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By Aditi Shah and Aditya Kalra
NEW DELHI, May 12 (Reuters) - India has been placed on a watchlist with a negative outlook by a global aviation leasing watchdog, which said it had failed to comply with international aircraft repossession norms after airline Go First was granted bankruptcy protection.
The move by the Aviation Working Group, a UK-based entity that monitors leasing and financing laws, could raise leasing costs for Indian airlines and hurt lessors' confidence just as the world's third-largest domestic market faces record growth.
Such an outlook will "have a direct and material impact on future financing and leases to Indian airlines", AWG told Go First in a letter copied to India's aviation minister.
Go Airlines (India) Ltd filed for bankruptcy protection last week, blaming "faulty" Pratt & Whitney engines for the grounding of about half its 54 Airbus A320neos. Pratt, part of Raytheon Technologies, says the claims are without evidence and divert attention from the airline's financial woes.
In granting protection, the Indian tribunal ordered a freeze on Go First's assets even though some lessors had already terminated leases and placed requests with the aviation regulator to repossess more than 40 planes.
Failure to process the applications before the freeze was imposed, "results in a negative outlook", AWG said a notice.
India's aviation ministry and regulator were not immediately available to comment.
TREATY TEST
The dispute comes as Indian air travel is booming and hundreds of new jets have been ordered by local carriers, who depend heavily on foreign lessors to finance plane purchases.
It is also the latest test of a 2001 treaty designed to smooth the growth of aviation by protecting repossession rights, which hit headlines when Russia blocked the repossession of jets in retaliation over Western Ukraine-related sanctions last year.
India has ratified the so-called Cape Town Convention but has yet to pass a law resolving conflicts with the country's insolvency and bankruptcy code, which is backed by parliament.
"Given (this), implementation of the Convention will run into challenges when read with the bankruptcy laws," said Syed Tamjeed Ahmad, co-founder of aviation law firm Spaviatech Law.
Go First's lessors include SMBC Aviation, CDB Aviation's GY Aviation Leasing, Jackson Square Aviation and BOC Aviation.
In its letter to the airline's court-appointed administrator at Go First, AWG said the airline has an "obligation" to preserve the aircraft and maintain their value until the creditors and lessors can take possession.