Lender’s guide to aircraft repossession
Leading business jet repossession specialists advise aircraft and helicopter lenders and lessors on how to repossess aircraft.
From locating priceless paperwork to battling with corrupt jurisdictions, repossessing an aircraft is a position that no lender ever wants to find themselves in. To help make sense of this difficult process, we spoke to the industry’s leading repossession specialists to find their top tips for guiding you through the minefield.
Sign a tripartite agreement beforehand
A tripartite agreement is a mutual understanding between the bank or the lender, the owner of the aircraft, and the company that provides the management and/or maintenance services.
“It’s something that the bank can rely upon in the event of default or repossession, to ensure cooperation from the management company,” says Owen Geach, commercial director at IBA. “It means the bank or the lender can potentially rely on the management company to provide continuing support for that aircraft after it has been repossessed.”
Establish a good relationship with the operator
As well as having a tre-partite agreement with the manager it is worth having a good relationship with them before anything happens.
“It is exceptionally important that when you do come to those work-out positions you’ve got a very close working relationship,” says Melanie Humphries, head of aviation finance for Africa at Investec. “When we’ve had wobbles in the past in some of our deals, those relationships lend a lot of comfort to the banks in terms of looking after the asset, tracking its location and assisting with the work-out.”
Carry out as many inspections as possible
A preliminary inspection will obtain what kind of condition the aircraft is in and where the records are, and can be used to send a gentle warning to the owner that unless they comply, with the demands of the lender, the aircraft may have to be repossessed. “You’ll also learn a lot if your request for preliminary inspection is denied or gets put off month after month,” says Ben Jacques, commercial manager at IBA.
But rather than waiting until repossession is a consideration, periodic inspections can be an effective tool for a bank to employ. “The advice we’d give to any financier of aircraft would be to use your contractual rights to perform periodic inspections on the aircraft and its records,” says Geach. “That way you have the opportunity to scan records, so in the event that you do end up repossessing, you already have at least 75% of the records held on file.”
Know where the records are
In order to repossess an aircraft, it’s vital that you know its value and general condition. “The records for an aircraft are worth [around] 20-25% of the value of the actual aircraft,” says Gurinder Dhillon, managing director at Aircraft Recovery International. “If you don’t know the status of your aircraft, its value is hugely reduced.”
Locating the records is, therefore, almost as important as locating the aircraft itself. “Know where they are and if possible, get scanned, if not original copies,” says Jacques. “There are some airlines who still keep paper records. Until those are collated and scanned, anybody could put a match to them and wipe out hundreds of thousands, if not millions off the value of that aircraft.”
Assess whether repossession is really worth the cost
Repossession is expensive and only in exceptional cases is it something which will save the lender money in the long run. “As long as the aircraft is insured and being maintained, we suggest they leave it and work something out,” says repossession specialist Nick Popovich, founder of Sage Popovich.
“It is a paradigm in lending that lenders prefer a work-out to a repossession,” says Sean Lederman, shareholder at ENS. “Repossessions are always the end of day scenario, when nothing else can be done, so I think that always mitigates against this issue.”
Think about the resell
“With any corporate aircraft, the consideration has to be: who could your next customer be?” Geach says. “The client needs to understand not only how much it’s going to cost but how feasible it’s going to be to resell.”
“If you’ve got a very unusual aeroplane, it will be difficult for somebody else to resell,” agrees Jacques. “If you’ve got a particularly unusual aircraft that somebody is using but can only pay 80% of the lease rentals, you might be better off renegotiating for 80% of the headline figure than actually repossessing it.”
Hire a repossession specialist
It is absolutely imperative that upon deciding to repossess, the lender speaks to an individual or agency with plenty of experience, and a contact book to match. “They need someone who has an extensive amount of experience and who is properly insured to protect them and the asset,” says Popovich.
A bank needs somebody who is not only experienced in locating aircraft, but who knows how to negotiate and conduct themselves in a professional manner throughout a potentially hostile situation.
Consider the jurisdiction you are going to
Though no jurisdiction can truly be considered as a ‘no-go zone’ for a repossession agency, it’s true that different jurisdictions present different challenges – which would explain why Popovich once spent a week in a Haitian jail.
“It’s easier to repossess in some jurisdictions than others,” says Geach. “I think it would be unfair of me to cite certain jurisdictions, because I’ve had successful repossession experience in places like Russia, Italy and India, where one assume there would normally be problems.”
Have a good team of lawyers behind you
Although lawyers come at a cost, having a strong legal team on board from the beginning can prevent what Jacques describes as any “stickiness.”
Jacque’s colleague, Geach says: “If you repossess or cause damage to an aircraft, whilst there wasn’t a clear legal precedent to do so or through negligence, the operator can counterclaim for damages, disruption, consequential losses etc, and before you know it, you as the agent are caught up in something very messy. So having the right team involved in the project and the right insurance in place is essential.”