September 1, 2020
It is in the best interests of banks engaged in aircraft finance, aircraft lessors, aircraft brokers, and aircraft owners to standardize and make transparent the process to resell repossessed business aircraft. Adherence to best practices in this process would remove risks and costs for banks and other creditors, generate business for reputable aircraft brokers and appraisers, and would be fair to aircraft owners.
The process to resell repossessed aircraft should be governed by a set of principles that should be incorporated in aircraft finance and security agreements (the “Principles”). The Principles set out below would satisfy the requirements for a commercially reasonable sale of a repossessed aircraft, within the meaning of Article 9 of the Uniform Commercial Code (the “UCC”). Each party to a transaction would be treated fairly, and the risks and costs for creditors highlighted by the cases discussed below may be avoided.
Presently, banks, aircraft finance companies, and aircraft lessors (collectively, “Banks”) generally each have their own standard terms and conditions for loan agreements, aircraft security agreements, and guaranty agreements. These terms and conditions vary from Bank to Bank and do not protect Banks from becoming engaged in disputes and litigation.
Existing standard terms and conditions typically provide that, following an event of default, a Bank has unlimited discretion in selling a repossessed aircraft. The Bank may sell the aircraft to any party it chooses and at any price it chooses. Not surprisingly, this discretion is sometimes abused, as illustrated in the cases discussed below, and in other cases known to the authors. Disputes typically involve the sale of an aircraft by a Bank at a price less than the aircraft’s then current fair market value.