COVID-19 has had a tremendous effect on the aviation industry. In the months since the W.H.O declared COVID-19 a pandemic, there has been a negative impact on airline share prices, air travel, airline workforce, and liquidity of operators and lessors generally. In addition to the more apparent issues facing the aviation industry, there has also been a flurry of activity behind the scenes. Operators, lessors, and financiers are realigning to salvage ongoing lease and financing arrangements in light of reduced operator liquidity.
Despite the disruption brought on by the pandemic, aircraft lease rentals have remained payable because aircraft leases are hell or high-water agreements; i.e., rentals are to be paid by airline lessees/operators irrespective of circumstances. Carve-outs in a hell or high-water clause would typically include scenarios where there is a total loss of the aircraft but rarely risks related to pandemics.
COVID-19 has had a significant effect on mergers and acquisitions globally, with a lot of on-going transactions pulled or delayed due to the uncertainty caused by the pandemic, and at least until parties have assessed the impact on their financial positions. It is estimated that worldwide merger activity so far this year has the lowest year-to-date figures for dealmaking since 2013.
The substantial change in operating conditions for most companies as a result of the pandemic has forced a lot of parties to ongoing transactions to consider termination of terms, particularly for transactions that were still in early negotiations. Where binding offers were signed, and parties decided to terminate, it’s been necessary to examine the termination clauses in such binding offers and the implications of termination, e.g., if any break fees would be payable. Additionally, parties are examining force majeure clauses to determine if the pandemic would constitute a force majeure event warranting a termination of the binding offer with minimum liability to either party.