LegalIssuesinAircraftRepossessions

August2013ABAAircraftFinancingSubcommitteePanel
RyanJ.Opeka,CounselMacquarieAirFinance
PeterB.Barlow,PartnerSmith,Gambrell&Russell,LLP
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1) Repossessionriskshouldbeconsideredfromdayoneofthetransactionandconsistently
revisitedthroughout
a. LessorscommissionlocallawanalysisfromlocalcounselintheLesseesjurisdiction,
includingenforceabilityofcontractremediesfromalegalstandpointandasapractical
mattervialocalgovernmentandcourtprocesses
b. Locallawsandapplicabletreatiesdefinethepartiesrespectiverights
c. Boththelegalanalysisandthecreditstrengthofthelesseeshouldberevisited
throughouttheleaseterm
d. LessorsandfinanciersshouldactivelymaintainarelationshipwiththeLesseeinorderto
maintainaflowofinformation
1. Macquariehastworiskprofessionalswhotravelgloballyandseektovisiteach
lesseeatleastonceevery1218months.
i. ImportanttokeepcontactsupdatedevenifLesseeissolidcreditand
doingeverythingright.Peoplemovearoundduringleaseterms.

2) InvoluntaryRepossessionConsiderations
a. Lesseebankruptcyprotections(suchastheautomaticstayunder11USC362and
lessor/financierprotectionsunder11USC1110)
b. LessorrightsundertheLeaseandPowersofAttorney
c. Locallawsgoverningselfhelpremedies
d. Lawfulaccesstosecuredpremises
e. Useoflocallawenforcement
f. Courtorderoftennecessary(eventhoughnotlegallyrequiredbylocallaw)
g. Liabilityexposureforcollateralharmoccasionedduringrepossession

3) PostRepossessionPriorities
a. Thetechnicalteam
1. PreservationofclaimsagainsttheLesseeisparamountifthereisanypossibility
ofcollectionfromtheLessee
i. MeticulouslydocumentconditionofAircraftonrepossessiondate
(writingsandphotographs)
ii. Secureandfullydocumentaircraftrecordsstatusandattempttotrack
downmissingrecordsasafirstpriority(FAAForm81303andEASA
Form1)
b. Marketingteams(evaluateimmediateneedwithexistingcustomers,currentmarket
rates,assetsaleandpartoutpossibility)
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c. Movequickly(especiallyiftheaircraftisoperational),buttrytomoveparticularly
quicklyifalotofaircraftarecomingback(i.e.bigbankruptcy).Abigeventcanalterthe
marketforthataircrafttypeandlimitshorttermoptionsforanaircrafttype.
1. Mexicana(shutdownofoperationsoccurredinAugust2010)didhavea
substantialnegativeeffectonA319market,butpartlycausedbyairlinesmoving
toA320aswell.
2. Spanair(shutdownofoperationsinJanuary2012)hadashortlivednegative
effectonrentalmarketforA320s.Thebankruptcywasfairlyorderly,sothe
marketwasabletodigestthoseaircraftfairlyquickly.
3. Kingfisher(shutdownofoperationsoccurredinOctober2012)people
expectedthistohaveasignificantnegativeeffectontheA320market(operated
21ofthetype(11onlease),67orders),butworstfearshavenotbeenrealized.
ThisispartlybecauseofthepoorconditionofKingfisheraircraftandthe
challengesingettingaircraftoutofIndia.Bothhavehadeffectofkeepingthose
aircraftoutofthemarketorrequiredasignificantinvestment,sopeoplewillnot
deployforcheapprices.

4) SecuringandRemovingAircraft
a. Keepgoodrelationswithstrugglingairlines,sothattheyprovideattentiontoyour
repossession.
b. Speediscriticalaspeoplewillleaveanairlineheadedforinsolvencyandtheairline
managementwillbecomedistractedbylegalproceedingsandrestructuring/windup:
1. Mayneedtohiretheairlineemployeestofinishrecords.
2. Ifthereisadelayinremovalfollowingrepossession,hiringsecuritytoprotect
theaircraftmaybeadvisabletoprotectfromintentionaldamage(throwing
toolsintoengines)andtheftofequipmentfromaircraft.Consultwithlocal
counselandairport/localpolice.Anyoutsidesecuritywillneedtobeapproved
bytheHeadofSecurity(ChiefofPolice)attherelevantairport
3. CopiesofpasttechnicalrecordsinpossessionofLessorshouldbemovedto
MROwhereaircraftislocatedfollowingrepossession

5) Deregistrationissues
a. InaCapeTownjurisdiction,thisshouldbefairlystraightforwardwiththeIDERA,butall
dependsontheimplementationofthetreaty
1. Goodexample:Indonesia
i. DuringarecentairlinebankruptcyourlocalcounseladvisedMacquarie
thatshewasabletoderegisteraircraftwithin5workingdaysofthe
submissionoftheIDERAandsupportingdocumentation
2. Badexample:India
i. FairlywelldocumentedthattheIndianauthoritiesrefusedto
acknowledgetheIDERAandpermitlessorsandfinancierstoremove
aircraftfromthecountry
ii. DVBevenreachedthepointwheretheymadetheissuepublicasa
resultofthefailureoftheIndianCAAandcourtsystemtoenforcethe
law
b. InanonCapeTownjurisdiction:
1. Aderegistrationpowerofattorneymayhelpthoughmanyregistrieswillinsist
onacourtorder;
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2. Manylessorsobtainatleaseinceptionanexecutedandundatedletterfromthe
lesseeconfirmingthatthelesseesleaseholdinteresthasbeenterminatedandit
hasnofurtherrightsintheaircraft(*notethereisapotentiallysignificantlegal
distinctionbetweenterminatingtheleaseandterminatingtheleasingofthe
aircraft/leaseholdinterestofthelessee)
c. Generally,ifanairlineobjectstoderegistration,acourtproceedingwillbenecessaryto
causeacivilaviationauthoritytoderegistertheaircraft(*wenotethatthisshouldnot
betrueinaCapeTownjurisdictionwherethelessorholdsaproperIDERA)
1. MacquarierecentrepossessionofanenginefromanairlineintheMiddleEast.
Theairlineowedasubstantialamountofrentandreservesandhadpossession
oftheEngine.EnglishcounselquotedMacquariethefollowingnumbersfor
proceedingagainsttheairline(1partnerand1associate):
i. Preparatory/preactionassistance,includingcorrespondencewith
airlinetoshowlessorisserious25,000
ii. Preparatory/preactionassistanceandEnglishdefaultjudgment
50,000
iii. Preparatory/preactionassistanceandEnglishsummaryjudgment
100,000
iv. Preparatory/preactionassistanceandICCarbitration280,000
v. ResultWithassistanceofEnglishcounsel,Macquariediscoveredan
appropriateofficeroftheairlineholdingcompanytoengageandthe
matterwasresolvedfairlyquicklywithoutlitigation.Englishcounsel
feeswere4,000.
d. CustomsandExportRequirementsalsoapply
1. AnExportCertificateofAirworthinesswillberequiredbythenextcountryof
registration
2. Aferrypermitandoverflightpermit(s)willberequired(specialferrypermits
areavailableinmostjurisdictionsformaintenanceflightsofunairworthy
aircraft)
3. Customslawsneedtobesatisfied

6) Whatjurisdictionshouldbeusedforregistrationofanoffleaseaircraftontheground?
a. Muchdependsonlocationofrepossessedaircraft,remarketingopportunitiesand
obligationstonextlesseeifaircraftcanremaininoperation(airworthinesscert,etc.).
1. Notsoimportantforapartout.
2. Moreefficienttokeepaircraftnearthelocationwheretheymaybeplacedback
intoservice(facilitatesinspectionsbyfollowonlesseesandnextauthorities),so
aconsultationwithmarketingisadvisable.
3. Definitelyremovetheaircraftfromthelocationofrepossessioninfavorofa
safehavenjurisdiction
i. Avoidlocalsympathyfromcourtsorlawsuitsfromcreditors(airports,
maintenanceproviders,etc.)
ii. Avoidjurisdictionswhereitiseasytoplacealienonanaircraft,like
Greece.Evenifalienislikelytoberemovedbycourtaction,frustrated
creditorswilluselienstoexactpaymentfromLessorsinthefaceofa
costlyandpossiblylengthycourtprocess.
b. CommonJurisdictionsforOffLeaseAircraft
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1. UnitedStatestheUSisagoodchoiceforAircraftintheWesternHemisphere
(especiallyifstorageisinUS)
i. Mechanics
1. FAAisanownerregistrythelegalissuescurrentlyinplay
concerningthenoncitizentrustissuemaybecomeaproblem
2. HireanFAAlicensedDAR(DesignatedAirworthiness
Representative)toreviewrecordsandissueacertificateof
airworthiness
3. DARslocatedgloballyandmanyarewillingtotravel(forafee)
ii. Advantages
1. Currentlytheeasiest(FAAForm80501)
1. Nophysicalinspectionpriortoregistration
2. Registrationcanbecompletedin1or2workingdays
3. Canregistermortgages
4. ManyMROstochoosefrom.MacquariegenerallypreferMROs
inArizonabasedonclimate,proximitytoCAandtaxtreatment
ofaircraftsales.Victorville,Californiaisalsoaverygood
location.
iii. Issues
1. Governmentcutbacks(sequestration)areslowingFAAdown
2. Noncitizentrustissue
3. CompatibilitywithEASAbigproblemtakingFAAcertified
aircraftbacktoEASAarea(longtimeongroundasstartingover
withrecords)
1. EASArequiresadifferentformatandscopeofrecords
(moredetailed).
2. Macquariestechnicalgroupconsidersthisavirtual
rebuildingoftheaircraftrecords.
2. FrenchTemporarygoodchoiceforAircraftinEurope,AfricaandW.Asia
i. FacilitatedbyusingaFrenchCAMO(continuingairworthiness
maintenanceorganization)
ii. Mechanics
1. CAMOand/orflightservicescompany(ferryprovider)willhave
ablockofregistrationnumbersavailableandwilltemporarily
assignonetotherepossessedaircraft
2. Permitsaircrafttoflyonalimitedbasis(demo,ferryfor
work/delivery)
iii. Advantages
1. NotofficiallyonDGCA,soacheaperalternativetofullFrench
registration
2. CAMOmaintainstheairworthinessoftheaircraft
3. DGCAwillissueAirworthinessReviewRecommendation(ARR)if
stayingwithinEUoranExportCofAifgoingelsewhere
4. Localinspectorsareavailabletoconductinspections
1. Nophysicalinspectionrequiredpriortoregistration
5. Registrationcanbecompletedin1or2workingdays
iv. PotentialIssues
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1. ApersonalappearancebysomeoneinParisisrequiredforan
ExportCertificateofAirworthiness
2. Itisnotpossibletoregisteramortgage
3. SomeEuropeanauthorities(notablytheUK)operateoutside
EASArulesandwillinsistuponanAirworthinessReview
Certificate(ARC).
3. OtherOptions(Aruba,Ireland,IsleofMan,SanMarino(UKshouldbeavoided))

c. Iffinanced,whatareLessorstypicalobligationstoitslendersduringsuchperiod?
1. Ifamortgagehasbeengranted,itmayrestrictwheretheaircraftcanbe
registeredbetweenleases.
2. FAA,ArubaandIrelandareallCTcountries

7) Insurance
a. Alllessorshaveorshouldhavepossessedpolicies.
b. Maybeanissueforpurelyfinancialinvestorswithoutsupportfromanestablished
leasingcompanyactingasservicer.
c. StandardGroundOnlypolicieswhichprovideforalimitednumberofhoursfor
ferry/demoflightsareavailable.

8) Whodoyouhiretostore/maintaintheAircraft?KeytermsinagreementswithMROsand
CAMOs.
a. AdvisabletohaveGTAinplacebeforehandwithMRO.Occasionallynotpossible(regular
MROmaynothavespace).
1. MROstypicallyhavetheirownformswhichcanrequiresomeworkbefore
signing
b. Hangarkeepersinsurance.
c. Indemnities.
d. AdvisabletoaskMROtopreparefornextCCheckifanticipatedthataircraftwillbere
leased(usuallyaccomplishedafternextleaseissigned)

9) OtherEquipmentIssues
a. CannibalizedParts(commonissuewhenanairlineisstruggling)
b. EnginesandAPUinstalledonotheraircraft

10) ThirdPartyMaintenanceContracts(MCPH,FHA,APUSupportAgreements)
a. Lessorgetsthebenefitoftheservicecontract
1. LesseepaysreservestoLessor
2. Lessorgrantedsecurityinterestinservicecontract
3. Assignment(shouldexcludeassumptionoflesseeobligations)
b. Separateagreementswithserviceproviderfollowingrepossession
1. Lessorstepin
2. Assignmenttosubsequentlessee
3. Nextshopvisitcovered
4. Refundofreservespaidtoserviceprovider
5. Lessorchoice

11) ForeignCorruptPracticesActandUKBriberyActConcerns
a. FCPATheFCPA'santibriberyprovisionsmakeitillegaltocorruptlyofferorprovide
moneyoranythingofvaluetoofficialsofforeigngovernmentsorforeignpolitical
partieswiththeintenttoobtainorretainbusiness.
1. Application:Theantibriberyprovisionsapplyto"issuers,""domesticconcerns,"
and"agents"actingonbehalfofissuersanddomesticconcerns,aswellasto
"anyperson"thatviolatestheFCPAwhileintheterritoryoftheUnitedStates.
Theterm"issuer"coversanybusinessentitythatisregisteredunder15U.S.C.
78lorthatisrequiredtofilereportsunder15U.S.C.780(d).Inthiscontext,
foreignissuerswhoseAmericanDepositoryReceipts("ADRs")arelistedonU.S.
exchangesare"issuers"forpurposesofthisstatute.Theterm"domestic
concern"isevenbroaderandincludesanyU.S.citizen,national,orresident,as
wellasanybusinessentitythatisorganizedunderthelawsofaU.S.stateor
thathasitsprincipalplaceofbusinessintheUnitedStates.
2. AlinktoanupdateofthestatusofenforcementoftheFCPApreparedby
GibsonDunncanbefoundat:
http://www.gibsondunn.com/publications/pages/2012YearEndFCPAUpdate.asp
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3. TheDOJandSECconfirmedinNovember2012guidancethattheFCPAwillapply
toanyotherparty,regardlessofnationality,involvedinabriberyschemeso
longasonememberofthatschemeengagedin"conductwhileintheterritory"
oftheUnitedStates.TheDOJandSECfurtherstatethatthethresholdforwhat
constitutes"conductwhileintheterritory"oftheUnitedStatesisverylow,and
mayincludeaslittleasanemailorwiretransferthatinvolvestheUnited
States.TheGuidancecanbefoundat:
http://www.justice.gov/criminal/fraud/fcpa/guidance/
b. UKBriberyActArguablytougherthanFCPA.Ithasbeeneffectivesince2011and
providesforablanketbanonallformsofbribery,whetherornotthebribeisofferedor
givenintheUKorabroad,andnomatterinwhichcountrytheconductisduetotake
place.
1. Application:TheantibriberyprovisionsapplytoUKcitizensbasedabroad,those
personswithacloseconnectiontotheUKandalsointroducescriminal
offensesthatcanbecommittedbycompanies.
2. Offerisallthatisnecessary.Nodefenseforduress.
3. WhatisabribeundertheUKBriberyAct?Inadditiontocash,itcaninclude
administrativefees,commissions,greasepaymentsandotherformsofapparent
charging.Morethanthat,abribecanbeanyadvantagegiventoanother,so
couldincludelavishhospitality,honors,politicalfavorsorotherbenefitswithout
astrictmonetaryvalue.
Thekeytounderstandingwhethersomethingisorisnotabribeisthepurpose
forpayingit.Ifthepurposeistopersuadeanotherpersontodosomething
improper,thenitisabribe.Inthecaseofaforeignofficial,thetestiseven
wideritjusthastobeintendedtoinfluencethemintheirrole,whetherto
dosomethingproperorimproper.
c. OrganizationforEconomicCooperationandDevelopment(OECD)AntiBribery
Convention
1. http://www.oecd.org/daf/antibribery/oecdantibriberyconvention.htm
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2. Targetedatbriberyoflocalpublicofficials,specificallytolimitunfair
competition
3. Conventionrequiressignatorystates(30OECDcountriesand7othersignatories
(notablyArgentina,Brazil,ChileandSouthAfrica)toenactanenforcinglaw
4. U.S.prosecutesthemostcasesofthe37signatoriesbyusingtheFCPA.
5. AlinktoareportontheAntiBriberyConventioncanbefoundat:
http://www.oecd.org/mena/investment/41054440.pdf
d. Roleoflocalfixers
1. Provideparts,fuelandaccesstolabor
2. ThesescenarioshaveshownupmoreinAfricaandSouthAsia

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