NEW DELHI - The world's second largest aircraft lessor, SMBC Aviation Capital, has warned that India's decision to block leasing firms from reclaiming Go First planes will jolt the market and spark a confidence crisis, legal papers show.

SMBC, along with firms such as Jackson Square Aviation and Bank of China Aviation, raised the alarm after a tribunal gave Go Airlines (India) Ltd bankruptcy protection to allow it to revive itself, but barred lessors from repossessing planes.

A boom in traffic in the world's third-biggest aviation market prompted record jet orders but two major airline failures, of Kingfisher Airlines in 2012 and Jet Airways in 2019, have taken some of the shine off the market.

"Lessors and international aircraft owners see India as a risky jurisdiction for aircraft leasing," after the failures of Jet and Kingfisher, SMBC told the tribunal ahead of a hearing on Friday where it seeks to quash Go First's bankruptcy protection.

"The admission of the petition (seeking protection) will further shake confidence of the international aviation industry," it added in a filing to the tribunal that has not been made public but was reviewed by Reuters.

India is a critical market for lessors, in which sale-and-leaseback deals accounted for 75% of plane deliveries from 2018 to 2022, compared with a global average of 35%, data from aviation analytics firm Cirium shows.

Go First and SMBC, which also called the Indian airline's insolvency filing a "smokescreen" to defraud creditors and lessors, did not respond to a request for comment.

The lessors' anger comes as Prime Minister Narendra Modi touts India's emergence as an aviation powerhouse.

New airports are springing up rapidly nationwide, and airlines such as IndiGo and Tata Group's Air India are expanding aggressively with new, record plane orders.

The moratorium on the Go First planes will also weigh on new deals, forcing domestic carriers to shell out higher deposits for leased planes, or higher monthly rents, an adviser to a global lessor and an aircraft leasing industry source said.

Such rents are, in most cases, already higher than in some other countries following the departure of Jet and Kingfisher, said the sources, who spoke on condition of anonymity.

The situation could also boost risk premiums for IndiGo, which has ordered hundreds of jets and Air India, which has kicked off financing for its 470-plane order worth tens of billions of dollars by seeking proposals from leasing companies.

One leasing industry source said risk premiums would rise for the Indian market "regardless of how strong" the airline was, but stopped short of naming Air India or IndiGo.

Both airlines did not immediately respond to a request for comment.

The Go First bankruptcy decision also fuelled nervousness among the lessors of financially-troubled SpiceJet, with many wanting to pull out planes for fear that situation, too, could turn sour, said the same two people involved in such talks.

In recent days, Ireland-based aircraft lessor Aircastle sought to initiate bankruptcy proceedings against SpiceJet for unpaid dues. This week, SMBC asked India's aviation watchdog to allow it to repossess three planes for payment defaults.

The bankruptcy court has yet to decide on the matter. In a statement on Friday, SpiceJet said it had "no plans whatsoever to file for insolvency".

Go First blamed its financial troubles on the grounding of half its fleet of 54 Airbus A320neo aircraft, due to "faulty" engines supplied by Pratt & Whitney. The U.S. firm says the claim is without merit.

(Reporting by Aditya Kalra and Aditi Shah; Additional reporting by Arpan Chaturvedi; Editing by Clarence Fernandez)