Administrators Not Obliged To Pay For Return Of Leased Equipment

A court saga with far-reaching implications for aircraft and engine lessors around the world has just reached its resolution following a High Court decision in Australia.

In September 2021, Aviation Week reported that Willis Lease Finance had been successful before a Federal Court judge in arguing that the administrators of Virgin Australia were obliged to redeliver a leased engine to Willis’ facility in Florida in the U.S.

The case turned on the interpretation of the phrase “to give possession” in an article of the Cape Town Convention, an international treaty.

At appeal, the original judgement was overturned, with the court accepting the administrator’s contention that it was only obliged to give Willis the opportunity to repossess the equipment from where it was located in Australia.

This decision was upheld in a court of ultimate appeal this month, with the High Court commenting that the administrator’s actions “operated consistently with the underlying realities of modern structured finance, particularly to facilitate capital market financing,” according to an analysis of the case by lawyers from Clayton Utz.

They added: “It has held that the Administrators' obligation to "give possession" of aircraft objects means to take whatever steps may be necessary to provide the creditor an opportunity to exercise the right to take possession which the creditor has under the Convention.”

The underlying point is that lessors are likely to have to bear the transportation and logistical costs of repossessing aircraft and engines from airlines under administration. And, at present, those costs may be considerable given the wholesale fleet restructurings happening under court supervision at large airline groups around the world.

There is also the question of redelivery and maintenance conditions. Willis’ win at first instance appeared to strengthen the rights of aircraft and engine lessors to insist that their equipment was returned in the correct maintenance condition, as stipulated under the lease, even if an airline was under administration. 

The appeal case analysis did not touch upon this point, unfortunately.