Airports lose their bargaining power in airline bankruptcies

Stressed airlines may now be less willing to pay advance deposits or accept stricter credit terms

- Krishna Yadav

Lawyers say the decision increases credit risk exposure for airport operators.

Airport operators will face increased credit risk and weaker recoveries when airlines go bust after the insolvency court in Mumbai ruled that they cannot claim secured creditor status in the Jet Airways (India) Ltd bankruptcy case, according to lawyers.

“The ruling reduces the bargaining power of airport operators because it confirms that detention rights under the Airports Authority of India Regulations do not create a security interest,” said Suhael Buttan, Partner at SKV Law Offices. “By classifying airport dues as unsecured operational debt, the tribunal places them at the lowest recovery tier.”

Stressed airlines may now be less willing to pay advance deposits or accept stricter credit terms because they know airports cannot gain priority in insolvency by claiming a lien, according to Buttan. As a result, he said, airports have weaker negotiating power and may find it harder to insist on upfront payments to continue operations.