Jetrader - Winter 2014 - 43

the drafting and making it more compatible
with evolving industry approaches.
In between reviews, the same departments should be encouraged to send
important updates to ensure that the forms
remain current. Changes made to the "base"
forms should be tracked and catalogued,
and appropriate document management
techniques should be employed to ensure
that the correct documents are being used
once updated. Less critical updates can be
included at the annual review. When agreements with existing customers come up for
renewal, the updates should be considered
in light of the legacy agreements in place
and a determination made whether any
updates should be pushed through. The
inertia against making changes to previously agreed forms should be balanced
against the consequences and potential
costs of not making changes.
Following are some recent developments
ISTAT members should consider for the next
contract review and "tune-up."
Recent sanctions imposed against
Russia highlight the benefit of having an
illegality provision. Oftentimes, agreements will attempt to treat illegality as
an event of default. That may not fully or
fairly address the issue, particularly if, in
the leasing context, it is the lessor against
whom the sanctions are applied. As with
these new sanctions, they have become
more limiting as they were imposed with
immediate effect. This context should be
considered as the provision is reviewed and
in light of whether illegality should be a
default, a termination event or a combination of the two.
Increased volcanic activity again raises
the issue of foreign object damage caused
by exposure to airborne volcanic ash.
Since Iceland's Eyjafjallajökull erupted in
2010, insurers and service providers have
strengthened contract language to exclude
such damage from the definition of foreign
object damage (FOD), seeking to limit FOD
to a single event. Volcanic ash may, however, cause damage by erosion over a longer
period of time and doesn't fit into the traditional definition. Operators and financiers
should consider this in reviewing obligations in respect of FOD, whether at return
or for coverage under maintenance cost per
hour (MCPH) or similar repair agreements.
The ACG vs. Olympic case caused industry-wide concern over the effect of delivery

The inertia against making changes to
previously agreed forms should be balanced
against the consequences and potential costs
of not making changes.
acceptance acknowledgments under agreements governed by English law. While the
case was ultimately resolved on appeal in
ACG's favor, thus adding clarity on the issue,
consider whether your contract language
should be revised in order to remove any
doubt. Start with the lower court's ruling
and draft from there. At the same time, look
at how the terms "serviceable" and "airworthy" are used and consider adding objective
and measurable definitions for both.
The U.S. Federal Aviation Administration
has taken a fresh approach when dealing
with "non-citizen trusts"-trusts owning
aircraft that are beneficially owned by nonU.S. citizens. U.S. lessees should be mindful
of the new requirements and revisit form
trust agreements and pre-agreed forms of
leases to ensure that their lessors and counterparties remain in full compliance with
the new requirements. They, too, require
additional review by the FAA so expectations of timing from execution to closing
should be reexamined.
Choice of law provisions are common
and are relied upon to provide certainty as
to which laws will govern a transaction. In
agreements for whole engines or parts in

the international context, however, another
body of law, the United Nations Convention
on Contracts for the International Sale of
Goods, may apply and its application is selfexecuting. This means it applies automatically unless specifically excluded. The CISG
provides for separate rights and remedies
that may conflict with the rights and remedies under the laws chosen by the parties
to govern their agreements. In order to
avoid an unexpected application or a conflict of law, it must be explicitly excluded.
Having spearheaded similar contract
reviews and forms development, I can confirm that this is a time-consuming undertaking. However, the end result is better
forms that are more effectively managed,
more quickly executed and that remain current for the years following.
Don Mitchell is a partner with the law firm of
Smith, Gambrell & Russell, LLP and concentrates his practice in U.S. and cross-border
aviation equipment finance transactions and
litigation. Please email any questions, comments or suggestions for future topics to:
dmitchell@sgrlaw.com.
©2014 DONALD B. MITCHELL

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