NEW DELHI/SINGAPORE (Reuters) - Some lessors of India’s Jet Airways have begun terminating lease deals over unpaid dues and are preparing to move the leased planes abroad, escalating a crisis for the carrier, five sources with knowledge of the matter told Reuters.

FILE PHOTO: A Jet Airways plane is parked as another moves to the runway at the Chhatrapati Shivaji International airport in Mumbai, India, February 14, 2018. REUTERS/Danish Siddiqui/File Photo

Two lessors have applied to the Directorate General of Civil Aviation (DGCA), India’s aviation regulator, to deregister at least five planes leased to cash-strapped Jet, three of the sources said.

Termination of lease agreements normally precedes applications made to the DGCA.

Jet has delayed payments to its pilots, suppliers and lessors for months and defaulted on loans after racking up over $1 billion in debt.

While it is now meeting some of its payments, its survival hinges on emergency funding from the country’s main state-backed banks.

Frustrated by the unpaid dues, Jet’s lessors, including many of the world’s biggest players such as GE Capital Aviation Services (GECAS), Aercap Holdings and BOC Aviation have already taken control of some their planes, sources said.

That has led to the grounding of nearly a third of Jet’s 119-aircraft fleet.

Once the planes are deregistered, they can be taken out of the country and leased to other airlines.

One of the sources with direct knowledge of the matter said that of the planes being deregistered, two are potentially being flown to China and one to Ireland.

Another industry source said GECAS and Aercap had filed an application to deregister a total of five planes.

Lease terminations could hit the already fragile confidence of Jet’s business partners.

Jet is not aware of the above developments, a company spokesman said in a statement, adding that the addition or exit of aircraft in an airline’s fleet is a dynamic and continuous exercise and depends on the nature of the lease agreement.

The airline provides regular updates on its efforts to improve liquidity to its lessors, who have been supportive, the spokesman said, adding that the company does not comment on specific relationships.

AerCap declined to comment and there was no immediate response from GECAS to a query sent outside normal business hours.

All the sources declined to be identified due to the sensitivity of the matter.

Founder and chairman Naresh Goyal, who transformed Jet into India’s biggest full-service carrier from its humble start 25 years ago, has said it is thrashing out a bailout plan, led by state-run banks and Abu Dhabi’s Etihad Airways.

Before the groundings, Jet controlled over a sixth of the Indian aviation market, capitalizing on a boom in flying. But high fuel taxes, a weak rupee and ultra-low fares have hurt profitability.

Jet’s financial troubles have rekindled memories of Kingfisher Airlines’ collapse in 2012, which forced lessors to write off millions of dollars.

Last week, FLY Leasing Ltd said it had grounded three planes on lease to Jet, and would take them back and reallocate them elsewhere if the airline failed to get approvals for its restructuring plan this month.

Jet has been forced to cancel hundreds of flights and irate passengers have turned to social media platforms to express their outrage.

REPOSSESSION STILL TOUGH

After Kingfisher Airlines’ disorderly collapse in 2012, India modified rules in line with the Cape Town convention, an international treaty that makes it easier for foreign lessors to repossess aircraft during payment defaults.

India said last year it was seeking to revise some local laws which still conflicted with the full implementation of the convention, making it a more complicated process in India than in some other countries.

In theory, lessors have the option of filing a complaint with the government, which in turn can cancel a plane’s registration within five working days, allowing lessors to repossess it subject to certain conditions, including unpaid dues.

However, this is often a long process.

A government notice issued in November said that after an application is filed, airport operators and other private entities need within five days to inform the lessor and DGCA of pending dues related to that aircraft for the three months leading up to the deregistration date.

Only after these are cleared is the lessor allowed to fly the aircraft out of India.

On March 11, DGCA clarified that some of the entities included airports, fuel vendors, tax authorities and customs departments, a move that could further complicate repossessions.

Akshay Nagpal, partner at law firm L&L Partners, said that while this notice is aimed at asking agencies to be more vigilant in seeking their dues, “one cannot rule out lessors viewing this as a step back from their long-time demand of making repossession easier.”