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 (AWG), a UK-based entity that monitors leasing and financing laws on behalf of planemakers and lessors, could raise leasing costs for Indian airlines and further hurt lessors' confidence in the world's third-largest domestic aviation market.
Such an outlook will "have a direct and material impact on future financings and leases to Indian airlines", AWG told Go First in a letter which was also sent to India's aviation minister.
The inability to repossess Go First's planes in a timely manner comes as Indian air travel is booming and hundreds of new jets have been ordered by local carriers, who regularly turn to lessors to help finance plane purchases.
Go Airlines (India) Ltd filed for bankruptcy protection last week, blaming "faulty" Pratt & Whitney (P&W) engines for the grounding of about half its 54 Airbus (AIR.PA) A320neos. P&W, part of Raytheon Technologies (RTX.N), says the airline's claims are without evidence.
In granting protection, the Indian tribunal ordered a freeze on Go First's assets even though some lessors had already terminated their leases with the airline and placed requests with the aviation regulator to repossess more than 40 planes.
Failure to process deregistration applications for aircraft with leases terminated before the freeze was imposed, "results in a negative outlook", AWG said in its watchlist notice.
The aviation ministry and regulator were not immediately available to comment.
Go First's lessors include SMBC Aviation Capital, CDB Aviation's GY Aviation Leasing, Jackson Square Aviation and Bank of China 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.
AWG is a not-for-profit entity co-chaired by Airbus and Boeing (BA.N). Its members include major lessors and financial institutions like Aircastle, BOC Aviation, SMBC Aviation Capital, Deutsche Bank, Goldman Sachs and Morgan Stanley.
The negative outlook by AWG is under what it calls the compliance index, which addresses whether requirements under the Cape Town Convention, an international treaty on plane repossessions, are met in practice.
India's score has been reduced to 3 from 3.5 earlier.
India made it easier for lessors to take back planes if airlines default on payments after joining the Cape Town Convention in 2008, but bankruptcy protection supersedes repossession requests under its local laws.
"If those jets can't get repossessed, everyone in the country pays more. There is a risk premium," said Richard Aboulafia, managing director at Aerodynamic Advisory.
AWG in April issued a warning about Vietnam's compliance with international aircraft leasing norms after a dispute over the repossession of four jets.
