PIA to cough up $2m for plane lease

Published January 24, 2021
A Pakistan International Airlines (PIA) plane prepares to take off at Allama Iqbal International Airport in Lahore — Reuters/File
A Pakistan International Airlines (PIA) plane prepares to take off at Allama Iqbal International Airport in Lahore — Reuters/File

LONDON: The Pakistan International Airlines (PIA) is in talks with Irish aircraft broker Peregrine Aviation Charlie Limited to pay about $2 million as part of an outstanding payment for an aircraft lease agreement by the Dublin-based company AerCap.

During a hearing at the High Court here on Friday, a lawyer representing PIA informed the judge that the national flag carrier had paid $7m to Peregrine as part of the lease agreement, but a dispute persists for the remainder of $2m.

The hearing was adjourned as the two parties agreed to settle the issue out of court.

It was this sticking point which formed the basis of the PIA plane’s seizure in Malaysia last week.

National flag carrier, Irish aircraft broker are settling outstanding sum out of court

At the London hearing, PIA’s lawyers objected to the seizure of its aircraft in Malaysia; however, the court did not pay heed to the development as it was the result of a court order in another jurisdiction.

In the United Kingdom, Peregrine Aviation Charlie Limited brought a case against PIA to pay dues amounting to $9m. PIA entered a lease agreement with this company which covered payments for lease rental, maintenance reserves and insurance of two aircraft, a Boeing 777 with serial number 32,716 and a Boeing 777-200ER with serial number 32,717.

According to the agreement, the lease rental charges were set at $580,000 per month and the maintenance reserves at $315,000 per month.

PIA’s position is that maintenance reserves are calculated according to the flying cycle which is logged each time the engine is started and switched off. Because this particular aircraft was grounded during the Covid-19 pandemic for six months between April and September last year, PIA argues that the maintenance cost should not be invoiced.

The aviation company, however, is of the view that the agreement does not cover Covid-19 as a force majeure which limits liability, and that PIA should pay regardless of how much the plane is flown.

It appears that due to the nature of the agreement, PIA will have to pay $2m in maintenance reserve costs despite not having flown the plane.

Currently, PIA has about 18 aircraft on lease, and for the majority of the contracts, maintenance reserve is charged based on utilisation.

According to orders passed by the Kuala Lumpur High Court on Thursday seen by Reuters, the plaintiff of the case is Peregrine Aviation Charlie Limited and the matter pertains to two jets leased to PIA by Dublin-based AerCap, the world’s largest aircraft lessor, in 2015.

They are part of a portfolio that AerCap sold to Peregrine Aviation, an investment unit of NCB Capital, the brokerage arm of National Commercial Bank SJSC, in 2018.

Published in Dawn, January 24th, 2021

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