Aircraft repossession in regions of conflict

Yves Lavigne, President,World Assets Transition (WAT)

May 31st, 2013 – London, UK

SummarySummary

1 –Regions of conflict

2 - The Fundamentals of repossession

3 - A repo in Sudan : practical case

1 – Regions of conflict

Regions of conflict Regions of conflict

What do we mean by “regions of conflict” ?

It can either be a country …

Regions of conflict Regions of conflict

Today …

Major Wars, 1,000+ deaths per year

Minor wars and conflicts, fewer than 1,000 deaths per year

Countries under embargo

2 – The Fundamentals of repossession

The Fundamentals of repossessionThe Fundamentals of repossession

• When does repossession become a

necessity ? => In case of default

The Fundamentals of repossessionThe Fundamentals of repossession

A mix of structural and cyclical causes

• Airlines and air transport operators face major structural and cyclical risks

+

• Mobility of assets => physical risks

• Cases of default and damaged assets

Repossession and/or recovery

The Fundamentals of repossessionThe Fundamentals of repossession

• Aircraft repossession : main issues

The Fundamentals of repossessionThe Fundamentals of repossession

51 contracting states

•Two parts : the convention and three protocols

•Convention => general clauses

•Protocols => integrate the sectors’ specifics

•Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Aircraft Equipment => for aircraft, helicopters and engines

the Cape Town convention The main text behind repossession

The Fundamentals of repossessionThe Fundamentals of repossession

The main clauses

⇒To register ownership and interests on mobile equipment

Conditions of registration :

• First-in-time registration

• Possibility to register the interests if the asset is registered or the debtor located in a contracting state

the Cape Town convention The main text behind repossession

Set up of an international registry

The Fundamentals of repossessionThe Fundamentals of repossession

The main clauses

• In case of default, creditors can (among others)⇒Deregister the asset

⇒ Take possession of the aircraft

⇒Receive any benefit from the asset

⇒Go to court to enforce their rights

Improved security for the creditors

the Cape Town convention The main text behind repossession

Definition of debtors’ and creditors’ rights

The Fundamentals of repossessionThe Fundamentals of repossession

The objectives

Registration of international interests => less risks and uncertainties for the investors => cheaper and easier access to capital

But…

Some weaknesses => only 51 contracting states, difficulty to enforce the creditors’ rights in the local jurisdictions

the Cape Town convention The main text behind repossession

The Fundamentals of repossessionThe Fundamentals of repossession

• Access to the region

• Importance of political environment

• Unreliable communication and deficient information

• Logistical and consular issues

=> The main driver remains the political situation

…in a region of conflict

2 – A repo in Sudan : practical case

• Political situation :� Access, embargo, visa, security

Behind the repossessionBehind the repossession

• Risk :� staff and asset

• Selection of providers => take into account political context / can be local or foreign

What needs to be analyzed to prepare

repossession ?

DECISIONDECISION

AIRLINES LESSOR

� Defaulting

� finance

� technical

� legal

� EXPOSURE

� Preservation

� Asset

� Financing

� Remarketing

� Redelivery & Export

COMPROMISE or CONFLICT

REPO DECISIONREPO DECISION

Overview

Operator / Sub Lessee: Lebanese

Owner: Non EU Company

Lessee: EU Company 100% subsidiary of the owner

The Aircraft: A320

State of Registration: France

Aircraft Value

1. The Context: Ownership and Operation

A REPO IN SUDAN: PRACTICAL CASEA REPO IN SUDAN: PRACTICAL CASE

Overview

Wet Lease provider

To whom: Sudanese operator

Airline close from backruptcy

Default on lease rent and reserves

Default on Maintenance & Airworthiness Payments

• Debt Restructuring

• Redelivery & Lease Termination;

• Repossession

Solutions:

1. The Context: the airline and its activities

A REPO IN SUDAN: PRACTICAL CASEA REPO IN SUDAN: PRACTICAL CASE

Overview

Operator reaction: Offer asset to Sudanese partywithout notification

Sudanese party: Accept to pay deposit

• Purchase Agreement;

• Aircraft to be put on its AOC;

• Contracts with part 145 & part M organizations.

Lessee: EU Company 100% subsidiary of the Owner requests:

• Not informed;

• Asset out of control.

The Owner:

State of Registration: Not informed

1. The Context: the clash

A REPO IN SUDAN: PRACTICAL CASEA REPO IN SUDAN: PRACTICAL CASE

CONTEXT

UN EMBARGOEU BLACK LISTED

COUNTRY

THREE AUTHORITIES:

- France;

- Sudan;

- Lebanon.

NINE PARTIES:

Owner;

Lessee;

Operator;

Part M;

Part145;

Manufacturer;

Customs;

Airports;

Fuel Suppliers.

1. The Context: Summary

A REPO IN SUDAN: PRACTICAL CASEA REPO IN SUDAN: PRACTICAL CASE

The Owner enters Repossession processTwo Levels:

� Legal;

� Operational.

3 Authorities / 9 Parties

REPO REPOSSESSION / RETURN TO SERVICE / FERRY

RISK

FINANCIAL TECHNICAL

TAILORED PROCESS

A REPO IN SUDAN: PRACTICAL CASEA REPO IN SUDAN: PRACTICAL CASE

Overview

• France;

• Sudan;

• Lebanon.

CAA & Customs:

• Common Law.

Lease Governing Law:

• Mortgage of the Owner

Registration:

• EU Ops: Operations;

• Part145: Maintenance;

• Part M: Airworthiness

Regulations:

2. The Process: Regulatory implications

A REPO IN SUDAN: PRACTICAL CASEA REPO IN SUDAN: PRACTICAL CASE

Overview

• France: Registration; Maintenance; Airworthiness & Flight Permit.

• Sudan: Aircraft on its territory and out of control.

• Lebanon: No more implication. Carrier bankrupt and ceasedoperations.

CAAs:

• No Maintenance;

• No Airworthiness;

• No storage.

Aircraft Situation:

• DGAC Approval;

• Return to Service Work Package;

• Manufacturer Support: Flight Condition Deviation (FCD);

• Maintenance: Deported Certificate

Recovery requires

2. The Process: Practical Aspects

A REPO IN SUDAN: PRACTICAL CASEA REPO IN SUDAN: PRACTICAL CASE

Overview

• Flight Permit;

French DGAC:

• Work Package compliance;• Flight Conditions Deviation• Maintenance Deported Certificate

Requirements:

2. The Process: The Authorities

A REPO IN SUDAN: PRACTICAL CASEA REPO IN SUDAN: PRACTICAL CASE

Overview

• Aircraft Status;

• Overdue Tasks as per MPD revision;

• Aircraft Situation and location(Aircraft inspection).

Approve return to ServiceWork Package based upon:

• Airworthiness & Ops: Flight Permit;

• Maintenance: Deported Certificate

Use of FCD:

2. The Process: Manufacturer and FCD

A REPO IN SUDAN: PRACTICAL CASEA REPO IN SUDAN: PRACTICAL CASE

Overview

• Request Deported Certificate based upon FCD;• Request Approval from the local Authority to perform

third party services in Sudan on the designatedAirport;

• Perform Customs application to imports toolings andparts.

Authorities:

• Limited to return to Service WP as set up bycontracted CAMO and based upon FCD;

• Issue the CRS.

Services:

Maintenance + Airworthiness: FLIGHTPERMIT

2. The Process: Maintenance Provider

A REPO IN SUDAN: PRACTICAL CASEA REPO IN SUDAN: PRACTICAL CASE

Overview

WP from approved CAMO.

CRS from Part145.

FCD issued by Aircraft manufacturerpart 21.

2. The Process: Flight Permit

FLIGHT PERMIT

Part M/G Part 145 Part 21

A REPO IN SUDAN: PRACTICAL CASEA REPO IN SUDAN: PRACTICAL CASE

FLIGHT PERMIT / FERRY BACK TO SECURED LOCATION

THE MECANISM : FLIGHT PERMITTHE MECANISM : FLIGHT PERMIT

Authority

Part M

Part 145

Part 21

Outsourcing

ShadowManagement

Repossession Coordination

Airworthiness Management

Maintenance

Relations with Authorities

Relations with Lessee

Relations with Airports

REPO : KEYSREPO : KEYS

ENSURE

Assets

Confidentiality

Legally CompliantProcess

Experienced Partners

REPO : KEYSREPO : KEYS

VALUE

Constraints

Time

Costs

Asset Depreciation

REPO : KEYSREPO : KEYS

Lessee

Supervision

Financial

SecuritiesCape Town

First Rank

Registry

SecurizedAsset

Conclusion : How to securize assets ?Conclusion : How to securize assets ?

TO REPOSSESS IN A REGION OF CONFLICTTO REPOSSESS IN A REGION OF CONFLICT

Ensure:

•cooperation & support with government(s)

and the related agencies

•Neutrality towards the local context

•Compliance with the international decisions

•Adapted Team and Tailored Set Up