SpiceJet gets relief on aircraft lease default case in British court

A UK court has asked Irish aircraft lessor Goshawk and Indian low cost airline SpiceJet to mutually mediate the payment despite recognising that the airline has defaulted on payment of lease. Goshawk and its trustees had sued SpiceJet for around $16.2 million, which they said SpiceJet has been unable to pay.

In the summary judgement, the court despite ruling that Goshawk is right in claiming the amount, refused to take any action against SpiceJet on the grounds that forcing the airline to pay at this stage could result in the airline’s insolvency, which wouldn’t be in Goshawk’s interests.

The judgement, according to legal experts, is a relief for airlines like SpiceJet which has been unable to pay lease rentals due to the impact of the Coronavirus (Covid-19) pandemic but a big blow for aircraft lessors as it weakens the hell or high water clause, that compels airlines to pay lease rentals irrespective of any force majeure event.

“Execution of all judgments is to be stayed for a period to allow the parties to undertake mediation or some other form of alternative dispute resolution and, or at least until trial of the remaining claims and cross-claims between the parties,” the summary judgement passed by the Business and Property Courts at the High Court in London said. Business Standard has reviewed a copy of the judgement.

Summary judgment is a court order which brings litigation to an end early. Summary judgements are given when the court feels there is no compelling reason why the case should be allowed to proceed to trial, which would require a close examination of all the evidence. This saves the litigant parties significant time and expense.

The judgement said lawyers could set a precedent in favour of airlines which have defaulted on lease payments due to the outbreak of the Covid-19 pandemic which has severely impacted the aviation industry. “Normally lease agreements are covered under the “hell or high water” clause which implies that lessees ( in this case airlines) should continue paying lease rentals, irrespective of any issues or problems like financial losses, cash flow issues. This judgement casts a doubt on that protection and gives breather to airlines,” said a lawyer representing a lessor which has exposure to multiple Indian airlines.

SpiceJet had leased three Boeing 737s from Goshawk (one B737-800 and two B737-MAX8s). On account of both the Covid-19 travel restrictions and the worldwide grounding of Boeing MAX8s, SpiceJet defaulted on its rent payment obligations and Goshawk applied for summary judgment in relation to its claim for arrears.

Indian airlines like their counterparts across the world have been negotiating with lessors to defer or restructure lease agreements as business have been severely hit by the pandemic. While most of them have successfully restructured the lease agreements, a second wave of the pandemic are worrying lessors who doubt the ability to pay, especially by airlines with weak balance sheets.

For instance, SpiceJet is also facing a separate lawsuit in London over Rs 200 crore of unpaid charges. Ireland-based BOC Aviation and Wilmington Trust Services claimed that SpiceJet failed to pay rents and other charges, which as on 3 September amounted to Rs 48 crore.

SpiceJet’s rival Go Air which is eyeing a public issue to raise Rs 3,600 crore mentioned in its DRHP that four aircraft lessors have sent default notices related to 24 aircraft claiming US $35.75 million.