Aviation Update: Common themes in times of crisis

Our team: Carl Arreghini, Nadia Osborne, Alexander Sandwell

The Aviation (Enforcement and Recovery) team has been advising clients on issues arising from the current crisis. Three main themes emerge from the current challenges in the airline sector:

1.) Airline insolvency risk.  A number of leasing companies have claims for unpaid rent and maintenance rent. These claims can be pursued by:

  • applying security deposits and enforcing other security; and/or
  • issuing proceedings in the High Court – which will effectively come to halt if the airline then goes into a formal insolvency process; and/or
  • Instigating insolvency proceedings against the airline; and/or
  • Exercising proprietary rights such as arresting and taking possession of the aircraft, with the assistance of a court order or injunction in the relevant location.

2.) Enforcement of judgments and awards.

  • Many leasing companies with final judgments or awards in their favour are experiencing the challenges associated with enforcing against airline assets (assuming any non-leased assets can even be identified).  Despite Brexit, English court judgments are still enforceable in EU countries for the time being.  The challenges are usually not legal ones but are associated with the identification and location of assets against which to enforce.  We continue to recommend English governing law and jurisdiction clauses in your leases and contracts.  (As we go to press, the courts are still open!)

3.) Force Majeure. 

  • Not all Aircraft leases contain Force Majeure clauses.  But that has not stopped airlines seeking to claim they are prevented from performing their obligations.   It should be noted:
  • Force Majeure is a matter of contract.  No clause, no Force Majeure event.
  • It is common to see Force Majeure clauses in contracts for the purchase or overhaul of aircraft/engines. Whether interruptions in the supply chain or a change in economic conditions caused by a global pandemic constitute a Force Majeure event really depends upon the exact wording of the clause.  Often these clauses do not cover the eventualities that contracting parties imagine might be covered.
  • There is also the concept of “frustration” (a common law concept).  True frustration events are rare and are unlikely to include global pandemics.

If you would like further information please contact a member of the Fladgate (Aviation & Enforcement) team.

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