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Advertisement Structuring and Practice for Aircraft Leases to Prevent Lease Payments From Being Clawed Back in a Lessee Bankruptcy Friday, April 9, 2021 Key Points The risk that prepetition lease payments made by a lessee that is a debtor in a US bankruptcy will be clawed back from an aircraft lessor can be reduced if: the lease is a true lease rather than a disguised secured loan or finance lease one or both of basic rent and maintenance reserves are payable in advance (i.e., at the beginning of a rent period rather than at the end) basic rent and maintenance reserves are payable m...

Overview Often an aircraft financer will structure a secured aircraft loan as a full payout lease in order to facilitate the exercise of remedies in the case of a default by the borrower airline. Specifying that the lease is governed by English law facilitates this structure because English law recognizes the lessor as the absolute owner of the aircraft. The legal systems of many foreign airlines' home countries may well take the same view. By contrast, in the United States, under Uniform Commercial Code (UCC) principles, courts may take the position that because a full payout lease is econom...