Deccan Aviation's row with aircraft lessors reaches SC

Deccan Aviation has moved the Supreme Court to resolve the dispute with aircraft lessor GECAS Group of Companies over the terms of lease agreement.

After the merger between Deccan Aviation’s low-cost airline Air Deccan and Kingfisher Airlines, it was decided to terminate the lease agreements prematurely with lessors to eliminate surplus aircraft and avoid duplication of flights.

A bench headed by Justice DK Jain has admitted the plea by Deccan Aviation (whose low-cost carrier Air Deccan has since been renamed Kingfisher Red after its merger with Kingfisher Airlines) challenging the Karnataka High Court ruling that refused to interfere in the dispute involving commercial activity of Deccan with its aircraft lessors.

Earlier, on Deccan’s plea, the Karnataka high court had given an ex parte order restraining the lessors from repossessing the aircraft.

However, the court vacated its stay order on a plea by GE Commercial Aviation Services, a part GECAS group, and dismissed Deccan’s petition on the ground that though the lessors had given consent to the merger scheme, it would not take away their rights to repossess the aircraft.

GECAS Group of Companies had invoked the cross default clause and had held up around 4.714 million dollars in the form of cash and letters of credit when only rental amount of $1.643 million was due in respect of four aircraft.

According to Deccan senior counsel F Nariman and Pratap Venugopal, the court which had sanctioned the merger scheme under Section 391 of the Companies Act cannot refuse to decide its dispute with its creditors. Resolution of the dispute was a must for proper working of the merger scheme, they added.

After GE Commercial Aviation gave no-objection to the merger plans in April last year, the High Court had sanctioned the scheme in June with a direction that the arrangement was binding on the creditors of both the airlines, Deccan said.

Opposing the Deccan’s plea, senior counsel Harish Slave, appearing for GE, said the contractual obligations between the airline and the lessors on account of lease agreements had nothing to do with the merger scheme.