547 B.R. 578
Bankr. S.D.N.Y.2016Background
- Republic Airways Holdings and affiliates (the Debtors) filed Chapter 11 on Feb 25, 2016; they operate regional carriers and own/lease ~300 aircraft.
- Certain aircraft, engines, and related records (the “Citi Collateral”) secure ~$23.581 million under a Citibank credit agreement; some engines were not in matching airframes and some engines were third‑party‑owned.
- Debtors sought authority to transfer title, abandon specified aircraft/engines, and reject a related lease under §§ 1110, 365, and 554, and to surrender the Citi Collateral rather than retain it.
- Citibank did not oppose surrender generally but objected to the proposed surrender procedures under § 1110(c): contesting (a) a 15‑day retrieval period as unreasonable; (b) proposed short insurance/maintenance obligations; (c) timing for delivery of aircraft records; and (d) who must bear costs to restore matching engine/airframe configurations.
- The Court held a hearing, granted the Motion with conditions, and issued this memorandum to explain its reasoning.
Issues
| Issue | Debtors' Argument | Citibank's Argument | Held |
|---|---|---|---|
| Whether §1110 requires debtors to satisfy contractual return conditions (e.g., reinstall original engines, deliver to specified location) before surrendering collateral | Debtors: §1110 permits immediate surrender “as is, where is” and does not require compliance with contractual return conditions | Citibank: Debtors must comply with lease/security return provisions (matching engines, transport, manuals) when surrendering collateral | Court: Declined to require compliance with underlying contract return conditions; surrender may be “as is, where is”; Citibank may assert claims for damages/costs later |
| Who bears costs to remove/replace mismatched or third‑party engines | Debtors: not required to perform restoration; estate should not bear uncertain restoration expense now | Citibank: Debtors must remove third‑party engines and reinstall Citi engines, or split costs now | Court: Did not allocate cost now; preserved Citibank’s right to assert administrative or other claims for expenses through claims process |
| Timing/duration of debtor’s insurance and maintenance obligations after order | Debtors: limited continuation (until entry of order and then short window — effectively 15 days) | Citibank: requested insurance/maintenance through 30 days after order or until retrieval | Court: Ordered debtors to maintain insurance and maintenance for 15 days from the date of the Court’s order (balancing prompt return and lender’s retrieval burden) |
| When records/documentation must be delivered | Debtors: made records available for pickup and need not synchronously deliver with equipment | Citibank: requested records be delivered at same time as equipment surrender | Court: Found debtors had made records available; did not require simultaneous delivery but preserved Citibank’s rights to assert claims if harmed |
Key Cases Cited
- In re Orion Pictures Corp., 4 F.3d 1095 (2d Cir.) (purpose of §365 to permit debtor to renounce burdensome property)
- NLRB v. Bildisco & Bildisco, 465 U.S. 513 (U.S.) (business‑judgment standard for §365 decisions)
- United Airlines, Inc. v. U.S. Bank N.A., 406 F.3d 918 (7th Cir.) (scope of §1110 protections for aircraft financiers)
- In re UAL Corp., 299 B.R. 509 (Bankr. N.D. Ill.) (analysis of §1110 election effects and administrative claims)
- In re US Airways Grp., Inc., 287 B.R. 643 (Bankr. E.D. Va.) (refusing to require compliance with lease return provisions in §1110 context)
- In re MF Glob. Holdings Ltd., 466 B.R. 239 (Bankr. S.D.N.Y.) (business‑judgment approval of lease assumption/rejection)
- In re AMR Corp., 485 B.R. 279 (Bankr. S.D.N.Y.) (discussion of §1110 limits on automatic stay and 60‑day framework)