BACKGROUND
The COVID-19 Pandemic has brought about a massive downturn of the aviation industry. This has given rise to defaults, restructuring, and rework of leasing contracts - and in more severe cases, has triggered the insolvencies of lessee airlines.
Whilst the lessors have been affected too, it is the lessee who has to absolutely and unconditionally bear the risk of possessing the asset as the end user of a “net lease”.
Calling it a huge financial distress is an understatement when it comes to summarizing the damage that has been caused. The survival of the industry hinges upon dynamically changing market conditions and on the collaboration between all the parties involved - lessors, financiers, lessees, and regulators - along with a sound reliance on underlying contracts and leasing arrangements. The lessee airline typically remains the most vulnerable in this mechanism, and its ability to defend itself - particularly in the present circumstances of the pandemic that are beyond its control - is pivotal to its existence and that of the other players.
Historically, most aircraft leases have been governed by English law, and given this context, we shall analyze the “doctrine of frustration” in English law and the extent to which it provides protection to either party under their leasing arrangements. In situations such as the COVID-19 pandemic, we shall also consider its interplay with the provisions of the “hell or high water clause”. In doing so, we shall call out the recent instances where the doctrine was unsuccessfully invoked on aircraft leases - making the success rate of such invocations negligible.
Authors:
Namita Das, Partner, Link Legal
Neha Singh, Associate Partner, Link Legal
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