Section 1110 of the United States Bankruptcy Code (the “Code”) provides eligible secured creditors and lessors with special remedies in Chapter 11 airline cases, including relief from the automatic stay to repossess aircraft if the debtor does not agree to perform its obligations and cure any defaults under the lease or security agreement within 60 days. However, Section 1110’s limitations on the automatic stay only apply to airline debtors that are FAA-certificated United States air carriers, i.e., not foreign airlines that file a Chapter 11 case in the United States.
The importance of this limitation is highlighted by the potential desirability of Chapter 11 proceedings for foreign airlines located in less debtor/restructuring-friendly jurisdictions, and the rise in airline bankruptcies due to the COVID-19 pandemic. However, in certain circumstances, this limitation regarding Section 1110’s protections for aircraft financers and lessors can be filled by Alternative A under the Protocol to the Cape Town Convention on International Interests in Mobile Equipment (the “CTC”). Alternative A of the CTC is similar to Section 1110 in that it provides secured creditors and lessors of aircraft a right to repossess their collateral after a specified waiting period, but unlike Section 1110, it is not restricted to only United States airlines. Specifically, if a non-United States airline whose “principal insolvency jurisdiction” (the “PIJ”) is in a country that has declared Alternative A were to file for Chapter 11 protection in the United States (which is a CTC contracting state), it is possible that a secured creditor/lessor could demand the return of their aircraft collateral following the expiration of the PIJ’s declared waiting period if the airline does not perform its obligations and cure any defaults, thereby modifying any automatic stay imposed by the Code. However, a creditor seeking to utilize Alternative A in this manner may have to persuade the United States Bankruptcy Court that its repossession rights should not be limited by the automatic stay, on the basis that the forum in which the insolvency case is pending is required under the CTC to recognize and defer to a debtor’s PIJ’s adoption of Alternative A.
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