Jetrader - Fall 2014 - 44

Restructuring
Aircraft Leases
in Bankruptcy

The process and considerations for airlines

A

By John T. Curry, III, Jasmine Ball and Jaeyong So

An airline seeking to restructure its aircraft
fleet in bankruptcy must develop a viable
fleet plan providing sufficient aircraft for
its restructured operations at an acceptable
overall cost. The airline will also need to
formulate restructuring proposals consistent with the fleet plan to negotiate with
its financing parties. This article discusses
the process and considerations involved
in formulating restructuring proposals for
leased aircraft.
A critical early step is the collection and
analysis of information for each aircraft:
*	 Age and maintenance condition;
*	 Lease economics (rent, term, maintenance reserves, return conditions and
security deposits);
*	 Appraised current market rental and sale
values;
*	 Structure of the lease and any related
financing;
*	 Lease parties' identities and current
notice addresses;
*	 Factors affecting lessor bargaining power
(e.g., control over a large block of aircraft, lease cross-default provisions or
lessor involvement in other transactions
with the airline); and
*	 Structural or other potential hurdles to
implementing a restructuring (e.g., the
lessor's pledge of the lease in its financing or debt-equity and foreclosure issues
in a leveraged lease).
Also at this early stage, the airline must
analyze the protections available to it and
the rights and remedies available to the

lessor under applicable law. Applicable law
will affect the bargaining power and tactics
of the parties and the timing and process
for the restructuring. If lessors are stayed
from exercising repossession remedies for
only a limited time under the applicable
bankruptcy or insolvency law, the airline
should be prepared to distribute restructuring proposals to lessors immediately upon
its filing for bankruptcy court or insolvency
protection in order to have the maximum
standstill period to try to reach agreement
with each lessor. For example, under section 1110 of the U.S. Bankruptcy Code, a
U.S. carrier leasing a section 1110 eligible
aircraft would have only 59 days from the
bankruptcy filing date to agree to perform
the lease as-is or reach agreement with
the lessor to extend the standstill period
before the lessor could demand the return
of its aircraft. With a very short standstill
period, the airline may need to stage the
overall process such that the airline first
reaches agreement with the lessors during
the standstill period on the fundamental
restructured economics, together with
extensions of the standstill period allowing the airline's continued possession of
the aircraft during the negotiation of the
final lease restructuring documentation.
Each airline will have different objectives and priorities shaping its fleet plan.
These may include rationalizing the number
of aircraft models in the fleet, transitioning
out of fuel-inefficient aircraft, or moving to
larger/smaller capacity aircraft. The airline

44 The official publication of the International Society of Transport Aircraft Trading

may wish to
formulate its
restructuring proposals to offer more
generous terms for the aircraft that are a priority to keep in
the fleet and less generous terms for the
aircraft that it can afford to lose.
The lessor's opportunity cost of accepting the airline's restructuring proposal is
the lease or sale economics that another
operator or buyer is willing to pay minus
the lessor's costs of repossession, remarketing and any additional refurbishment
to meet the required delivery condition
for lease or sale. Accordingly, the airline
must consider how its restructuring proposal economics compare to current market
values. A premium over market economics may speed the lessor's agreement to
a restructuring proposal, and locking up
more aircraft restructurings early in the
process will improve the airline's flexibility
and options with respect to aircraft not yet
restructured.
The airline also should consider the
inter-relation of the different elements of



Jetrader - Fall 2014

Table of Contents for the Digital Edition of Jetrader - Fall 2014

A Message from the President
Calendar/News
Reach for the Stars
Beauty Contest
Boeing’s Current Market Outlook for 2014
Aircraft Recyclers Debate the Coming ‘Tsunami’ of Retired Aircraft
Engine Support Plans Shift Market
The Second Life of Aircraft: Does It Still Exist?
Restructuring Aircraft Leases in Bankruptcy
Aviation History
Aircraft Appraisals
ISTAT Foundation
Advertiser.com
Advertiser Index
Jetrader - Fall 2014 - cover1
Jetrader - Fall 2014 - cover2
Jetrader - Fall 2014 - 3
Jetrader - Fall 2014 - 4
Jetrader - Fall 2014 - 5
Jetrader - Fall 2014 - 6
Jetrader - Fall 2014 - A Message from the President
Jetrader - Fall 2014 - 8
Jetrader - Fall 2014 - 9
Jetrader - Fall 2014 - Calendar/News
Jetrader - Fall 2014 - 11
Jetrader - Fall 2014 - Reach for the Stars
Jetrader - Fall 2014 - 13
Jetrader - Fall 2014 - 14
Jetrader - Fall 2014 - 15
Jetrader - Fall 2014 - Beauty Contest
Jetrader - Fall 2014 - 17
Jetrader - Fall 2014 - 18
Jetrader - Fall 2014 - 19
Jetrader - Fall 2014 - 20
Jetrader - Fall 2014 - 21
Jetrader - Fall 2014 - 22
Jetrader - Fall 2014 - 23
Jetrader - Fall 2014 - 24
Jetrader - Fall 2014 - 25
Jetrader - Fall 2014 - 26
Jetrader - Fall 2014 - 27
Jetrader - Fall 2014 - Boeing’s Current Market Outlook for 2014
Jetrader - Fall 2014 - 29
Jetrader - Fall 2014 - 30
Jetrader - Fall 2014 - 31
Jetrader - Fall 2014 - Aircraft Recyclers Debate the Coming ‘Tsunami’ of Retired Aircraft
Jetrader - Fall 2014 - 33
Jetrader - Fall 2014 - 34
Jetrader - Fall 2014 - Engine Support Plans Shift Market
Jetrader - Fall 2014 - 36
Jetrader - Fall 2014 - 37
Jetrader - Fall 2014 - 38
Jetrader - Fall 2014 - 39
Jetrader - Fall 2014 - 40
Jetrader - Fall 2014 - The Second Life of Aircraft: Does It Still Exist?
Jetrader - Fall 2014 - 42
Jetrader - Fall 2014 - 43
Jetrader - Fall 2014 - Restructuring Aircraft Leases in Bankruptcy
Jetrader - Fall 2014 - 45
Jetrader - Fall 2014 - 46
Jetrader - Fall 2014 - Aviation History
Jetrader - Fall 2014 - 48
Jetrader - Fall 2014 - 49
Jetrader - Fall 2014 - 50
Jetrader - Fall 2014 - 51
Jetrader - Fall 2014 - 52
Jetrader - Fall 2014 - Aircraft Appraisals
Jetrader - Fall 2014 - 54
Jetrader - Fall 2014 - 55
Jetrader - Fall 2014 - ISTAT Foundation
Jetrader - Fall 2014 - 57
Jetrader - Fall 2014 - Advertiser Index
Jetrader - Fall 2014 - cover3
Jetrader - Fall 2014 - cover4
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