten-year tax holiday for leasing entities have positioned GIFT IFSC as a viable and competitive alternative to established global hubs like Ireland or Singapore. Strengthening this framework, the Ministry of Corporate Affairs (MCA) issued a notification in October 2023^[7] affirming that rights under the Cape Town Convention take precedence over domestic insolvency proceedings. Further reinforcing this alignment, the Parliament enacted the Protection of Interests in Aircraft Objects Act, 2025 (CTC Act) in April 2025 formally harmonising Indian law with the Cape Town Convention and its Protocol. The CTC Act brings India’s leasing framework fully in line with global standards by streamlining regulations and reducing leasing costs. Although India ratified the Cape Town Convention in 2008, it had not enforced its provisions until now. The Act empowers the DGCA as the national registry, mandates timely creditor notifications in case of defaults^[8] and establishes precedence of Cape Town rights over the Insolvency and Bankruptcy Code.^[9] By simplifying dispute resolution through High Courts and limiting lessor liabilities to statutory dues, the law aims to lower leasing costs, enhance investor confidence and support fleet expansion within India’s rapidly growing aviation sector. In parallel, the Bhartiya Vayuyan Adhiniyam, 2024, replaces the Aircraft Act, 1934, significantly broadening the regulatory scope to cover the entire lifecycle of aircraft – from design and manufacturing to maintenance, operations, trade, import and export. Its key objectives include aligning India’s civil aviation governance with International Civil Aviation Organization (ICAO) standards, streamlining Radio Telephone Operator certification under the DGCA and fostering domestic aircraft manufacturing through incentives aligned with the Make in India initiative – thereby promoting greater self-reliance and industry growth.

Global lessons for India’s skies

Renowned as the premier hub for aircraft leasing, Ireland’s Dublin IFSC hosts 14 of the top 15 global lessors.

Singapore and China demonstrate additional legal and financial mechanisms that India could consider incorporating into its aviation framework. Singapore, for example, enacted the Cape Town Convention through its International Interests in Aircraft Equipment Act 2009. The law explicitly permits self‑help remedies such as repossession, deregistration and immobilisation, facilitated by a formal Irrevocable Deregistration and Export Request Authorization (IDERA)-style system administered by the Civil Aviation Authority of Singapore (CAAS). Furthermore, Singapore imposes no restrictions on the choice of law or governing law provisions in leasing agreements, offering enhanced contractual flexibility.

China, despite ratifying the Cape Town Convention in 2009, issued an internal‑transaction declaration that excludes purely domestic leasing transactions from Convention remedies. This means that protections such as IDERA and Chapter III protections do not apply to purely onshore deals within the PRC. However, cross‑border interests remain safeguarded under the Convention, with Alternative A provisions in effect. China’s leasing ecosystem has rapidly advanced, notably embracing sustainable finance lessors like China Aircraft Leasing (CALC) and China Development Bank Aviation.

Furthermore, India’s GIFT City and the recent 2025 legislation have brought the country close to achieving parity in legal frameworks with global leaders. However, opportunities remain to enhance the regulatory landscape by codifying a statutory de‑registration and export protocol similar to Singapore’s IDERA, establishing a specialised commercial court track for aviation disputes and integrating ESG‑linked and green finance inspired by China’s approach.

Conclusion: charting the way forward

India’s aviation sector is currently at a pivotal point of transformation. It has emerged as one of the world’s busiest and most efficient domestic aviation markets, characterised by record passenger traffic, densely packed flight schedules, continuous fleet growth and extensive infrastructure development. With these strong fundamentals, India is on track to become one of the top global aviation markets by 2030.

Landmark infrastructure projects such as Navi Mumbai, Jewar and Dholera airports are significantly enhancing national aviation capacity. The ongoing expansion of regional connectivity through the UDAN scheme, coupled with strong private sector participation, is further strengthening the aviation network. Concurrently, recent legal and policy reforms – including alignment with the Cape Town Convention, the implementation of the Bharatiya Vayuyan Adhiniyam, 2024 and the increasing prominence of GIFT City – are boosting investor confidence and driving greater cost efficiencies across the sector.

Challenges remain, including high aviation turbine fuel (ATF) costs, constraints in Maintenance, Repair and Overhaul (MRO) infrastructure and the need for enhanced safety oversight. However, targeted reforms are underway to address these issues. Initiatives focused on boosting domestic manufacturing, skill development and green aviation practices demonstrate a strong commitment to sustainable and inclusive growth. With these efforts, India is well-positioned to evolve into a globally competitive, resilient and self-reliant aviation hub that supports both economic progress and strategic priorities.

The following actionable recommendations are suggested to further strengthen India’s aviation sector and ensure sustainable growth in the coming decade.

1. Extend and strengthen tax incentives for leasing entities: maintain and possibly extend the ten-year tax holiday and withholding tax exemptions for aircraft leasing companies operating out of GIFT City to ensure sustained attractiveness compared to global hubs like Ireland and Singapore.
2. Simplify compliance and procedures in GIFT City: streamline tax filing and compliance processes specific to the aviation sector to reduce administrative burdens and improve ease of doing business for lessors, operators and manufacturers.
3. Rationalise taxes and GST: review and adjust customs duties and GST rates on aircraft parts, components and maintenance services to lower costs and support domestic manufacturing and maintenance capabilities.
4. Reduce operational costs: address challenges related to high ATF prices and enhance MRO infrastructure to lower overall operational expenses.
5. Align regulatory standards with global norms: continue harmonising domestic laws with international conventions such as the Cape Town Convention, including enactment of rules and leverage GIFT City’s growing role to position India as a competitive global aviation leasing hub.
6.  Foster green technologies and digital transformation: launch a national initiative to promote sustainable aviation fuels, electric aircraft and smart technologies for air traffic control and airport management, fostering a greener and more efficient aviation ecosystem.
7. Developing a dedicated fast-track aviation dispute resolution mechanism: establish a dedicated legal mechanism to swiftly resolve aviation-related disputes, particularly those concerning aircraft leasing and insolvency, to enhance legal certainty and investor protection.
8. Upgrade regional connectivity and air cargo logistics: invest in Tier-II city airports and develop integrated cargo corridors to reduce congestion at major hubs enhance regional connectivity and stimulate trade across emerging markets.

India’s civil aviation sector stands at the threshold of global leadership, backed by bold policy reforms, modernised legislation and rapid infrastructure growth. As the country navigates challenges and embraces innovation, a coordinated focus on legal certainty, sustainability, regional connectivity and investor confidence will be critical. With continued momentum, India is well-positioned to become not only one of the largest aviation markets in the world but also a model for inclusive, resilient and future-ready aviation development.