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As a result of the COVID pandemic, with the resulting payment defaults amongst several airlines , the past few years have seen a surge in interest in distressed debt opportunities within the aviation sector. One particular area which has seen a lot of attention has been Japanese tax leasing – namely the Japanese operating lease (“JOL”) and Japanese operating lease with call option (“JOLCO”) products.

JOLs and JOLCOs have been staples of the aviation market for many years. Both are essentially operating leases with an investment of Japanese equity, typically provided by a Japanese corporation with tax capacity. This is usually twinned with limited recourse senior debt from a Japanese bank or a Japanese branch of an overseas bank, such that the credit of the underlying lessee is integral to the transaction as the revenue flowing from the lease would be used to pay the debt.…

Continue Reading Distressed Assets: JOLs and JOLCOs

Original decision: Wells Fargo Trust Company, National Association (trustee) v VB Leaseco Pty Ltd (administrators appointed) [2020] FCA 1269

Appeal: VB Leaseco Pty Ltd (Administrators Appointed) v Wells Fargo Trust Company, National Association (trustee) [2020] FCAFC 168

The Federal Court of Australia has provided important guidance on the meaning of the phrase “give possession of the aircraft object to the creditor” as used in Article XI of the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (the Aircraft Protocol) in the context of an insolvency. It is likely that other common law (and possibly civil law) Cape Town jurisdictions would reach a similar conclusion.
Continue Reading Case Note: What does ‘give possession’ mean under the Cape Town Convention?

Background

Leasing has been a staple of the aviation industry for more than 40 years, and has become increasingly attractive to the shipping industry over the last five years, particularly given the scarcity of traditional bank finance.

Until 2017, Chinese money was the dominant force – particularly in aviation finance. However, the Chinese government has since put pressure on domestic corporations to sell assets and deleverage. With Chinese money no longer so readily available, a product that was better known in aviation (and container box leasing) has become increasingly common in shipping over the last few years: the Japanese Operating Lease (more commonly known as the “JOL”).

The JOL has been a feature of aviation financing for nearly 20 years. Common in the wider maritime sector, there has also been a noticeable increase in the desirability of this product in the vessel-financing market over the last five years.

Traditionally, JOLs were more popular in aircraft finance because investors were comfortable with the residual value risk. Shipping, by contrast, is a much more diverse asset class, with value being a direct consequence of the country in which a ship is built and the specification of each particular vessel.
Continue Reading JOL-ted into action

Summary

In last week’s case of Triple 7 MSN 27251 Ltd v. Azman Air Services Ltd,[1] Azman Air Services argued that two aircraft lease agreements were void under the English law doctrine of common mistake.

The High Court considered this question and found that common mistake is only sufficient to void a lease agreement (or any other contract) where:

  1. the mistaken assumption on which the parties acted was fundamental to the contract; and
  2. the mistake was such that the “contract or its performance would be essentially and radically different from what the parties believed to be the case at the time of the conclusion of the contract”.

…
Continue Reading When will a lease agreement be void for common mistake?

As we open our Advent Calendars each December, thoughts inevitably turn to Christmas, the New Year, and to what the next year will bring.

But this year we are also looking 12 months ahead to New Year 2019.

Why? Because January 2019 will see International Accounting Standard (IAS) 17 replaced by International Financial Reporting Standard (IFRS) 16.

Now accounting standards may not be the most festive or exciting of topics, and to many of our readers that may sound like an insignificant change. Indeed the legislators themselves have said that it should cause “only minor changes from the current standards”. However, the general consensus is that in the aviation industry, the effects may be more profound.
Continue Reading An eye on the New Year

What to do if you are an aircraft leasing company struggling to lease your aircraft? For one lessor, Dublin-based Amedeo, the answer is to create its own “virtual airline”.

Amedeo has apparently been struggling to attract new lessees for its fleet of Airbus A380s – it currently has 12 under management and a further 20 on order.

They believe the best way to utilise the company’s assets is now no longer to just lease the aircraft to airlines but to operate them directly under what they believe could be a new model for air transport.
Continue Reading Aircraft lessor plans “airline-for-hire” service for its fleet of A380s

The airline leasing sector has already had an incredibly busy year with major moves towards consolidation in the form of the purchase of lessor AWAS by DAE in April.

Leasing plays a significant role in the aviation sector as a whole – with leased aircraft estimated to account for 40-45% of new aircraft purchases. Consolidation is not the only factor driving change and shaking up the sector. Major players are increasingly noting competition from new Chinese entrants to the market. Many more have benefited from Chinese investment.

Chinese lessors are making real waves in the sale and leaseback market by the terms they can offer for new aircraft purchases. We know that the Chinese lessors we work with have ambitious plans, not least because of China’s huge domestic market (industry estimates put demand at around 6000 new aircraft over the next two decades).

What opportunities and challenges does this influx of new entrants pose for the aviation industry as a whole?
Continue Reading Asian lessors disrupt the worldwide aircraft leasing sector