Michael J. Edelman and Douglas J. Lipke on Requirements for Bankruptcy Code Section 1110 Protection in Airline Bankruptcy Cases

Michael J. Edelman and Douglas J. Lipke on Requirements for Bankruptcy Code Section 1110 Protection in Airline Bankruptcy Cases

In this Emerging Issues commentary, Michael J. Edelman and Douglas J. Lipke discuss whether the transactions of an aircraft lessor or financier are entitled to protection under section 1110 of the Bankruptcy Code. The determination is broken down into five key factors. They write:

Excerpt:

"One of the primary benefits of Bankruptcy Code section 1110 is that it is self-effectuating; if an aircraft transaction qualifies, a protected lessor, lender and conditional vendor can enforce its rights without the necessity of executing any agreements or obtaining a court order-unless the airline-debtor forestalls such enforcement by agreeing to perform 5 and curing 6 within the 60-day period provided under section 1110."

"First, only leases, security agreements or conditional sale contracts involving an "aircraft", "aircraft engine", "propeller", "appliance" or "spare part" are protected. 7 In addition, in light of the importance of recovering a complete set of records to maximizing the value of associated aircraft equipment, such maintenance records, logs and manuals that are required to be surrendered or returned under the terms of the leases, security agreements or conditional sale contracts are also given section 1110 protection."

"Where each of the foregoing requirements for coverage under section 1110 is met, section 1110 creditors are provided with very strong legal rights. In these circumstances, neither the bankruptcy court nor any other provision of the Bankruptcy Code enables an airline-debtor to limit or affect a section 1110 creditor's ability to exercise remedies over the aircraft equipment."

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Michael J. Edelman is a shareholder in the New York City office of Vedder Price P.C. Mr. Edelman's practice involves all aspects of bankruptcy litigation, proceedings, negotiation and restructuring. Mr. Edelman has experience in many of the significant chapter 11 reorganizations of the past decade as counsel to creditors, debtors and financial institutions, including, inter alia , Delta Air Lines, Lodgian, Inc., WCI Steel, Continental Grain, World Access, HomePlace Stores, Grand Union, Bidermann Industries/Maurice Bidermann, Foundation for New Era Philanthropy, Safety Components, Olympia & York and Maxwell Communication Corporation.

Douglas J. Lipke is co-chair of the Corporate Reorganization, Bankruptcy and Insolvency Group of Vedder Price P.C. in Chicago. Mr. Lipke concentrates his practice in the area of workout, bankruptcy and reorganization law. He represents a full range of national and international clients, including secured lenders, debtors, trustees and creditors' committees.