Aviation Capital Group Prevails In Case With Olympic Airlines
By Eddy Metcalf
May 1, 2012 - Aviation Capital Group (ACG) of Newport
Beach, California has prevailed in its litigation with
Olympic Airlines (Olympic). In a case that has attracted
considerable attention in the aircraft leasing industry,
the English High Court rendered judgment on Monday in
ACG’s favor in ACG Acquisition XX LLC v Olympic Airlines
The Court found that Olympic was bound by its acceptance of a leased aircraft and its statement that the aircraft satisfied the delivery conditions.
As a result, Olympic is liable for unpaid rent and not
entitled to damages. By upholding a lessee’s acceptance
of a leased aircraft, the judgment highlights the
importance of commercial certainty to all participants
in the aircraft leasing industry.
In August 2008, Olympic, the now-defunct Greek state airline, accepted a Boeing 737-300 aircraft from ACG Acquisition XX LLC after carrying out extensive pre-delivery inspections. It executed a Certificate of Acceptance confirming that the aircraft complied with the delivery conditions in all respects. Both the Malaysian and Greek aviation authorities issued certificates of airworthiness for the aircraft.
Subsequently, a fault was discovered with a spoiler cable.
Following further inspections a number of other issues were
identified. Olympic carried out work on the aircraft but failed
to return it to service. The Court has now confirmed that ACG
was unaware of any defects in the aircraft when Olympic accepted
the aircraft and certified that it complied with the delivery
conditions. The Court also found that Olympic's ultimate failure
to restore the aircraft to service in Greece cannot be
attributed to any failure by ACG.
Olympic had refused to pay rent and minimum monthly maintenance
reserves for the aircraft, and also claimed that it was entitled
to be compensated for both wet leasing costs and the costs of
repair. The Court has rejected those claims. It has held Olympic
liable for all of the unpaid rent and maintenance reserves, plus
damages to cover the remainder of the lease term.
The Court referred to the importance of certainty in commercial dealings in its judgment. “I believe that today’s judgment should reassure participants in the aircraft leasing industry that lease documents, especially acceptance certificates, will have the clear and certain effect that lessors and lessees expect,” said Loren M. Dollet, Executive Vice President of ACG. “Having that clear and certain interpretation of leases facilitates the efficient and cost-effective financing of aircraft, which benefits all operating airlines as well as lessors.”
The aircraft in this case is owned by the Claimant entity, ACG
Acquisition XX LLC, which is a non-consolidated securitization vehicle
for which Aviation Capital Group acts as Servicer.
Previously, an interim judgment had been given in which the Court held
that Olympic had an arguable case for breach of contract, total failure
of consideration and frustration. Despite the fact that it did not
decide any questions of fact or points of law, that decision attracted
considerable attention. The judgment which the Court has given does
decide the case, and having considered Olympic's arguments, the Court
has rejected them. Olympic has the option to appeal this ruling.
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