Recovering Arrears of Rent and Loans on Two Aircraft

The technical inspection revealed a number of issues with the two aircraft and the associated documentation. Components and parts replaced during the lease had Civil Aviation Administration of China (CAAC) tags only, instead of the EASA/FAA standards as required by the lease. While several parts of the aircraft were due for maintenance, the engines were the biggest concern. One of the title engines was undergoing overhaul at a Maintenance, Repair and Operations (MRO) facility in Europe, with an estimated cost of $8 million to be paid to release the engine. Another two of the engines required a full overhaul, and the final one was installed on another aircraft not held by the lender as security. The APUs for both aircraft were removed and awaiting a shop visit. The installed landing gears were not those delivered with the aircraft. The cabin LOPA, seat covers, cushions and curtains were all changed, but again, were approved to CAAC standards only. In addition, the aircraft records were not in the format required by the regulatory bodies.

Kroll completed an options analysis of likely costs to bring the aircraft to the required lease standards, including timelines, versus working with the lessee on a redelivery/buyout or selling the assets “as is”.

Following extensive negotiations, Kroll’s experts managed to agree to a solution whereby the lessee would secure funding from external third parties, and would be given a period of time to repay the arrears and ultimately buy the two aircraft. While the solution had risks attached, the timeline afforded to the lessee was short, and there were various financial milestones that were required to be met in order to enable the purchase to progress.