Southern Air seeks approval of Aircastle aircraft lease settlement

By Caroline Salls

Pittsburgh, Dec. 6 - Southern Air Holdings, Inc. requested court approval of an Aircastle aircraft lease settlement, according to a Wednesday filing with the U.S. Bankruptcy Court for the District of Delaware.

The company said the owner trustee Wells Fargo Bank Northwest, SA and lease servicer and administrative agent Aircastle Advisor delivered notices of termination of the Aircastle leases following pre-bankruptcy discussions on the status of the leases.

Southern Air said it contested the validity of the notices and the termination of the Aircastle leases.

The owner trustee filed a lawsuit on Southern Air's bankruptcy filing date, alleging unlawful conversion of Aircastle aircraft and seeking an injunction against the continued operation of the Aircastle aircraft by Southern Air.

Southern Air said it reached a preliminary understanding with the owner trustee and Aircastle in October. Under that understanding, the debtors would return the Aircastle 27044 aircraft, in serviceable condition, to the Marana Aerospace Solutions facility in Marana, Ariz., by Oct. 22 and the lease termination lawsuit would be suspended.

However, Southern Air said Aircastle contested the adequacy of the redelivery.

In addition, the company said it executed an agreement on Nov. 30 with Aircastle under which Southern Air will enter into a two-year post-bankruptcy lease for the Aircastle 27068 aircraft.

The Nov. 30 agreement also resolves lease termination lawsuit and other issues between the parties, the motion said.

Settlement terms

Under the proposed settlement:

• Aircastle will grant Southern Air a one-time option to extend the post-bankruptcy Aircastle lease for a period of 24 months following the Dec. 31, 2014 expiration of the lease term;

• Southern Air will pay Aircastle $524,383 in rent plus maintenance reserves for the use of the 27055 aircraft from Sept. 28 to Oct. 26, as well as up to $405,000 per month plus maintenance reserves for the use of the 27068 aircraft from September up to and including the agreement approval date;

• Following the approval date, Aircastle will have a $19.68 million allowed general unsecured claim against Southern Air in connection with early termination of the 27044 lease and a $19.91 million claim for early termination of the 27068 lease; and

• The agreement includes rent and maintenance reserve payment terms, as well as claims to be granted and payments to be made in the event of a liquidation rejection.

A hearing is scheduled for Jan. 29.

Southern Air, a Norwalk, Conn.-based cargo carrier, filed for bankruptcy on Sept. 28 under Chapter 11 case number 12-12690.

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