Clarification of Bankruptcy Code Gives Aviation Financiers Wings

In today's turbulent airline industry few things are certain; however, secured lenders can take heart based on the Seventh Circuit's May 2005 decision in United Airlines Inc v US Bank.  The central issue in United was whether the airline's indenture trustees could repossess their collateral - 14 aircraft - upon United's default under the relevant financings pursuant to Section 1110 of the Bankruptcy Code.  Although United alleged antitrust violations due to coordinated efforts of various indenture trustees, the court found all laws were dutifully followed and that the trustees were entitled to repossess the aircraft at issue if United failed to cure all defaults and pay the full rentals then due. The decision is a victory for lenders, which gain a degree of financial stability through the assurance that the courts will protect their investments.

This article first appeared in the International Law Office Aviation Newsletter at www.internationallawoffice.com (August 31, 2005).