In today’s Finshots, we look at whether the GIFT IFSC’s aspirations to become a leading aircraft leasing hub can come to fruition soon.

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The Story 

Let’s start today’s story with some stats. Roughly 90% of Indian airlines lease their fleets. This simply means that airlines don’t own most of their planes. They rent them from leasing companies, often based in countries like Ireland, Hong Kong, Dubai and Singapore. 

And there’s a good reason why. Buying a plane is ridiculously expensive. Take the aircraft that Indian airlines commonly fly — Airbus A320s, Boeing 777s, 787s and 737s. One of these could cost anywhere between ₹700 crore to ₹1,100 crore. Now, although these costs are negotiable based on aircraft type and order size, you would agree that these are gigantic, to say the least. 

So, yes, leasing makes more sense. It helps airlines avoid these upfront investments, preserve cash for other operational expenses, or expand their fleet while avoiding significant debt.

Leasing clearly helps airlines, but what about those who provide the planes? Well, it turns out leasing is a massive cash cow for aircraft leasing and financing companies. For perspective, leasing companies own over 50% of the world’s airline fleet, and as of 2024, they leased over $180 billion worth of commercial aircraft globally.

Here’s how it works. Lessors buy planes, often in bulk, at discounted rates from manufacturers like Boeing or Airbus. Then, they lease them out to airlines, earning a steady monthly income. And while it’s a capital-intensive business, the returns are solid. Even if an airline goes bust, the lessor can simply lease the aircraft to another carrier. With a lifespan of 20-25 years, the same plane can generate revenue multiple times.

Given the size of the leasing business globally, it was only a matter of time before India wanted a slice of the pie. Nearly six years ago, in her 2019 Budget speech, the Finance Minister announced that the time was ripe for India to enter the aircraft financing and leasing game. This was a great move, as Indian airlines, which had to rely on other countries, can now lease aircraft for their own airlines in their home country.

That’s where GIFT IFSC (Gujarat International Finance Tech-city-based International Financial Services Centre) comes in (We’ll just call it GIFT City from hereon). For the uninitiated, GIFT City works like a Special Economic Zone that offers incentives and tax benefits to businesses that set up shop here instead of elsewhere in the country.

For example, aircraft leasing businesses in GIFT City get a 10-year tax holiday on lease rentals and don’t have to deduct tax before paying rent to a lessor in another jurisdiction. The Directorate General of Civil Aviation (DGCA) has also exempted lessors registered in GIFT City from obtaining prior approval for importing or acquiring aircraft on lease. And for the past few years, the government has been trying to attract global leasing and financing companies to set up shop in GIFT City.

To some extent, this has worked. Since 2019, more than 26 aircraft leasing entities, including some global players, have been registered there. However, only a handful of these established entities have actually engaged in leasing transactions.

One big reason was that India’s leasing ecosystem didn’t match global standards, and legal protections for lessors were weak. This kept investors wary. But now the government wants to change that.

Just last week, the government introduced the Protection of Interests in Aircraft Objects Bill, which will give GIFT City a much-needed boost.

The bill gives lessors something they’ve wanted for years: clarity and confidence. Their biggest fear was getting stuck in endless legal battles to get back their aircraft if an airline they rented to went bankrupt, which happened in the cases of Kingfisher, Jet Airways and Go First Airlines. Lessors just couldn’t reclaim their planes because insolvency courts got in their way. 

The new bill sets a clear rule. Lessors can reclaim their planes within two months if an airline defaults. Plus, any disputes will go straight to the High Court for quick resolution.

That’s not all. Last year, the UK-based Aviation Working Group (AWG) downgraded India’s rating to ‘high risk’ due to poor protection for lessors. This made leasing more expensive for Indian airlines. But now, with the bill in place, AWG has already bumped India’s rating back to ‘medium-risk jurisdiction’ and it could climb higher once the bill becomes law.

For Indian airlines, this is great news; it could lower leasing costs and make aircraft procurement easier. But for GIFT City, it’s even bigger. With stronger laws, global leasing giants might finally start serious business here.

But despite these incentives and even the provisions of the recent bill, India still lags behind established leasing hubs like Ireland. It would be a tough battle to convince these Irish-based companies to consider setting up shop in India. 

Why, you ask?

See, Ireland has long been the top pick for aircraft leasing companies, mainly because of its extensive double taxation agreements (DTAs). These treaties prevent income from being taxed twice, reducing the tax burden on lessors. And thanks to them, leasing companies often pay little to no tax in the lessee’s country and minimal tax in Ireland. But sometimes, these leasing companies operate with minimal real presence in Ireland, like just a registered office and some paperwork. Though, that’s getting harder with tighter global tax rules.

In contrast, India’s tax approach is stringent. The 2017 General Anti-Avoidance Rule (GAAR) allows tax officials to scrutinise and deny tax benefits in case a leasing company exists solely for tax-saving purposes in the GIFT City without real commercial activity. This means lessors can’t just set up a shell entity in GIFT City and expect Ireland-style tax perks. 

While strict tax laws ensure genuine business activity, India’s history of retrospective taxation (the practice of applying new tax laws or rates to transactions that occurred before the laws were enacted) has often made foreign investors nervous. For example, in 2025, Volkswagen faced a $1.4 billion tax demand from Indian authorities after 12 years of scrutiny, highlighting how prolonged and unpredictable tax investigations can be.

Then, we didn’t talk about the elephant in the room: financing. These global leasing companies survive on the support of financial institutions. For instance, European banks support leasing businesses in Ireland. Similarly, the government-owned Temasek Holdings and Singaporean banks support leasing firms in Singapore.

There is no such provision in India because banks are reluctant to fund anything related to aviation. Thanks to past experiences with Indian airlines going bust. As a result, lessors operating from GIFT City have to rely on overseas funding. And that comes with additional costs, making the GIFT City less attractive.

Sure, the bill is a step in the right direction. But if India really wants to compete with Ireland and the like, it needs more than one law. The government must provide clear, long-term policy assurances, global-standard legal protections and a dependable financing framework.

Until then…

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