Aviation Case Review 2025

ENGLAND AND WALES

High Court hands down judgment on liability in Russian Aircraft Lessor Policy Claims dispute

In previous bulletins, we set aside the case brought by various aircraft lessors against insurers in relation to aircraft stranded in Russia following the invasion of Ukraine in February 2022, to bring readers other decisions important to the aviation industry. But, following a 50-day trial, Mr Justice Butcher delivered his judgment in that case on 11 June 2025.

One of the central issues was whether there had been a loss of the relevant aircraft, and if there had, when had that loss occurred and what had caused it?

Each of the lessors had claimed for the loss of their aircraft under a policy which insured against ‘physical loss or damage’. There was no dispute that a permanent loss of possession would constitute a ‘physical loss’.

In considering the legal test for whether the aircraft could be considered a loss, the Commercial Court first made clear that the test for constructive total loss, which is set out in the Marine Insurance Act 1906, should not be applied in non-marine contexts. Instead, preferring Aercap’s position, the court followed a long line of English court decisions – including Moore v Evans and Mobis Parts Australia Pty Ltd v XL Insurance Co SE – and held that the best formulation of the test to be applied is whether the deprivation of possession is, on a balance of probabilities, permanent. Two points arise from that test:

1. what does permanent mean? In considering the meaning of permanence in this context (being an insurance of aircraft), Mr Justice Butcher concluded that it meant the commercial life of the aircraft; and
2. what is meant by deprivation of possession? The war risk insurers argued that while the claimants could exercise any of the benefits of ownership (for example by agreeing to sell the aircraft) they could not be said to have been deprived of possession of the aircraft. This was rejected by Mr Justice Butcher who considered the fact that the claimants had no physical use of the aircraft sufficient to find a deprivation of possession.

Mr Justice Butcher concluded there was, on the balance of probabilities, a deprivation of possession of the aircraft. He held that the implementation of Russian legislative instruments GR 311 and GR 312 on 10 March 2022, which introduced a ban on the export of certain goods (including aircraft) from Russia, marked the relevant date at which it was unlikely any lessor would recover the aircraft in Russia and therefore a total loss was established.

The insurers contended that, whatever the outcome, EU and US sanctions made it illegal for them to pay an indemnity to the claimants. This was rejected by the court, with Mr Justice Butcher finding that US instrument General Prohibition 10 did not prohibit the existence of insurances nor insurance payments made under those policies. It was similarly held that an insurance payment would not offend articles 3c(2) and (4) of EU Regulation No. 833/2014.

There was also considerable debate about the timing of the loss and whether the policy was in effect at the time of loss, given that the deprivation of possession occurred at a different point in time to the aircraft being deemed to be lost. The court held that the “grip of the peril” doctrine applied where the insured is deprived of possession of the aircraft during the policy term by the operation of a peril insured against. Where that deprivation of possession develops after the end of the policy period into a permanent deprivation by events that follow in the ordinary course from the insured peril, the insured is entitled to an indemnity under the policy.

Having established a loss, Mr Justice Butcher also needed to consider whether this was a loss under the all risks or the war risks policy, and whether the contingent or possessed cover responded.  For the first question as to all risks v war risks, he decided that the loss fell into one of the exceptions to the all risks policy, but was covered by a war risks peril. The specific peril engaged was the “Government Peril”, notably by way of the GR311 instrument and certain earlier actions taken by the Russian authorities, constituting “restraints” or “detentions” for the purposes of that peril.  This meant that the war risks policy responded to the loss.

In terms of whether the contingent or possessed cover applied, Mr Justice Butcher held that possessed cover did not apply.  In reaching his conclusions, he analysed what he considered to be steps involved “in the course of repossession”, and did not consider that merely serving termination notices in respect of the leasing of the aircraft, together with other preparatory steps for repossession, as sufficient for the purposes of triggering “a course of repossession”. He indicated that there must be overt acts which have a direct link to an actual imminent physical repossession of the aircraft in order for this trigger for possessed cover to apply. In deciding whether the contingent cover should respond, he was required to consider, amongst other things, arguments such as what “not indemnified” under the operator insurance meant and whether contingent cover was essentially only a back-up insurance to the operator policy. Pulling all these factors together, the judge held that the contingent cover would apply in these cases.

AerCap Ireland Limited v AIG Europe S.A. & Others [2025] EWHC 1430 (Comm)

In a further judgment handed down on 6 October 2025, Mr Justice Butcher denied the defendants permission to appeal on the basis that the submitted grounds did not stand a realistic prospect of success and that the market required finality on the issues raised before the commencement of the trial on the operator policies.  The contingent cover war risk insurers have sought permission to appeal on a number of issues and await the decision of the Court of Appeal.

AerCap Ireland Limited v AIG Europe S.A. & Others [2025] EWHC 2529 (Comm)

Guidance on interpretation of article 18 of Montreal Convention in relation to cargo damage

The Commercial Court was asked to consider a claim under Article 18 of the Montreal Convention 1999 (the “Convention”) in respect of damage to a consignment of Peruvian asparagus. The cargo was owned by Wealmoor Limited (“Wealmoor”) and KLM Royal Dutch Airlines Limited (“KLM”) transported the cargo by air from Lima to London via Amsterdam.

The goods were shipped under KLM’s “Fresh+2+8” service (requiring the product to be refrigerated at temperatures between 2-8°C), however, during take-off and landing, and during stopovers, the aircraft’s refrigeration system was turned off. It was common ground that the asparagus left Lima in satisfactory condition, but by the time it reached London its quality had deteriorated significantly. Wealmoor brought the claim on the basis that the damage occurred during carriage as a result of temperature management failures.

Article 18 of the Convention provides that the “carrier is liable for damage sustained in the event of the destruction of loss of, or damage to, cargo upon condition only that the event which caused the damage so sustained took place during the carriage of air”. Article 18(2) provides for certain exclusions if the carrier proves that the damage resulted from, among other things, an “inherent defect, quality or vice of that cargo” and/or “defective packing of that cargo performed by a person other than the carrier or its servants or agents”.

KLM disputed liability on the basis that (i) there was no material “event” during the carriage by air or (ii) it was excused from liability since the damage was caused by (1) the “inherent defect, quality or vice” of the cargo and/or (2) the cargo’s packaging was defective.

In considering how Article 18(1) of the Convention should be interpreted, the court followed the reasoning of Lord Scott in In re Deep Vein Thrombosis and Air Travel Group Litigation, in finding that an “event”:

1. is something that happens at a particular time, place and in a particular way, external to the cargo, and which causes damage during carriage by air; and
2. does not have to be fortuitous, unusual or unexpected, since it may include deliberate actions on the part of the carrier, nor should it be equated with an “accident”.

The court found that turning off the refrigeration in the cargo hold during aircraft descent and allowing the temperature to increase (including by the opening and leaving open of the cargo door while on the ground) was each an “event” within Article 18(1).

The court rejected KLM’s arguments that it was excused from liability on the basis of (i) the packing material used (a mesh fabric known as malla raschel) because the material was commonly used within the industry and (ii) inherent vice, because it must be assessed on the nature of the service contracted for. As the cargo ought to have been refrigerated, KLM were unable to rely on deterioration in hot weather.

This judgment provides clarity on the approach of the English courts to the interpretation of Article 18(1) of the Convention and should be of particular interest to carriers, freight forwarders, insurers, and shippers dealing with perishables or other temperature-sensitive cargo.  By clarifying that a carrier’s operational choices (or failures) during carriage can themselves constitute “events,” the decision strengthens strict liability for loss or damage to perishable cargo, even where deterioration may be gradual.

Wealmoor Ltd v KLM Cia Real Holandesa De Aviacion and another [2025] EWHC 1706 (Comm), 11 July 2025

Court of Appeal upholds FWA’s rights under JOLCO structure in major VietJet dispute

In our January 2025 bulletin (see here) we reported on a Commercial Court decision in an action brought by FWA Aviation (“FWA”) against VietJet Aviation Joint Stock Company (“VietJet”) for damages arising out of VietJet’s defaults in relation to four Airbus A321 aircraft (each financed and leased via a Japanese Operating Lease with Call Option (“JOLCO”) structure) and for termination values payable as a result of the premature termination of the leasing of the aircraft. At first instance, the High Court ruled in favour of FWA. VietJet appealed that decision on several grounds including (i) whether the leasing of the aircraft had been validly terminated and (ii) FitzWalter Capital’s (“FWC”, a FitzWalter SPV) status as a “financial institution”.

VietJet submitted that the right of the security trustees to serve a termination notice was limited to the occurrence of an “Enforcement Event” (being a loan event of default under the loan or the loan becoming/being declared due). It was common ground that an “Enforcement Event” had not occurred. FWA argued that the right to issue a termination notice had been unconditionally assigned to the security trustee by way of the security assignment. The assignment of rights to the security trustees included the right to give a termination notice in the event of non-payment of rent. The Court of Appeal, agreeing with FWA’s position, upheld the High Court’s ruling on this issue.

VietJet disputed that FWC fell within the permitted class of assignees under the loan agreements or the permitted class of new security trustees under the security assignments (both of which had identical wording defining a permitted class of assignee/security trustee as a “financial institution”). VietJet argued that FWC was not a “financial institution” as, if it was, it “would share at least some and perhaps all of the key characteristics of banks, being commercial lenders, of a certain size and substance and subject to regulation.” The Court of Appeal (like the High Court) rejected this argument and held that there was no reason to depart from the wide meaning of “financial institution” established in Argo Fund Ltd v Essar Steel Ltd namely “a legally recognised entity which carried on business in accordance with the law of its place of creation and whose business concerned commercial finance”. Accordingly, FWC qualified as a financial institution when it took the assignment of the loans and was appointed security trustee. It was set up to acquire those loans and realise their value, which was activity falling within the description of the business of commercial finance.

On 24 June 2025, the Court of Appeal dismissed VietJet’s appeal in full and upheld the decision of the Commercial Court.  In October 2025, VietJet was refused permission to appeal to the Supreme Court.

VietJet Aviation Joint Stock Co v FW Aviation (Holdings) 1 Ltd [2025] EWCA Civ 783, 24 June 2025

High Court refuses worldwide freezing order where actions concern part of ordinary business activities

Following the handing down of the Court of Appeal judgment discussed above, FWA sought to freeze VietJet’s worldwide assets to enable payment of the airline’s debts (which, as of July 2025, stood at over US$200m).

FWA submitted that there was a real risk that VietJet would dissipate its assets to avoid paying the judgment debts considering (i) VietJet’s prior conduct; (ii) allegedly misleading submissions made on VietJet’s behalf concerning alleged attempts to raise money to satisfy the judgment debts; and (iii) certain recent financial transactions entered into by VietJet (a dividend distribution, entry into a series of new purchase orders for various aircraft and transfer of certain assets to VietJet subsidiaries).

In refusing the application, the court:

1. held that as some of the “prior” conduct FWA complained of was not recent and that FWA had not previously applied for a freezing order despite this previous conduct, the conduct relied upon by FWA did not have any particular significance to the present application;
2. applied the principles in Les Ambassadeurs Club v Yu in which the Court of Appeal had held that it is not the law that it is easier to infer a risk of dissipation of assets in a post-judgment case;
3. found that a decision to declare a dividend or even the payment of a dividend by a company is not per se dissipation. It is an aspect of the ordinary course of business and the fact that the decision to declare a dividend might be made “in the wake of [a] judgment does not, of itself, lead to a conclusion that it is improper or unjustified or that the distribution, in effect, amounts to an illegitimate dissipation of assets; and
4. considered that it was most unlikely, in any event, to have been just and convenient in all the circumstances for the relief to be granted. This was particularly the case as VietJet is an active and growing airline and the steps it had taken which FWA sought to rely upon seemed to amount to no more than its ordinary course of business activities.

FW Aviation (Holdings) 1 Ltd v Vietjet Aviation Joint Stock Co [2025] EWHC 1920 (Comm), 23 July 2025

Interpretation of leases to determine damages owed following termination

In April 2025, the Commercial Court handed down judgment in the first quantum trial between FWA and VietJet following the judgment on liability discussed above.

FWA sought to enforce a contractual provision in the leases requiring VietJet to pay an early termination fee totalling more than US$160m.

The court dealt with the following issues:

1. Whether VietJet was liable to pay to FWA the early termination fees.

VietJet argued that the clause in question was penal and therefore unenforceable. The court disagreed. In applying the well-known Makdessi v Cavendish Square Holdings test, the court concluded that the payments served a legitimate commercial purpose in protecting the interests of the investors and the efficiencies of the JOLCO structure (the viability of which depends on prompt payment of rent due to the payment flow through the structure) and were not wholly disproportionate to those interests. Accordingly, VietJet was liable to pay the termination sums.

2. Whether FWA was entitled to certain declaratory reliefs — e.g. immediate possession and right to export/deregister the aircraft.

FWA had already exported the aircraft but to eliminate any ambiguity, the court granted FWA a declaration confirming its right to immediate possession of the aircraft.

3. Whether VietJet owed further post-termination rental payments despite the sale of the aircraft.

VietJet argued that post-termination rental obligations should cease once the NEO aircraft were sold to the NEO trustee owners (the NEO aircraft were sold with “new engine option”, in contrast with the CEO aircraft that were sold with “current engine option”). The court held that the clause in question was a liquidated damages provision and therefore VietJet was liable to pay the sums after the sale of the aircraft up until redelivery.

FW Aviation (Holdings) 1 Ltd v VietJet Aviation JSC  [2025] EWHC 928 (Comm), 17 April 2025

This run of cases provides helpful guidance on the interpretation and operation of JOLCOs. In particular, this final decision on damages recognises the efficacy of the structure and the legitimate commercial purposes for which they are put in place – a useful development for the industry.

Commercial Court awards summary judgment in favour of two TUI companies against Smartlynx Airlines Estonia OU

In the summer, the Commercial Court gave judgment on a dispute between TUI and Smartlynx Airlines arising out of the non-availability of leased aircraft and the terms of aircraft supply agreements, leases and maintenance agreements.  Whilst only a summary judgment, the court gave useful guidance on the block hours reconciliation and block hours utilisation compensation provisions, including notification requirements. Although judgment was given in favour of Tui, there was a stay of execution in respect of certain cross claims by Smartlynx as the court considered there to be a realistic prospect of a successful argument that these sums should be taken account of in the overall reconciliation.

TUI Airways Ltd and other companies v Smartlynx Airlines Malta Ltd and other companies [2025] EWHC 2098 (Comm), 6 August 2025

Summary judgment granted to head lessors for amounts due under head lease/sublease structure

In early December 2025, the Commercial Court granted summary judgment in favour of the lessors of two ATR 72-600 aircraft sub-leased to an Indian airline called FlyBig in respect of unpaid rent, supplemental rent, late payment charges and costs.

FlyBig failed to respond to the lessors’ claims initially and although the court permitted them to serve evidence in response to the application for Summary Judgment (which they did), moments before the re-listed hearing of the application was due to commence, they sought to introduce new evidence and new arguments in response to the application. The judge did not look on any of this kindly and refused to grant FlyBig any relief from sanctions to enable the new evidence to be adduced. However, the judge also stated that he did not think the late arguments being run by FlyBig would have made any difference to the outcome of the hearing.

The arguments raised by FlyBig, included the following:

1. there was an equitable assignment rather than an absolute assignment and so the assignor (the sub-lessor) should have been joined to the proceedings;
2. the termination of the sub-lease was not “commercially reasonable” under the Cape Town Convention;
3. the interest rate provision in the leases for late payment (10%) was a penalty and so was unenforceable; and
4. asserting as a defence to the application a claim, by way of set off, for amounts to be returned to it from the security deposit given to the sub-lessor.

None of the above arguments were successful and the judge found that FlyBig had not identified any defence to the claims for which summary judgment was sought that had a realistic prospect of success, nor was there any other compelling reason why the claims should be disposed of at a trial.  He therefore granted summary judgment on those claims, with interest and the claimants’ costs of the application, pursuant to the indemnity provisions in the leases.

MSN 1364 Leasing Limited and another v Big Charter Pvt Ltd [2025] EWHC 3154 (Comm), 3 December 2025

Summary judgment granted for sums due for payments after purported termination due to pandemic

And finally, we wrap the year up in the English courts with a December 2025 decision of the Commercial Court in the ongoing disputes between Fibula Air Travel and Just Us Air that arose during the Covid-19 pandemic.  Just Us was lessor and Fibula was described as Charterer under the leases (there were also two lessees). Fibula sought return of the security deposit after cancellation of the leases and Just Us counterclaimed for rental payments for the whole term. The court considered two defences brought by Fibula who contended that it was not required to pay the sums where certain condition precedents to payment relating to an audit and the obtaining of regulatory approvals had not been satisfied. After detailed consideration of the terms of the lease, the court held that Just Us’s claim succeeded.

The decision is a further example of payment provisions in leases being construed in favour of lessors, which has generally been the case in dry leases. In wet leases, it appears that a similar lessor-friendly interpretation is also being used.  As always, great care should be taken at the drafting stage. The takeaways in this particular instance are: (a) if payments are meant to be conditional upon receipt of approvals, this should be stated specifically, and (b) a condition precedent may be construed narrowly to only apply so as to make conditional those obligations that depend upon the relevant condition in order to be operative, and not the whole agreement.

Fibula Air Travel SRL v Just Us Air SRL [2025] EWHC 3259 (Comm), 12 December 2025.

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UNITED STATES

Debtor Airline Required to Pay for Brokerage Services

The Second Circuit Court of Appeals confirmed that Avianca was required to make payments to brokers during Avianca’s bankruptcy even though the brokers’ services were completed before Avianca filed for bankruptcy, denying Avianca’s appeal from the district court.

Avianca Holdings S.A. had commenced Chapter 11 proceedings in New York in 2020. In 2014, prior to Avianca’s bankruptcy, Burnham Sterling and Company LLC and Babcock & Brown Securities, LLC, provided brokerage services to Avianca to secure aircraft for Avianca to lease, ultimately brokering 20 aircraft leases. All leases were entered pre-petition. Under the terms of the brokered leases, the brokers “were to be compensated for the already rendered brokerage services by payments, contractually characterized as ‘additional rental payment[s],’ that Avianca was required to pay on a pre-set schedule over the lifetime of the lease” (see 127 F.4th at 418).

During Avianca’s bankruptcy proceedings, Avianca continued to pay rent due to the aircraft lessors pursuant to the leases but failed to pay the brokers any “additional rental payments” that became due between 60 days after filing for insolvency until Avianca assumed or rejected the underlying aircraft leases.

The brokers sought payment of their fees and moved to compel Avianca for payment, asserting that their claims merited priority treatment under U.S. Bankruptcy Code §365(d)(5) which requires debtors to timely perform obligations first arising from or after 60 days after filing for Chapter 11 until such leases are assumed or rejected.

Avianca objected arguing that any payment obligations arose when the leases were executed – that is, pre-petition – and not 60 days after the petition date.

The United States Bankruptcy Court for the Southern District of New York concluded that an obligation first arises when payment comes due under the terms of a lease. Consequently, the court ruled that Avianca’s obligations to pay the additional rental payments arose when they came due pursuant to the lease payment schedules, which occurred more than 60 days after the petition date. Avianca appealed to the district court, which affirmed, similarly concluding that Avianca’s payment obligations arose when each payment came due during the course of the lease (see In re Avianca Holdings, S.A., 2023 WL 9016495 (S.D.N.Y. Dec. 29, 2023)). The district court also observed that Avianca could have rejected the leases during the 60-day grace period, which would have left the brokers with an unsecured pre-petition claim.

Avianca appealed to the Second Circuit Court of Appeals contending its payment obligations to the brokers arose pre-petition, when the leases were executed, because the obligations were unconditional once the leases were executed.

On appeal, the Second Circuit observed the purpose of section 365 “is to balance the state law contract right of the creditor to receive the benefit of his bargain with the federal law equitable right to the debtor to have an opportunity to reorganize” (see 127 F.4th at 425-26). Avianca could have made a decision about assumption or rejection within the 60-day grace period provided, or sought to amend its payment obligations, but it did neither. The Second Circuit affirmed the district court’s ruling.

This decision provides welcome clarity as to the interrelationship of insolvency proceedings and periodic payment obligations such as those due to brokers for services in relation to aircraft leases. It is also a reminder for parties to make sure they are aware of their rights and obligations during any grace periods, and to ensure that they take appropriate action.

In re Avianca Holdings S.A., 127 F.4th 414 (2d Cir. 2025)

If you would like to discuss any of the above issues, please get in touch with any of the authors or members of our aviation disputes team, or your usual contact at Watson Farley & Williams.

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