The bankruptcy of Danish airline Cimber Sterling in May 2012 has threatened to shake the foundation of the countryâs engine leasing business after a Danish bankruptcy court ruled that some of the engines fitted to Cimber Sterling aircraft belonged to the airframes and the engine lessors bore no right to them, according to lawyers representing the leasing entities.
The District Court of Sønderborg decided in its ruling on December 4 last year that the estate of Cimber Sterling had to return seven of nine engines to their owners, but that the remaining two (both GE CF34s, leased by StandardAero and Nordic Aviation Capital) now belong to the Cimber Sterling estate because they had been mounted on the aircraft they poweredâBombardier CRJ200sâfor more than three months. The ruling assumes the arbitrary three-month period and thereby rides roughshod over the leasing contracts, lawyers representing two of the enginesâ five lessors told AIN.
The lawyers said the court appeared confused by the fact that the operator regularly swapped the engines among the aircraft in the fleet, some of which it leased and others it owned through Cimber Air Leasing, a subsidiary. The estate leased some of the former Cimber Sterling aircraft to a new, separate airline, Cimber A/S, established by parties unhappy with the original Cimberâs 2008 acquisition of parts of the already bankrupt Sterling Airlines. Now flying five CRJ200s and a pair of ATR 72s, Cimber A/S no longer operates the airplanes powered by the engines at the center of the dispute, according to its CEO, Jacob Krogsgaard. âWe have no aircraft grounded due to any engine disputes between the bankruptcy estate and lessors/owners of engines,â he told AIN.
Effectively, the Danish court has upheld the estateâs claim that the two engines awarded to the Cimber Sterling estateâCF34s-3B1s worth up to 12 million Danish krone ($2 million) eachâgot âcaughtâ by the aircraft the airline owned. StandardAeroâs engine remains installed on a CRJ200 registered as OY-RJI, which sits grounded due to what StandardAeroâs U.S. lawyer, Scott Hankins, called a landing gear issue. âThere is a continuing dispute among Cimber A/S, the trustees and the lender holding a security interest in the aircraft with regard to application of maintenance reserves and repair and disposition of the aircraft,â Hankins told AIN. Krogsgaard confirmed to AIN in an e-mail that his airline inherited four CRJs from the Cimber Sterling buyout, but he did not respond when questioned about the engine lessorsâ claims that aircraft with the disputed engines had been operated by his airline, without engine lease payments.
Although technically awarded to their three lessors, four other CF34s and three Pratt & Whitney Canada PW100s either remain on parked airplanes or sit in storage in Denmark while the legal wrangling continues. âThe rest are technically now âoursâ but the trustees are continuing to act as if all the engines were still theirs,â Amanda Dunn, general counsel for another of the five lessors involved, Magellan Aviation Group, of Charlotte, N.C., told AIN. âWe have not seen any maintenance records [and] not a penny in compensation for their use since last May. A draft âbondâ agreement we saw still had us pay all costs associated with evaluating our own engines in order for us to put up a bond with the court in order to physically release the asset.
âThe fact that the court is choosing to completely ignore the contracts [lease agreements] negotiated between the parties is really scary for anyone wanting to do business in Denmark,â she said.
The trustees of the estate of Cimber Sterling, and StandardAero, have each appealed the respective âadverse judgmentsâ the court imposed on them, while NAC expects to appeal the decision with respect to its engine, said Dunn. âThe dispute about the engines is not the only ongoing legal consequence of the bankruptcy,â she noted. âFive [Bombardier] CRJ200s are still owned by the estate. Or in other words: trustees of the estate are struggling hard with several mortgagees about the ownership to the aircraft and the vital components of the aircraft. And such legal disputes are frightening away potential buyers.â
The controversial court decision contrasts starkly with modern developments in international law, represented by the Cape Town Convention on interests in mobile assets, concluded Hankins. âDanish law is moving in the opposite direction by arbitrarily confiscating their [lessorsâ previously presumed as secured] property without compensation,â he said. âThe judgeâs decision in this case can be expected to shut down engine leasing in DenmarkâŚShould the decision be upheld on appeal, title to any leased engine likely would be transferred from the lessor to the aircraft owner by reason of the engineâs installation.â
The Cimber Sterling trustees based their successful arguments on Article XVI of the 1948 Geneva Convention (Convention for the international recognition of rights in aircraft, incorporated into Danish law). âFor the purposes of this convention the term âaircraftâ shall include the airframe, engines, propellers, radio apparatus and all other articles intended for use in the aircraft whether installed therein or temporarily separated therefrom,â the article reads.