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Airline Must Pay Full Rent on Defective Passenger Jet

planeAn airline must pay full rent on a leased Boeing 737 passenger jet notwithstanding that it was in an un-airworthy condition. The Court of Appeal ruled that, as a matter of business efficacy, the airline assumed responsibility for the aircraft’s condition when it formally accepted delivery from the lessor.

The airline, which is now in liquidation, used the jet extensively during a summer tourist season before defects were discovered by regulators and its airworthiness certificate was suspended. Unbeknown either to the airline or the lessor the aircraft had been in an un-airworthy condition on delivery. The lease was subsequently terminated and the aircraft re-delivered to the lessor.

The lessor launched legal proceedings against the airline, claiming $4.6 million in respect of rent and maintenance reserves prior to the date of re-delivery and another $6.9 million in respect of loss of rent resulting from the early termination of the contract. The airline counter-claimed Euros6.8 million in respect of the lessor’s failure to deliver the jet in an airworthy condition.

The lessor’s claim was successful at first instance, subject to quantification of damages, and the airline’s counter-claim was dismissed. The airline’s challenge to that decision was dismissed by the Court of Appeal, albeit for different reasons than those given by the trial judge.

The court noted that the airline had had opportunities to inspect the aircraft prior to delivery and that the lessor was not an operator of aircraft and, as is commonplace within the industry, had played an essentially financial role. On a correct interpretation of the natural meaning of the contract, the airline had accepted the risk that the aircraft would be found to be un-airworthy subsequent to delivery.

The airline’s acceptance of delivery had also amounted to an independent binding contract precluding the airline from subsequently contending that the aircraft’s condition on delivery was other than in compliance with the contract, the court concluded.