The engine leasing business has come to a grinding halt in Denmark as the result of a decision by a bankruptcy judge to invalidate engine leases on certain Cimber Air Bombardier CRJ200 aircraft and rule that the engines belonged to the airframe, even though they were leased separately from engine lessors, under valid lease arrangements.
This decision, by the the District Court of Sønderbord, in the Cimber Sterling bankruptcy, returned 7 of 9 leased engines to their owners. But the remaining two CF34-3 engines, leased in from Standard Aero and Nordic Aviation Capital, were ruled to be a part of the aircraft that they powered because they were on wing for more than 3 months, despite being on a separate lease. As a result, those entities have lost engines worth $2 million each, if the courts judgment holds.
This decision apparently reverses current international law, as outlined in the recent Cape Town Convention on interest in mobile assets, and is current under appeal. The court cited the 1948 Geneva Convention for the International Recognition of Rights in Aircraft, for its decision under Danish law, which stated “for the purposes of this convention, the term ‘aircraft’ shall include the airframe, engines, propellers, radio apparatus and all other articles intended for use in the aircraft whether installed thereon or temporarily separated therefrom.” This misapplication of an older convention could cause havoc in the industry should a dangerous precedent be established.
Of course, in 1948, aircraft leasing did not exist, nor were engine or component leasing, commonplace today, even contemplated. As a result, this has negated the security of an owner for an engine or component lessor in Denmark, and will likely result in no new engine leasing. and the likely cancellation of the majority engine leases in that country, until a ruling is made on the appeal.
Notwithstanding the Cape Town Convention, according to the judge this aircraft has 4 engines, the 2 leased ones and the 2 removed ones. The question is who holds title to the removed engines. I can only imagine the documentation associated with any engine lease just to protect the lessor and how high the engine lease rates will be.