Pakistan International Airlines Corporation Limited (PIACL)
resolves $26 million dispute through out of court settlement
Pakistan International Airlines Corporation Limited (PIACL)
has successfully resolved a $26 million dispute with Asia Aviation Capital
Limited (AACL) through an out-of-court settlement. This resolution came
following legal advice, as it was determined that PIACL's position in the case
was not particularly strong.
The Ministry of Aviation informed the Economic Coordination
Committee (ECC) on October 27, 2023, that in 2015, PIACL had leased two A320
aircraft, registered as AP-BLY (MSN 2926) and AP-BLZ (MSN 2944), from AACL for
a one-year period.
These aircraft were leased at a monthly rate of nearly
$550,000, covering rent, maintenance costs, and insurance. Over the following
six years, these planes were a part of PIA's fleet, and for some time, they
were operated by AirAsia, the Malaysian multinational air carrier.
Asia
Aviation takes legal action against Pakistan International Airlines (PIA)
Standard aircraft lease agreements stipulate that the lessee
is responsible for returning the aircraft in its original condition. When it
was time to return the planes, AACL couldn't send their team to Pakistan for
inspection due to COVID-19 restrictions. Instead, they engaged FL Technic, a
global aircraft maintenance provider based in Lithuania, to perform the
inspection in Jakarta.
The plan was to redeliver the aircraft within six to eight
months after repairs. However, this schedule could not be met, leading to a
dispute over claims and counterclaims between AACL and PIA regarding
responsibility for the delay, the actual lease rent amount, and penalties and
interest to be paid to AACL.
Even a year later, the aircraft remained unrepaired and
undelivered, causing PIA to incur $5 million in rental costs for two planes
they were not utilizing.
The dispute over lease rent had led to litigation in 2019
and 2021, resulting in PIA being compelled to pay $12.058 million to AACL.
PIA
concerned about potential aircraft seizure and asset attachment abroad
Since April 2022, PIA attempted to reach out to AACL through
various means, including visits by senior officials to AACL's headquarters in
Kuala Lumpur. However, AACL remained largely unresponsive.
On September 11, PIA received a Court Notice through AACL's
UK-based legal representatives, Herbert Smith Freehills, demanding immediate
payment of $31.3 million for outstanding rent, redelivery rent, maintenance
costs, and interest charges for the two aircraft.
PIA's UK-based legal counsel, Norton Rose & Fullbright,
requested time from the High Court of Justice, England and Wales, London, to
respond to AACL's claims. The next hearing was scheduled for October 30, 2023.
PIA's legal advisors indicated that the airline's position
in this matter was weak and recommended pursuing an out-of-court resolution
with AACL. This could involve cash payment, a maintenance buyout, or the
purchase of one or both aircraft.
Breakthrough
in Pakistan's PIA A320 lease dispute
The PIA board recognized the importance of reaching an
out-of-court settlement in the best interest of the company and recommended
that two board members and the Secretary of Aviation negotiate with AACL for
this purpose.
On the Prime Minister's approval, the negotiation team
traveled to Kuala Lumpur on October 9, 2023, and after five rounds of
negotiations with the CEO of Air Asia Aviation Group and his team, an agreement
was reached to settle the matter at a consolidated amount of $26 million, which
includes the transfer of titles for the two aircraft in two installments.
The Prime Minister approved, in principle, the negotiation
with AACL and placed the case before the ECC for the provision of a grant of
PKR 7.3 billion to PIA.
A letter of intent to settle the matter on these terms, as
agreed between PIA and AACL, was issued, and comments from the Finance and
Privatisation Divisions were invited on October 13, 2023.
Both divisions supported providing financial support of Rs
7.3 billion to PIA. However, the Finance Division was cautious about issuing a
supplementary grant during the period of SBA with the IMF and recommended
arranging a financial facility from the market, amounting to Rs 7.5 billion,
against the balance of the guarantee ceiling.
On October 27, the ECC approved the Aviation Division's
proposal for bridge financing through Civil Aviation Authority's (CAA)
resources, totaling Rs 8 billion, to help PIA meet its urgent payment
requirements.
Source: Profit Pakistan