Aircraft Financing Amendments Signed into Law

Financiers of aircraft and rolling stock will benefit from amendments to §§1110 and 1168 adopted as part of the massive Federal Aviation Administration reauthorization bill. The bill was signed into law on April 5 (P.L. 106-181).

The changes (found in §744 of the law) clarify the rights of lessors and financiers to repossess for defaults occurring after §1110's 60-day opportunity to cure has closed and to eliminate any right of the debtor to a "rolling cure" period after breach of the lease agreement. Any lease default that occurs after the 60-day period now clearly gives the lessor or secured creditor the chance to repossess the aircraft unless a cure is both permitted under the terms of the lease or security agreement and is effected in com-pliance with those terms. The court's discretion to permit cure in any other fashion is also strictly limited by the legislation.

The provisions had been included in the stalled bankruptcy reform package over the past two sessions of Congress, but were split off when the aviation bill emerged as a more likely vehicle. The Senate version of the bill included the changes, while the House had no provision. The House-Senate Conference Committee adopted the Senate language. The extent of the legislative history is as follows: "[the section] amends §1110 of the Bankruptcy Code to clarify its operation and remove the ambiguity created by recent federal court decisions in the Western Pacific case. Because of this litigation, uncertainty exists in the international financial community regarding whether §1110 effectively protects both lessors and lenders in connection with bankruptcy adjudication."