IBA and Allen & Overy say that a determined
strategy to monitor risk will allow lessors, banks and investors to avoid the
pitfalls of defaults and repossessions.
In a joint seminar held recently in London,
IBA, a leading independent aviation consultancy, and Allen & Overy, a market
leading law firm with an aviation practice advising on many of the industry’s
most significant and pivotal financing transactions and disputes, revealed how
to mitigate the risk of default or repossession.
Speaking to an audience of lessors, financiers
and banks, IBA and Allen & Overy highlighted the key measures that lessors
should take for reducing risk:
- Implement an appropriate asset management
programme
- Base the level of oversight on the
specific transaction and the risk/reward profile, but continuously reassess
and stay proactive and flexible
- Obtain all the data possible, analyse it
and ask the Lessee questions about it – always be looking over the horizon
- Have a contingency and remarketing plan
in place, but understand the costs involved with transition and remember
that a repossession will not always give the best outcome
- Be proactive - if a problem arises the
best place to be is on the ground with the Lessee
- Relationships built in country with the
Lessee’s key personnel will pay off - get the best advice in country
Phil Seymour,
CEO of IBA, said: “There is a range of challenging situations for lessors to be
aware of, and it’s important to take action as soon as things start to go wrong.
We have seen examples ranging from aircraft maintenance being ignored, lessors
not getting paid due to a lack of reserves whilst the operator can afford to fly
and generate revenue, to aircraft being at technical risk and lessors
simultaneously being denied their income. In any of these situations we would
caution lessors to closely monitor the fleet and records, keep a close eye on
maintenance status, and in the worst case scenario consider the possibility of a
voluntary repossession. Even in the ideal scenario that a lessor is getting paid
and the aircraft is being looked after, we would advise the Lessor to remain
alert for danger signs between regular inspection visits, such as falling
utilisation, removal of serviceable engines, or shifting operator
circumstances.”
Building a picture of the operator and macro
environment by looking at key factors such as, fleet and route data, political,
economic and regulatory changes, records and maintenance issues, key staff
moves, and order deferrals will allow operators to predict and swerve potential
issues.
Phil Seymour added: “When a repossession is
the best solution, there’s a lot to think about. From aircraft tracking and
physical state to whether records and manuals have been withheld, ransomed or
damaged, the first mover has the advantage – lessors should get ahead in all of
these areas.”
James Partridge
from Allen & Overy said: “If the situation is not amicable then, in addition to
exploring if a consensual repossession is possible, lessors also need to start
scenario planning at an early stage for a hostile repossession as well as
possible litigation against the Lessee and any guarantor. This can often involve
proceedings in more than one jurisdiction and requires careful planning and
co-ordination to maximise the prospects of success.”
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