Aircraft
procurement is a big project for any airline company in Indonesia, the
stakeholders, and the financing parties. Not only big in the value of the money
involved, but also by the scale of the financing.
It
is common that the financing scheme takes the form of a lease. And it is more
common that the lease would involve foreign lessor.
With
the big value of the project, it is common that the lease arrangement for an
aircraft be made for a long term period. For the lessor, long term financing
would certainly have a big risk on the fulfillment by the lessee (the airline
company) of its payment obligations. Lessor would obviously take some measures
with the purpose to safeguard its asset (the aircraft) until the time the
payment terms are fully satisfied by the lessee.
Mostly
a lease agreement would retain the ownership of the aircraft with the Lessor.
The asset (aircraft) would be delivered to the Lessee, conveyed to the hand of
the Lessee and to be operated by the Lessee.
Lessor
would seek sort of security interest to secure its ownership and to guarantee
full payment of the aircraft lease value and all other payment obligations of
the Lessee under the lease agreement.
Here
comes the widely known a piece of document so called Guarantee Agreement.
In
many transactions, Lessee would be supported by the ultimate stakeholder, the
shareholder/parent company. The shareholder or parent company gives a guarantee
(corporate guarantee) for the benefit of the Lessor, which in the guarantee
document would usually be defined as Beneficiary, mainly for the due, punctual
and complete payment of the payment obligations under the Lease Agreement.
The
Indonesian Law recognizes the nature of a guarantee as to support the
underlying transaction. The existence of a guarantee would be depending on the
existence (and validity) of the underlying transaction document. Thus a guarantee
will not be in existence without the presence of the underlying obligations
under the underlying transaction document.
Whilst
under the (corporate) guarantee agreement, the guarantor (parent company)
warrants that it will pay to the Beneficiary when so requested, any amount
payable by the Lessee were the Lessee fails to fulfill its payment obligation
when due and payable, a guarantee will not become a security interest for the
Lessor of a lease agreement. Unlike mortgage, pledge, or fiduciary security, a
guarantee would rely on the voluntary obedience by the guarantor of its
warranty and covenants.
A
complete thorough guarantee agreement nonetheless does not put a security
interest on a particular asset of the guarantor. The Lessor that owns the
aircraft leased and operated by the Lessee does not hold a security interest
for the life of the lease.
It
is often the case that the underlying aircraft lease agreement is governed by
foreign law. The use of foreign law in a transaction document is widely known
and practiced, and off course will relate to the principles of Private International
Law. So long the rights and obligations under the aircraft lease agreement are
fully satisfied and acceptable to (mainly) the Lessor, the Lessor could expect
the agreement would run and mature smoothly, without the need to come to the
Guarantor.
Enforceability
of the foreign law governed aircraft lease agreement, and the (corporate) guarantee
agreement will become a crucial concern and question if there is a need to seek
enforcement of those agreements.
Whilst
Indonesian legal system and the Law on Aviation (Law No. 1 of 2009) recognize
the principles of Private International Law, the implementation of Private
International Law principles to the documents (the performance of rights and
obligations) in concerned would yet to be examined at the relevant court.
Enforceability of foreign judicial decision in Indonesia would also depend on
the ruling of the Indonesian court where enforcement is sought.
The
Law on Aviation provides support to a Lessor through recordation with the
Directorate General of Civil Aviation of an irrevocable power of attorney from a
Lessee to a Lessor for deregistration and exportation of the leased aircraft or
helicopter. Irrevocable Deregistration and Export Request Authorization (IDERA)
will enable the Lessor to request for deregistration of the leased aircraft
when the Lessee is in breach of the aircraft lease agreement, and exporting the
aircraft. This concept of IDERA has its root in the international convention
known as Cape Town Convention in 2001.
There
is no doubt that a (corporate) guarantee of the parent company would provide
some comfort to the Lessor of an aircraft lease. Issuance of a corporate guarantee
will also put the parent company to a big responsibility to maintain the
company’s sound financial condition and well standing reputation. So whilst the
Lessor may face a risk of not being able to come to the guarantor, the
guarantor put itself on a risk of being brought to the court and declared
bankrupt.
All
may have consequence. Therefore prior to entering into the transaction, the
Lessor must have a deep and thorough review on the finance as well as the legal
terms and conditions, and seek a strategy to add some comfort to its position
as a Lessor of an aircraft lease transaction.
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SAID, SUDIRO & PARTNERS
Indonesian Attorneys at
Law
Sampoerna Strategic
Square
South Tower, Level 18
Jl.
Jend. Sudirman Kav. 45 - 46
Jakarta
12930
Indonesia
Phone: (62-21) 575.0983
Fax: (62-21)
575.0803
