The International Financial Services Centres Authority (IFSCA) has been actively working to create a conducive environment for aircraft leasing businesses to thrive within India’s International Financial Services Centres (IFSCs). A series of regulatory updates, particularly regarding aircraft leasing activities, have been made over the past few years to strengthen this sector. The most recent update, as of February 26, 2025, pertains to the framework for entities engaging in aircraft lease transactions, a critical component in the aviation finance industry.
Overview of the Regulatory Framework
The IFSCA has developed a clear legal and regulatory framework, based on powers granted by the IFSCA Act, 2019. The government of India, through Gazette notifications, has recognized aircraft leasing, including both operating and financial leases (and hybrids of the two), as a “financial product.” This distinction allows entities in the IFSCs to offer aircraft leasing services under a structured and regulated environment.
The first key development came with the Government’s notification dated October 16, 2020, which defined aircraft lease transactions (including operating leases, financial leases, and hybrid leases) as financial products. Subsequently, another Gazette notification on December 14, 2021, expanded this classification, confirming that operating leases and hybrid aircraft leases are recognized as financial products.
The IFSCA’s Role in Aircraft Leasing
The IFSCA has used its powers to regulate and create a framework for entities that want to undertake aircraft leasing activities in the IFSCs. Specifically, the April 12, 2022, notification added clarity by specifying that certain aviation-related equipment—such as aircraft ground support equipment and aviation training simulation devices—also fall under the category of financial products.
This expansion plays a pivotal role in broadening the scope of leasing activities beyond just the aircraft itself. It includes ground support equipment used for handling, servicing, and maintaining aircraft at airports, as well as training devices essential for aviation training purposes. The intention is to ensure that the entire ecosystem surrounding aircraft leasing is covered, giving businesses a full range of assets to finance and lease.
Permitted Activities Under the Framework
The framework provides specific guidelines on the classification of aircraft leases based on their nature:
Operating leases (which allow lessees to use aircraft for a specified time without ownership transfer) are classified as a permitted non-core activity under the Finance Company Regulations of 2021. This allows entities to offer leasing services without becoming deeply involved in the ownership structure of the aircraft.
Financial leases, which transfer ownership of the aircraft after the lease period, are considered a core activity. This includes hybrid leases—a blend of both operating and financial lease features. Entities involved in these types of leases can register under the IFSCA framework as either a finance company or finance unit, depending on the scope and scale of their operations.
These classifications allow businesses flexibility in offering different leasing models, whether focused on short-term use (operating leases) or long-term ownership transfers (financial leases).
Registration Process and Regulatory Compliance
To facilitate the setup of aircraft leasing businesses in IFSCs, entities must adhere to the registration requirements outlined by the IFSCA Finance Company Regulations. This ensures that only qualified and compliant entities are allowed to operate in the aviation finance space.
The IFSCA framework specifies detailed guidelines for businesses to follow when applying for registration as a finance company or finance unit in the IFSCs. Entities interested in setting up an aircraft leasing business need to demonstrate their capabilities in managing aircraft assets, financing, and leasing operations, while ensuring compliance with all regulatory provisions.
