Aviation leasing companies have spent an enormous amount of time over the last year managing lease defaults precipitated by the Covid-19 pandemic. For the most part, lessors have taken a pragmatic approach; working with their lessees to restructure leases in the expectation that the situation will improve (as opposed to taking enforcement action).
However, as the global travel industry revives and opportunities for certain aircraft types grow, it seems probable that lessors will increasingly lose patience with defaulting lessees and look to take more assertive action.
The judgment in Wilmington Trust SP Services (Dublin) Ltd & Ors v SpiceJet Ltd (2021) has raised serious questions around the merits of taking enforcement action, by casting doubt on the protection extended to lessors (and, indirectly, their financiers) by hell or highwater provisions (the bedrock of operating leasing that compels lessees to pay rent, no matter what).
There is nothing particularly unusual in the fact pattern for this case – SpiceJet leased three Boeing 737s from Goshawk (one B737-800 and two B737-MAX8s). On account of both the Covid-19 travel restrictions and the worldwide grounding of Boeing MAX8s, SpiceJet defaulted on its rent payment obligations and Goshawk applied for summary judgment in relation to its claim for arrears.
Whilst Goshawk was granted a summary judgment in respect of the arrears for all three of the aircraft, the Court also ruled that the judgment should be stayed for a period of time to allow for ADR/mediation - on the grounds that forcing the airline to pay at this stage could result in SpiceJet's insolvency, which wouldn't be in Goshawk's interests.
The practical upshot of this ruling is that Goshawk has incurred considerable time and expense in getting a summary judgment in their favour, only to be told to return to the negotiating table.
From SpiceJet’s perspective, the Court’s ruling is undoubtedly something of a triumph. It has resulted in over sixteen months breathing space for the airline (whilst the case went to trial), and has improved the prospect of forbearance of the underlying debt through the enforced ADR/mediation. This is not, therefore, a ruling that will be welcomed by the leasing community!
In light of the above, and as noted in the subject article, lessors would do well to bear the outcome of this case in mind when considering their strategies for dealing with payment defaults.