We have seen before how the aircraft lease is a document aimed at maintaining asset value and ensuring lessor has limited financial liability.
A key part of that protection comes from how we deal with an event in which the lessee defaults (does not make a payment based on the agreed payment schedule).
The contract can hold clauses that clarify and state what and how the event might be dealt with in the event of an occurrence. The easiest way to illustrate this is to consider a section of the lease agreement and note that this is a limited and isolated section only, it is not a complete example of protections, but an example to illustrate the point.
Lessee acknowledges and agrees that:
(i)Lessor is a company whose main business is the leasing of aircraft to lessees at fair market values;
(ii) the punctual receipt of Rent and other amounts from Lessee under the Lease is of vital importance to Lessor’s existence and indispensable for its financial and economic healthiness;
(iii) the occurrence of an Event of Default will adversely affect Lessor’s ability to honor its own obligations owed to third parties and, accordingly, Lessee understands and expressly agrees that upon the occurrence of an Event of Default which is continuing the Aircraft, if already delivered to Lessee, shall be immediately returned to Lessor under the terms of this Section (even taking into consideration that the Aircraft is operated in regular transportation, that is, prescheduled flights) so that Lessor may re-lease or sell the Aircraft and mitigate Lessor’s and ultimately Lessee’s losses and damages.
For the sake of clarity, the will of the parties is to make clear that on the specific case of this Agreement and the respective negotiations between Lessor and Lessee the Rent has been calculated under the assumption that the Aircraft will be immediately returned to Lessor upon the occurrence of an Event of Default which is continuing and on Lessee’s due compliance of their obligations under the Operative Documents to which they are a party.
Therefore, Lessor and Lessee expressly agree that upon the occurrence of an Event of Default which is continuing the Aircraft shall be returned to Lessor, friendly or through a repossession court order, despite the fact that the Aircraft is used in Lessee’s commercial activity.
The conditions here determine that in the favour of the lessor, any default means the aircraft can be returned to the lessor and even by a repossession order. It negates the consideration that the lessee is using the aircraft.
The lease condition is interesting to consider as it is not one commonly studied as a lessee does not intend to default and most of the time there is a small team only involved in the act of a repossession. Follow us on LinkedIn for more and why not consider one of our courses such as the Aircraft Technical Records Course