AMCK has been sued by U.S. carrier Frontier Airlines in a dispute over the sale and leaseback (SLB) of six Airbus A320neos, court documents viewed by Airfinance Journal show.
A framework agreement for the deal was signed in March, but the lessor later sought to alter the terms. Prior to the deal, Frontier and AMCK had several longstanding lease agreements in place covering other Airbus narrowbodies.
The claim was filed in the United States District Court in the Southern District of New York on 18 November.
Denver-based Frontier is represented by Binder & Schwartz and Lane Powell.
“Shortly after executing the March 2020 Framework Agreement, the United States aviation market began to suffer the negative impacts of the COVID-19 pandemic <…>. New commercial aircraft financing deals negotiated post-COVID-19 have been done on much more favorable terms to the aircraft leasing companies,” the claim stated.
“This unexpected market change made the economic terms of deals finalized before the COVID-19 pandemic much less attractive to aircraft leasing companies, and on information and belief motivated AMCK’s conduct giving rise to Frontier’s claims in this case,” it continued.
The first of the six A320neos was delivered to Frontier in March.
“Shortly following the delivery of MSN 10038, Frontier requested all of its aircraft lessors consider granting Frontier a voluntary one-time, short-term (three-month) aircraft rent deferral in light of the sudden and significant impact of COVID-19 on domestic U.S. air travel,” said Frontier.
“Upon receiving Frontier’s request for a short-term rent deferral, in addition to conveying its desire to repudiate the March 2020 Framework Agreement, AMCK immediately demanded that the economic terms of this agreement be renegotiated to improve AMCK’s profit margin. AMCK further demanded that Frontier work with Airbus to delay the deliveries of the five new aircraft that AMCK was required to purchase pursuant to the March 2020 Framework Agreement,” the U.S. low-cost carrier told the New York’s Southern District Court.
AMCK then granted Frontier a temporary suspension of rent payments that allowed the airline to defer its obligation to pay monthly rent on 14 of 15 aircraft it leased from AMCK pending the outcome of the negotiations. Specifically, Frontier said AMCK agreed that the airline could defer rent payments for these aircraft until 15 May 2020.
Frontier said that it then proceeded to renegotiate its aircraft delivery slots with Airbus for the new aircraft that were to be financed by AMCK, ultimately reaching an agreement with the manufacturer to “delay” the deliveries of the five incoming A320neos.
“Notwithstanding these successful negotiations with Airbus, shortly after Frontier informed AMCK that Frontier succeeded in obtaining the deferral of such aircraft, on May 8, 2020, AMCK unilaterally issued to Frontier a Notice of Termination of the March 2020 Framework Agreement,” Frontier’s claim stated.
“In the Termination Notice, AMCK alleged that Frontier’s non-payment of rent on other aircraft not subject to the March 2020 Framework Agreement gave rise to AMCK’s right to repudiate. At that time, the only aircraft delivered under the March 2020 Framework Agreement was MSN 10038. Frontier made the rent payments in full for MSN 10038 and continues to pay the rent for MSN 10038 in full. Frontier vehemently disputed AMCK’s right to terminate. To date, Frontier is current on all rent payments for the 15 aircraft that AMCK owns and leases to Frontier,” the airline said.
All 15 aircraft currently on lease from AMCK to Frontier comprise an A320, an A321 and 13 A320neos, including MSN 10038 from the cancelled deal.
Frontier claims that because of AMCK’s termination of the latest A320neo framework agreement the airline had to find “last minute alternative financing from another leasing company”, which resulted in significant financial losses to Frontier.
“Within the first two months of AMCK’s breach, Frontier obtained financing and subsequently closed, at a significant loss, on three of the five remaining aircraft that AMCK was obligated to finance under the March 2020 Framework Agreement. Only recently has Frontier obtained committed financing, at further significant loss, on the remaining two aircraft that AMCK was obligated to finance under the March 2020 Framework Agreement,” the Indigo Partners airline said.
Airfinance Journal’s Fleet Tracker shows that Frontier has accepted A320neo deliveries from Avolon, CDB Aviation and Bocomm Leasing this year, excluding the aforementioned single A320neo delivered from the failed six-aircraft mandate with AMCK.