The Debtors also filed a motion for an order authorizing the Debtors to (i) enter into agreements under section 1110(a) of the Bankruptcy Code, (ii) enter stipulations to extend time to comply with section 1110 of the Bankruptcy Code and (iii) file redacted section 1110(b) stipulations (the “Section 1110 Motion”). Generally, the Bankruptcy Code’s automatic stay prohibits any actions to gain possession of a debtor’s property during the pendency of a bankruptcy case unless the court finds cause to grant a creditor’s request for relief from the stay. However, in order to ensure the availability of financing to certified air carriers for aircraft and related equipment, Congress provided special protections to certain aircraft financiers in section 1110. Under section 1110, the automatic stay applies to lessors, conditional vendors, and holders of security interests in aircraft equipment only for the first 60 days after the official commencement of a bankruptcy case. During that 60-day period, the debtor must cure any pre-bankruptcy defaults and enter into a court-approved agreement with the financier to perform all obligations under the prepetition security agreement, lease, or conditional sale contract. If by the end of the 60-day period, all defaults are not cured and a agreement is not in place, section 1110 overrides the automatic stay. Immediately upon the debtor’s default and without order of the court, it entitles the financier to retake possession of its collateral and enforce any of its rights or remedies in accordance with the provisions of the underlying security agreement, lease, or conditional sale contract. Section 1110 specifically states that the rights of a secured party protected under section 1110 are “not limited or otherwise affected by any other provision of [the Bankruptcy Code] or by any power of the court.”
Accordingly, the Debtors have two options to preserve the automatic stay beyond the sixtieth day after the Commencement Date for Aircraft Equipment (as defined in the Section 1110 Motion) that may be covered by section 1110 of the Bankruptcy Code. First, on or before the fifty-ninth day after the Commencement Date, which is January 27, 2012, the Debtors must agree to perform all obligations under an Aircraft Agreement (as defined in the Section 1110 Motion) and timely cure any defaults thereunder, other than defaults of a kind specified in section 365(b)(2) of the Bankruptcy Code. Second, subject to Court approval, the Debtors and an Aircraft Party (as defined in the Section 1110 Motion) may enter into a stipulation to extend the 60-day period set forth in section 1110(a)(2) of the Bankruptcy Code.
By the Section 1110 Motion, the Debtors propose the following procedures for agreements to perform under section 1110(a):
- If the Debtors determine that it is in their best interests to perform under a particular Aircraft Agreement, they will file and serve “1110 Election Notice.” Each 1110 Election Notice shall constitute the Debtors’ agreement, pursuant to section 1110 of the Bankruptcy Code, to perform all obligations that become due under the relevant Aircraft Agreement with respect to the Aircraft Equipment identified therein. The Debtors shall also cure any default (including cross-defaults, if any, that in the Debtors’ reasonable judgment are determined necessary to be cured to comply with section 1110(a)(2)(B) of the Bankruptcy Code) under such Aircraft Agreement (other than a default of a kind specified in section 365(b)(2) of the Bankruptcy Code, as to which no cure is required) as follows:
- in the case of any default that occurred before the Commencement Date, such default shall be cured on or before January 27, 2012;
- in the case of any default that occurred after the Commencement Date and before the expiration of the 60-day period provided under section 1110, such default shall be cured on or before the later of thirty (30) days after the date of the default or January 27, 2012; and
- in the case of any default that occurs on or after the 60-day period provided under section 1110, such default shall be cured in compliance with the terms of the Aircraft Agreement with respect to the Aircraft Equipment, if a cure is permitted under such Aircraft Agreement.
- Any party in interest may object to an 1110 Election Notice or any cure amount specified therein by filing a written objection on or before 4:00 p.m. prevailing Eastern Time on the date that is ten (10) days from the date of the filing of the applicable 1110 Election Notice.
- Unless the Court orders otherwise, upon the filing of an 1110 Election Notice before January 27, 2012 (or any extension of such date pursuant to section 1110(b) of the Bankruptcy Code) and the timely payment of cure amounts, if any, specified therein, (a) alldefaults under the applicable Aircraft Agreement (other than defaults of a kind specified in section 365(b)(2) of the Bankruptcy Code as to which no cure is required) shall be deemed cured, (b) the 1110 Election Notice shall be deemed effective as of January 27, 2012 (or as otherwise provided in such 1110 Election Notice) and (c) the 60-day period set forth in section 1110(a)(2) of the Bankruptcy Code shall be deemed to have been extended with respect to the Aircraft Equipment identified therein.
- Neither the Debtors’ 1110 Agreement nor the 1110 Election Notice shall be deemed to constitute an assumption of any Aircraft Agreement under section 365 of the Bankruptcy Code (to the extent that such section is applicable).
- By the Section 1110 Motion, the Debtors also seek authority to enter into section 1110(b) stipulations (“1110(b) Stipulations”) attempt to reach agreements with certain Aircraft Parties on the terms of new or modified Aircraft Agreements that are more closely aligned with current market conditions. The Debtors propose the following procedures with respect to such the 1110(b) Stipulations:
- Each 1110(b) Stipulation shall provide for an extension of the deadline established by section 1110 of the Bankruptcy Code (subject in some cases to further automatic extensions absent a written notice delivered by either party prior to the expiration of the extension period then in effect). In certain cases, the 1110(b) Stipulation may modify, either on an interim or permanent basis, certain terms of the relevant Aircraft Agreement.
- Each 1110(b) Stipulation shall make clear that it does not constitute an election or, except as set forth therein, an agreement by the Debtors to perform all of their obligations under the relevant Aircraft
S. Jason Teele, Esq.
Member of the Firm
Lowenstein Sandler PC