SECOND CIRCUIT AFFIRMS PRIORITY PAYMENT OF BROKER FEES INCLUDED IN AIRCRAFT LEASES
April 21, 2025
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The U.S. Court of Appeals for the Second Circuit (the “Second Circuit”) recently affirmed that an airline who filed for bankruptcy is responsible for commission due under an aircraft lease unless and until the lease is rejected within the statutory grace period. On May 10, 2020, the Latin American airline, Avianca, filed for Chapter 11 bankruptcy. Prior to this petition, Avianca had entered into twenty (20) aircraft leases brokered by two broker partner companies. Importantly, these leases included “scheduled additional rental payments.” After filing for bankruptcy, Avianca modified its agreements and ceased making the additional rental payments, causing the broker partner companies to initiate litigation. The bankruptcy court sided with the broker partner companies, holding that Avianca had missed its opportunity to reject the leases within the 60-day grace period which was upheld by the district court. Upon review, the Second Circuit agreed with the previous decisions and clarified that “debtors cannot avoid post-petition, pre-rejection lease payments simply because the lease and related obligations were executed pre-petition.” Any airline involved in a bankruptcy proceeding must thoroughly understand their lease requirements and properly identify obligations to be rejected early in the bankruptcy process to avoid lease payment obligations.
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