AVG wins Olympic court battle

By Victoria May 1, 2012 15:35

AVG wins Olympic court battle

Aviation Capital Group (ACG) has prevailed in its litigation with Olympic Airlines (Olympic). In a case that has attracted considerable attention in the aircraft leasing industry, the English High Court rendered judgment yesterday in ACG’s favour in ACG Acquisition XX LLC v Olympic Airlines S.A. (The aircraft in this case is owned by the Claimant entity, ACG Acquisition XX LLC, which is a non-consolidated securitization vehicle for which Aviation Capital Group acts as Servicer.)
The Court found that Olympic was bound by its acceptance of a leased aircraft and its statement that the aircraft satisfied the delivery conditions. As a result, Olympic is liable for unpaid rent and not entitled to damages. By upholding a lessee’s acceptance of a leased aircraft, the judgment highlights the importance of commercial certainty to all participants in the aircraft leasing industry.
In August 2008, Olympic, the now-defunct Greek state airline, accepted a Boeing 737-300 aircraft from ACG Acquisition XX LLC after carrying out extensive pre-delivery inspections. It executed a Certificate of Acceptance confirming that the aircraft complied with the delivery conditions in all respects. Both the Malaysian and Greek aviation authorities issued certificates of airworthiness for the aircraft.
Subsequently, a fault was discovered with a spoiler cable. Following further inspections a number of other issues were identified. Olympic carried out work on the aircraft but failed to return it to service. The Court has now confirmed that ACG was unaware of any defects in the aircraft when Olympic accepted the aircraft and certified that it complied with the delivery conditions. The Court also found that Olympic’s ultimate failure to restore the aircraft to service in Greece cannot be attributed to any failure by ACG.
Olympic had refused to pay rent and minimum monthly maintenance reserves for the aircraft, and also claimed that it was entitled to be compensated for both wet leasing costs and the costs of repair. The Court has rejected those claims. It has held Olympic liable for all of the unpaid rent and maintenance reserves, plus damages to cover the remainder of the lease term.
The Court referred to the importance of certainty in commercial dealings in its judgment. “I believe that today’s judgment should reassure participants in the aircraft leasing industry that lease documents, especially acceptance certificates, will have the clear and certain effect that lessors and lessees expect,” said Loren M. Dollet, Executive Vice President of ACG. “Having that clear and certain interpretation of leases facilitates the efficient and cost-effective financing of aircraft, which benefits all operating airlines as well as lessors.”
When the case was first heard in court, the judge provided an interim judgment that stated Olympic did have an arguable case for breach of contract, total failure of consideration and frustration. It was due to this summary judgement paper that piqued the attention of the aviation leasing community and the media even though it did not rule on any questions of fact or points of law. At the time, legal experts were confident that the case would be decided on the basis on the contract alone, which in this case has proven to be binding on the part of the airline. Olympic has the option to appeal the ruling, however.
Following its repossession from Olympic by ACG, the aircraft was successfully returned to service, and placed with a new lessee. It has operated without incident since that time, says the lessor.
The ruling will be greeted with a sigh of relief by many aircraft lessors who had worried that should the case go in Olympic’s favour, lease contracts would need to be tightened considerably and it could have set a precedent that a lessor has a heightened duty of care when it leases an aircraft that could have had a dramatic effect on the level of risk lessors take when leasing an aircraft. Thankfully this has not come to pass although the case should serve as a warning to all lessors to ensure their leasing contracts are watertight, with no points left open to interpretation.

Meanwhile, state-owned oil companies in India have reduced jet fuel prices by a marginal Rs 312 per kilolitre or kl, which is the second reduction this month.
From midnight last night, the price of aviation turbine fuel (ATF) in Delhi was reduced by Rs 311.74 per kl, or 0.46 per cent, to Rs 67,319.71, according to Indian Oil Corp, which made the announcement on behalf of the industry. Despite this reduction and the cut of Rs 169.3 per kl cut in April, they still do not reverse the steep increases effected in March- by 3% – and 2.8% in early April. In Mumbai, jet fuel will cost Rs 68,306.21 per kl from today against Rs 68,630.93 per kl.
Also in India it has come to light that Singapore Airlines and the Tata group tried to launch a private airline some 15 years ago but failed to gain approval for the 40% share owned by SIA as it is a foreign company. Airlines are still fighting that same problem today, which the chance of the FDI rule being eradicated becoming ever more distant.

By Victoria May 1, 2012 15:35
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