UPDATE 2-ILFC says gets one plane back in India dispute

Last Updated: Mon, Mar 25, 2013 18:50 hrs

* ILFC says removes one A321 after Kingfisher default row

* Lessor says five other aircraft still stranded in India

* AIG unit in discussions over four jets with Cyprus Air

By Tim Hepher

PARIS, March 25 (Reuters) - Aircraft lessor International Lease Finance Corp said on Monday it had successfully removed one of six aircraft stranded in India by a dispute over the suspension of operations at Kingfisher Airlines.

Financiers have warned that failure to resolve the dispute between creditors over the grounded carrier's unpaid bills could starve India of funds needed to develop its aviation industry.

Los Angeles-based ILFC, which has complained its aircraft are being held "hostage" in the dispute, said it had been able to remove an Airbus A321 jet following a High Court decision in New Delhi on March 15. It still has five A320 jets in India.

"One of the hostages has been freed; we are worried about the others," ILFC Chief Executive Henri Courpron said in a telephone interview.

Kingfisher, controlled by liquor baron Vijay Mallya, has been halted due to a cash crunch. Lenders are trying to recover $1.4 billion of loans in default, but disagreements over who should take precedence have left jets stranded.

Germany's DVB Bank said in December it had sued India's aviation regulator and Kingfisher to have two planes it financed for the troubled carrier de-registered, a possible first step toward recouping its funds.

The fate of Kingfisher's jets is seen as an important test of an international agreement known as the Cape Town convention, designed to make it more attractive for leasing companies to invest by duplicating U.S.-style repossession rights.


AIG subsidiary ILFC does business with three other airlines in India -- Air India, Spicejet and Jet Airways -- but has frozen fresh investments in the country pending a resolution of the Kingfisher default row.

ILFC meanwhile has four aircraft operating with Cyprus Airways, the flag carrier of the Mediterranean nation engulfed in the latest chapter of Europe's financial crisis.

"We are in constant communications with Cyprus Airways and are working out our situation with them," Courpron said.

He declined to comment on whether the airline was up to date with lease payments on its fleet of Airbus aircraft.

Europe's financial crisis has seen several airlines including Spanish carrier Spanair and Hungary's Malev go bankrupt, forcing lessors such as ILFC to recover their jets.

Some of Spanair's leased jets ended up being operated by Vueling, the Spanish budget carrier which is fighting a bid by 46-percent owner International Airlines Group.

Courpron said recent developments in southern Europe had demonstrated that it was important, for aviation to operate smoothly, that aircraft were seen as fungible or mobile assets and that he believed Indian courts had understood this.

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