Virgin Australia engine leasing tussle heading for High Court

A legal stoush over four aircraft engines leased by Virgin Australia is now headed for the highest court in the country.

A long-running stoush over four aircraft engines leased by Virgin Australia is now headed for the High Court.

The long-running stoush over four aircraft engines leased by Virgin Australia is headed for the High Court.

US aviation leasing outfit, Willis Lease Finance and trustee Wells Fargo, originally won their case requiring the airline to redeliver the valuable items to Florida in the US by October 15.

It was a significant victory for the lessor, with the cost of transporting the Boeing 737 engines overseas in the current pandemic likely to be more than $1m.

The ruling was appealed by Virgin Australia’s administrators Deloitte who feared the matter could open the floodgates for other lessors to demand the same treatment, at considerable cost.

Across its fleet of more than 100 aircraft, 62 aeroplanes were leased, along with 16 engines.

Deloitte claimed that a requirement to redeliver those to owners at Virgin Australia’s expense would result in an even smaller return to unsecured creditors currently in line for a 13 per cent return on their investment.

The appeal argued that judge John Middleton had misinterpreted the term “to give possession” and claimed the airline had complied with its obligations to Willis by making the engines available for collection.

In a judgment delivered on September 18, the Full Court of the Federal Court upheld the appeal and sent the matter back to Justice Middleton to decide how the engines should be repossessed.

However the lessors have now sought leave to take the case to the country’s highest court, and have also applied to the Federal Court for orders to ensure the engines would be well maintained and insured for up to a year, while the legal battle was fought.

An affidavit from Willis Lease vice president Dean Poulakidas indicated the orders were needed because Virgin Australia had refused to commit to their requests to preserve the engines, worth an estimated $15.5m each.

“The applicants (Willis Lease) are concerned that the respondents (Virgin Australia) might take steps which adversely affects the applicants’ engines and other associated equipment while the applicants are seeking to pursue an application for special leave in the High Court of Australia,” said Mr Poulakidas.

He went on to state that in a telephone conversation, Deloitte’s lawyers, Clayton Utz, declined to agree to preserving the status quo of the engines.

Furthermore, documentation provided to the lessor, had shown three engines had been preserved for long-term storage but the fate of the fourth was unknown.

“I am not aware whether engine 896999 has been preserved and have not seen evidence of such,” Mr Poulakidas said.

The matter will be heard in the Federal Court next Tuesday, October 27.

Virgin Australia went into voluntary administration on April 21, owing $7.1bn to more than 10,000 creditors.

On September 4, creditors voted overwhelmingly in favour of selling the airline to US private equity firm Bain Capital, which stumped up $3.5bn for the deal.

The transaction will not be finalised until the transfer of all shares in Virgin Australia to Bain is approved by the Federal Court with a hearing scheduled for November 10.