IATA Aircraft Lease Guidance

Operations
It is advisable to the Lessee to consider aligning all scheduled payments so that they are all due on the same
date. This will result in a decrease of cost and administrative burden, the importance of which is often
underestimated in international exchanges and payments over a long term lease.
4.2.2 Insurances
The Lessee will be required to maintain the agreed insurance policies during the term of the lease. This is one
of the items which, if not in place at any one time during the lease term, would constitute a default with no
grace period attached. The reason behind this is the potential financially devastating impact of damage
occurring to an aircraft where the insurance policy for such aircraft has not been put in place, as discussed in
2.4. In the event where it is determined that the agreed insurance policy is not valid, then the Lessor would
typically immediately require the aircraft to be grounded until a policy is put in place.
Lessors normally have a contingency insurance in place, which would begin to cover the aircraft in the event
that the Lessee’s policy does not cover the incurred damage. While this contingency policy does provide a
safety net, a Lessor will always require that the Lessee maintains the agreed insurance policy in place for the
duration of the term.
4.2.3 Cross Default
A cross default provision included as an EoD is one of the most important EoDs to negotiate from a Lessee
perspective. Essentially, this provision will allow for a default to arise under the lease, if a default has arisen
under another of the Lessee’s contracts. The key is to make sure that the conditions, under which a default
arising under another of the Lessee’s contracts results in an automatic default under the lease, are
appropriately limited and aligned.
For example, a cross default provision which would allow for a default to arise automatically under the lease,
where a default occurred in any other of the Lessee’s contracts, in any form whatsoever, and without
limitation, should not be accepted by the Lessee. In this scenario, it would be advisable for the Lessee to limit
a default under any other agreement of the Lessee to only constitute an EoD under the lease if such default is
not being contested by the Lessee in good faith and on reasonable grounds, and any declaration of default
has not been stayed by a competent court or authority.
The Lessee will have to consider each cross default element in relation to its own particular corporate
situation. However, it is generally advisable to the Lessee to implement the following limitations:
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Limitation of any cross default provision to the aircraft leased by the same Lessor only. Therefore default
relating to other aircraft leased by a different Lessor, as well as default under the Lessee’s other
commercial contracts, would be excluded.
Limitation of any cross default provisions to a default exceeding a minimum monetary threshold.
Further limitation on financial indebtedness, in that an EoD shall not arise if such financial indebtedness
of the Lessee constitutes non-recourse borrowing or financing.
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