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the restructuring proposal. For
example, the airline
may wish to shorten the
existing lease term to accommodate network changes or to make room
for incoming deliveries. To compensate the
lessor for the shorter term, the airline could
offer higher rent or better return conditions. As another example, the airline may
wish to relax the existing return conditions in order to reduce its future costs or
to better match the expected condition
of aircraft at the end of the restructured
term. From the lessor's perspective, this
will increase the lessor's costs in preparing the aircraft for the next operator or
purchaser or reduce the lessor's benefits
from the next lease or sale of the aircraft.
Accordingly, to compensate the lessor for
the reduced return conditions, the airline
could offer higher rent or a longer term.
Obligations to replenish applied security
deposits or other unresolved or contingent
claims against the airline under damages,
indemnity or other lease provisions could
make the restructured lease uneconomic.

To prevent this, the airline should limit,
liquidate or obtain waivers from the lessor with respect to these obligations and
claims. For example, the lessor may apply
previously posted security deposits to
the airline's accrued obligations under
the lease, but the airline may propose to
eliminate the obligation to replenish the
security deposits. As another example, the
airline typically will be obligated under
the lease to cover the restructuring fees
and expenses of the lessor's advisors. The
airline may propose to place caps or other
limits on these fees and expenses in order
to both manage its ongoing restructuring
costs and incentivize the lessor to finalize
the restructuring quickly.
The maintenance, operation, insurance
and other provisions in the airline's existing
leases may have widely varying requirements and standards. The airline may
benefit from making these and other provisions more consistent with each other and
its current practices. On the other hand,
proposals to change more provisions will
prolong restructuring negotiations, will
increase the costs of finalizing the restructuring documentation and may invite the
lessor to request its own changes to the
existing lease.
The lessor's receptiveness to a restructuring proposal will depend upon its assessment of the aircraft's current marketability
due to its type, age, and condition and the
availability of other similar aircraft in the
marketplace. The lessor may also believe
that the aircraft's marketability will be
further impaired by the airline's abandonment and rejection of other aircraft of the
same type. The lessor of a less marketable
aircraft may be more inclined to restructure lease terms rather than to expend time
and resources to repossess and refurbish
the aircraft in hopes of securing another
operator. On the other hand, the lessor of
a more marketable aircraft may believe it
can repossess and quickly place the aircraft
with another operator for an attractive rent.
The comparative bargaining power of
the lessor and the airline also will impact
the restructuring negotiations. If the lessor controls a large block of aircraft in the
airline's fleet or has a lease with crossdefaults to other leased aircraft important to the airline's fleet plan, the lessor
may use this bargaining power to demand
improved economics. The airline may have

improved bargaining power if its fleet plan
is flexible enough to allow the shedding of
the lessor's aircraft from its fleet.
Finally, the lessor will be more resistant
to a restructuring proposal if it believes
that it is not being treated the same as
other similarly situated lessors. In our
experience, the ability of the airline and its
advisors to articulate why the restructuring
proposal is objective, appropriate, and fair
and the resulting perception of the lessors
as a group that the restructuring process
is being conducted in an even-handed and
transparent way will facilitate a smoother
overall restructuring process.
The airline should build flexibility into
its fleet plan to accommodate adjustments
to the restructuring proposals. Lessors will
make counterproposals to address their
own respective concerns and priorities. For
example, a lessor with a short remaining
term may counter-propose a term extension
in exchange for a rent reduction in order to
have the aircraft under the airline's maintenance and insurance coverage for a longer
period during which the lessor is able to
remarket the aircraft. A lessor of a mature
aircraft that is likely to be parted-out may
counter-propose a rent increase or a term
extension in exchange for a relaxation of
the existing return conditions. The fleet
plan should also include the flexibility to
accommodate contingencies, including the
failure to reach agreement with one or
more lessors.
In sum, an airline's collection and
analysis of information, development of
a fleet plan, and formulation of restructuring proposals that both are economically viable for the airline and consider
the perspective of lessors, together with
the flexibility to make adjustments to each
restructuring proposal or the fleet plan, as
necessary, will enhance the likelihood of
an overall successful restructuring of its
aircraft leases.
John T. Curry, III is the chair of Debevoise &
Plimpton LLP's Aviation Practice. Jasmine Ball
is a member of Debevoise & Plimpton LLP's
Aviation Practice and Business Restructuring
and Workouts Practice. Jaeyong So is a
member of Debevoise & Plimpton LLP's
Aviation Practice. The authors gratefully
acknowledge the contributions of their colleagues Raymond G. Wells, Le V. Lam and
Iryna V. Nikolaieva.
Jetrader * Fall 2014 45

Jetrader - Fall 2014

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