ACG Prevails on Appeal with Olympic Airlines

  ACG Prevails on Appeal with Olympic Airlines

Business Wire

NEWPORT BEACH, Calif. -- April 17, 2013

Aviation Capital Group Corp. (ACG) said today it has prevailed in the appeal
filed by Olympic Airlines (Olympic) concerning the April 2012 trial judgment
in ACG’s favor. In a case that has attracted considerable attention in the
aircraft leasing industry, the English Court of Appeal rendered judgment today
in ACG’s favor in ACG Acquisition XX LLC v Olympic Airlines S.A. The Court of
Appeal's decision for ACG upheld the trial court’s judgment that Olympic was
bound by its acceptance of a leased aircraft and, going further than the trial
court’s judgment, validated that ACG’s lease agreement was effective in itself
to transfer to Olympic at delivery the risks for the condition of the
aircraft. As a result, Olympic remains liable for the substantial judgment
amounts assessed by the trial court. By upholding a lessee’s acceptance of a
leased aircraft, the judgment highlights the importance of commercial
certainty to all participants in the aircraft leasing industry.

In August 2008, Olympic, the now-defunct Greek state airline, accepted a
Boeing 737-300 aircraft from ACG Acquisition XX LLC after carrying out
extensive pre-delivery inspections. It executed a Certificate of Acceptance
confirming that the aircraft complied with the delivery conditions in all
respects. Both the Malaysian and Greek aviation authorities issued
certificates of airworthiness for the aircraft.

Subsequently, a fault was discovered with a spoiler cable, and following
further inspections other issues were identified. Olympic carried out work on
the aircraft but failed to return it to service. Both Courts confirmed that
ACG was unaware of any defects in the aircraft when Olympic accepted the
aircraft and certified that it complied with the delivery conditions. The
Court of Appeal did not revisit the trial Court’s conclusion that Olympic’s
ultimate failure to restore the aircraft to service cannot be attributed to
any failure by ACG.

Olympic had refused to pay rent and minimum monthly maintenance reserves for
the aircraft, and also claimed that it was entitled to be compensated for both
the costs of replacement aircraft and the costs of repair. The Court of Appeal
affirmed the trial judgment rejecting those claims, and therefore Olympic
remains liable to ACG Acquisition XX LLC for all of the unpaid rent and
maintenance reserves, plus damages to cover the remainder of the lease term.

The Court of Appeal demonstrated a clear understanding of the issues involved
in aircraft operating leasing, including key differences between the aviation
and shipping industries, and contracts typically entered into governing the
use of their respective assets. The Court noted that with an asset as complex
as a commercial aircraft, neither lessor nor lessee can be absolutely certain
of an aircraft’s condition on delivery short of complete disassembly, which is
impractical. For that reason, aircraft dry lease contracts such as the one at
issue in this case allocate that risk between the parties, and provide a
contractual mechanism whereby the parties may determine conclusively when risk
for the condition of the aircraft passes to the lessee. The Court of Appeal
held that the “conclusive proof” clause of ACG’s lease, together with the
Certificate of Acceptance, provided such a mechanism and effectively
transferred the risk to Olympic at delivery. “Today’s judgment by the English
Court of Appeal is very good news for participants in the aircraft leasing
industry,” said Loren M. Dollet, Executive Vice President and Chief Legal
Officer of ACG. “We often select English law to govern our lease agreements,
and the Court of Appeal has shown it understands several important risk
allocation principles in our leases and has generated confidence they will be
enforced. Having clear and certain interpretation of leases facilitates the
efficient and cost-effective financing of aircraft, which benefits lessors and
airlines alike.”

Notes for Editors:

1. The aircraft in this case is owned by the Claimant entity, ACG Acquisition
XX LLC, which is a non-consolidated securitization vehicle for which ACG acts
as Servicer.

2. Any alleged defects were in no way attributable to ACG; prior to being
leased to Olympic, all maintenance work was the responsibility of the previous
lessee, AirAsia.

3. Following its repossession from Olympic by ACG, the aircraft was
successfully returned to service and placed with a new lessee. It has operated
without incident since that time.

4. Previously, an interim judgment had been given in which the Court held that
Olympic had an arguable case for breach of contract and/or total failure of
consideration. Despite the fact that it did not decide any questions of fact
or points of law, that decision attracted considerable attention as a result
of some of the judge’s non-binding comments concerning proper construction of
the contract. Both the trial and appeal judgments which the Court have given
do decide the case, and having considered Olympic's arguments, both Courts
rejected them. The Court of Appeal said explicitly that where the interim
judgment had taken a different approach to the interpretation of the contract,
the Court of Appeal disagreed with it.

5. ACG is represented by Michael McLaren QC and Harriet Jones-Fenleigh of
Fountain Court (barristers), and by Simmons & Simmons (solicitors), where the
team was led by Nick Benwell and Stephen Moses.

6. Olympic is represented by Philip Shepherd QC and Edward Cumming of XXIV Old
Buildings (barristers), and by Fulbright & Jaworski (solicitors).

About Aviation Capital Group:

ACG is the owner and manager of a diversified fleet of commercial jet aircraft
leased to the world’s leading airlines. Its portfolio includes over 250
aircraft leased to approximately 90 airlines in 40 countries. ACG also
provides asset management and remarketing services to aircraft investors and
institutional clients. ACG was founded in 1989 and is a wholly-owned
subsidiary of Pacific Life Insurance Company, a Pacific LifeCorp company.


Aviation Capital Group Corp.
Cathy Egan, 949-219-4631
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