Jetrader - September/October 2012 - 41

According to this court, an aircraft is unairworthy if any out of limits defect exists, whether known or unknown. Troubling indeed.
the aircraft during the course of AirAsia’s return C-Check. ACG accepted return of the aircraft from AirAsia only after Olympic accepted the aircraft condition under its lease with ACG. All went according to plan until, less than 20 days after delivery to Olympic, a spoiler cable broke. Subsequent inspections revealed corroded control cables which, with other issues, prompted the Greek aviation authority to pull the aircraft’s airworthiness certiﬁcate. Subsequent work and followup inspections over a period of months revealed what Olympic contended were necessary repairs so extensive that, a year after delivery, they considered the aircraft beyond economic repair.1 Less than two months later, Olympic ceased operations. ACG sued Olympic for past due rent under the “hell or high water clause” and Olympic counterclaimed for breach of lease. The facts in evidence show this as a plain vanilla transaction for the lease of a used aircraft. Delivery conditions to Olympic were harmonized with return conditions from AirAsia. Inspections, while limited, were permitted with Olympic having the right to reject the aircraft if it failed to meet condition. Technical grounding so shortly after delivery and the extent of technical issues discovered following post-delivery inspection that it could not have been “airworthy” or “in a condition for safe operation” when delivered. Olympic contended ACG was therefore in breach. Because ACG breached, Olympic argued, their obligations under the lease ended, including the obligation to pay rent. Having no knowledge of the defects, ACG argued that except for those items they agreed to address post-delivery, technical risk passed to Olympic at acceptance. Olympic was therefore obligated to pay rent with their sole remedy being a suit for damages. After exhaustively reviewing the delivery process, technical reports and lease delivery conditions, the court concluded that the aircraft was neither airworthy nor in a condition for safe operation at delivery. The court found ACG in breach for its failure to deliver the aircraft in the agreed condition. Nevertheless, because Olympic executed an acceptance certiﬁcate whereby they “irrevocably and unconditionally accepted” the aircraft, and ACG relied on this acceptance in accepting return of the aircraft from AirAsia, Olympic was for the carriage of passengers by air. … An aircraft with a defective part which renders the aircraft unﬁt or unsafe for ﬂight is not rendered ﬁt or safe for ﬂight on account of the operator of the aircraft being unaware of the defect.”. The court continued, “I do not consider that any prudent lessor or lessee… would regard an aircraft as airworthy if the aircraft carried a hidden defect which, if the lessor or lessee had known about it, would have to be corrected before the next ﬂight.” According to this court, an aircraft is unairworthy if any out of limits defect exists, whether known or unknown. Troubling indeed. The court acknowledged that it was unlikely ACG knew of these defects. AirAsia had certiﬁed the aircraft as airworthy and the return C-Check was performed in accordance with applicable requirements. Nevertheless, the court determined that ACG was in breach of the lease because the delivery conditions were not met—due to the existence of defects ACG neither knew nor had reason to know existed. In other words, ACG prevailed for no other reason than Olympic, by its own actions, was legally barred from alleging a breach.

After exhaustively reviewing the delivery process, technical reports and lease delivery conditions, the court concluded that the aircraft was neither airworthy nor in a condition for safe operation at delivery.

representatives of both ACG and Olympic participated in the process. At delivery, Olympic conﬁrmed its acceptance of the aircraft and condition, with some discrepancies to be remedied after delivery. So what went wrong? Boiled down, the lease required that at delivery the aircraft be “airworthy” and “in a condition for safe operation.” Notwithstanding Olympic’s acceptance of the aircraft, they argued that given its

estopped (legally prevented) from alleging a failure to comply with delivery conditions and found for ACG. While aircraft lessors breathed a collective sigh of relief, the court’s ruling is nevertheless troubling. The court applied a self-made test in ﬁnding the aircraft unairworthy and in the process rewrote aviation regulations. The court stated, “…the ordinary and natural meaning of airworthy is, in my judgment, ﬁt or safe

The English court treats delivery conditions as a warranty of condition and conﬁrmation by the lessor that the aircraft is, in fact, free from defects. This is a standard no lessor could meet, one that regulations do not require and one that the industry should universally reject. New York law and the New York courts interpreting them would treat these facts differently. In an industry-standard aircraft lease, delivery Jetrader 41

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Jetrader - September/October 2012

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