Home Knowledge The Aircraft Industry – The COVID-19 Squeeze

The Aircraft Industry – The COVID-19 Squeeze


Every aspect of the global aviation industry was immediately affected by the coronavirus pandemic. People’s movements were restricted, demand for commercial flights came to an abrupt halt resulting in aircraft being grounded.  Airlines are delicately trying to mitigate the disruption caused to their customers whilst maintaining cash reserves as best they can.  The knock-on impact on aircraft leasing companies means they too have to revisit their cash flow projections and evaluate their financing options.

It is in everyone’s interest that the aviation industry remains strong – customers want their travel options to remain available, airlines want the flexibility that leasing allows, aircraft leasing companies want comfort that their rent can be collected, and banks want to ensure that their facilities are repaid.  Insolvency options are a last resort. Any non-payment or reduced payment of rent which is not promptly remedied will usually constitute an event of default under a lease, as well as an event of default under a facility, whereby aircraft leasing companies and lenders can seek to enforce their respective rights.  Increasingly, airlines are reaching out to their lessors to request a temporary reduction in or deferral of their rent repayments to avoid triggering an event of default. 

Lease amendments

An event of default under a lease typically allows the lessor to terminate the lease. This could be undesirable for the aircraft leasing companies as there is a reduced supply of lessees available in the current marketplace where indefinite travel restrictions are being implemented.  If the aircraft leasing company has financing in place, they will also need to be mindful of any impact such consents may have on their own financing arrangements.  

Reductions in or deferrals of rent payments should be carefully considered from a commercial perspective, and any agreement should be well documented to prevent any loopholes once any waiver or grace period has expired.  Existing relationships with third parties, including lenders, may also need to be explored to ensure that their consent is not required.

Facility amendments

An event of default under a facility agreement will invariably allow lenders to accelerate the loan and/or enforce any security and call any guarantees.  As the grounding of aircraft is hoped to be a temporary measure, lenders may choose to hold off on resorting to such drastic action for now.  

This would be a commercial decision for a lender: is the lender able to hold a distressed loan on their books and if not, is there a buyer for the loan?  If enforcement of security was to be considered, is the value of the collateral enough to repay the debt?  Are there any other short-term liquidity options available to the borrower?  How many lenders are involved, and are they all in agreement and in a position to sign waiver letters/consents?  Is the lender willing to assist in maintaining its relationship with a significant client?

Help offered to the aircraft leasing company may range from a reduction in repayments for a short period, to an amend and restate of an existing facility or even the arrangement of a new bridge facility.  

The suitability of the above options will vary depending on the circumstances, and the team at William Fry are experienced in advising clients in connection with all these routes.  For a conversation about the next steps for your situation, please get in touch with the key contacts to this article or your usual William Fry contact.

Our partners, associates and our support teams are available as usual to support your business. We also have a specific COVID-19 Hub to help you.


Contributed by Emily Ashford