How do you structure aircraft lease agreements to minimize default disputes and costs?

1 Choice of law and jurisdiction

One of the first decisions you need to make is which law and jurisdiction will govern the lease agreement and any disputes arising from it. You should choose a law and jurisdiction that are favorable to your interests, enforceable in the relevant countries, and consistent with international conventions and regulations. For example, you may prefer English law and London courts, which are widely recognized and respected in the aviation industry, or you may opt for a neutral arbitration venue, such as Singapore or New York, which can offer faster and more confidential resolution.

2 Lease terms and conditions

The lease terms and conditions should clearly define the rights and obligations of both parties, the payment schedule and currency, the maintenance standards and procedures, the insurance coverage and claims, the return conditions and inspections, and the events of default and remedies. You should also include clauses that address specific risks and challenges, such as force majeure, sanctions, taxes, liens, subleases, and repossessions. You should avoid ambiguous or vague language that could lead to misunderstandings or disputes later on.

3 Default remedies and enforcement

The lease agreement should also specify the remedies available to you in case of default by the lessee, such as termination, acceleration, damages, injunctions, and repossession. You should ensure that these remedies are consistent with the applicable law and jurisdiction, and that they are enforceable in the country where the aircraft is located or registered. You should also consider the practical difficulties and costs of enforcing your remedies, such as obtaining court orders, dealing with local authorities, securing storage and maintenance facilities, and finding alternative markets for your aircraft.

5 Communication and relationship

Finally, you should maintain regular and open communication and relationship with the lessee throughout the lease term, especially if there are signs of financial or operational difficulties. You should monitor the lessee's performance and compliance, and address any issues or concerns promptly and constructively. You should also be flexible and cooperative in finding solutions or compromises that can preserve the lease agreement and avoid default. By building trust and goodwill with the lessee, you can reduce the likelihood and severity of disputes and costs in case of default.