Demand for air travel has been severely impacted globally due to COVID-19, leaving airlines with no choice but to park majority of their fleets. We are being inundated with questions whether Force Majeure applies to aircraft lease transactions in light of the COVID-19 pandemic. The following paragraphs should permit the reader to come to their own conclusion as to whether it applies or not.

Example of Force Majeure: A rents his house to B under a contract. The house, due to an earthquake, crumbles to the ground. Therefore, the contract is frustrated, i.e. no longer can be performed. Naturally, B owes no rent to A.

However, in aircraft lease transactions, you are more likely to come across the absolute obligation clauses, material adverse change (“MAC”) and unlawfulness clauses. The MAC and unlawfulness clauses, should they be triggered, are typically termed as “Events of Default”, thereby NOT exonerating the Airline of obligations.

As of payment of rent being absolute, it is not uncommon to see wording like the following used in an aircraft lease agreement:

“Lessee’s obligations to pay rent and make other payments and to perform its other obligations in accordance with the Lease will be absolute and unconditional under any and all circumstances and regardless of other events, including the following:

Unavailability or interruption in use of the Aircraft for any reason, including a requisition thereof or any prohibition or interference with or other restriction against Lessee’s use, operation or possession of the Aircraft (whether by law or otherwise).”

A typical lease would contain the following as an event of default:

“The Occurrence of any of the following will constitute an event of default and material breach of the Lease by the Lessee:(a) Material Adverse Change: Subsequent to the date of execution of this Lease and measured in relation thereto, any event or series of events occurs (other than a total loss) or circumstances arise which, in the reasonable opinion of the Lessor has a material adverse effect on the financial condition, prospects or operations of the Lessee leading to inability of the Lessee to perform all of its obligations under, or otherwise to comply with the terms of, the Lease.

(b) Unlawfulness: It becomes unlawful for the Lessee to perform any of its material obligations under this Lease or any other operative document, or this lease of any other operative document becomes wholly or partially invalid or unenforceable, provided that any such partial invalidity or unenforceability will only constitute an event of default if it has a material adverse effect on the Lessee’s ability to perform its obligation under this Lease … “

Moreover, in most lease agreements the lessee’s obligation to pay the agreed rent is based on the principle of “come hell or high water,” i.e. the Lessee’s obligations are absolute and uncompromisable. Also, it needs to be highlighted that under Common Law (specifically English Law, do note that at least in India, most if not all aircraft lease agreements are Governed by English Law) there is no automatic assumption of Force Majeure, i.e. there should be a clause for force majeure in the agreement failing which, there should be a determination by a Court of law. A lessee may argue on the principle of frustration, i.e. that the grounding of aircraft under the orders of the relevant government has rendered performance of the lease agreement impossible. But it must be kept in mind that the bar for claiming doctrine of frustration has been set very high in most jurisdictions.

Without going into the merits of the above, one can easily decide for themselves whether Force Majeure would apply or not to aircraft leases containing the clauses mentioned above.