Air Transport World

Getting yours: making sure you can reclaim your property if a deal goes bad is the point of a treaty that awaits ratification. (Special Section).

It's one thing to lend money to someone who offers up a building as collateral, or to lease a building to someone you don't know. If you don't get paid, you simply repossess the building. It's quite another matter where airplanes are involved. Buildings don't generally move. Airplanes can disappear overnight and end up on the other side of the world.

In these troubled times when airlines are threatening to drop like flies, when they have exhausted their credit lines and will promise almost anything to almost anyone in exchange for some ready cash, lenders and lessors understandably are wary about whom they do business with, under what terms and at what cost.

Besides the Byzantine complexity of aircraft financing and leasing deals, the global nature of the industry adds a major risk element that has to be factored in by anyone putting up money in exchange for a claim on an airplane, or an airplane in exchange for a promise of lease payments. The lender could be in country A, the airline company that is borrowing in country B and the airplane that secures the loan in country C at a critical time when the operator defaults. If that happens, which of the three countries' laws would apply when the lender comes looking for satisfaction?

And even if that issue is resolved easily, there is the question of conflicting interests: What if a number of parties have legitimate claims on the airplane in question? Who gets priority when the assets are being divided?

These are the kinds of concerns that make it expensive to finance airplanes or borrow against them because the more risk a lender sees, the more it is going to charge for its money. …

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