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High flying disputes

25 May 2021

For some time now China (and the wider Asia-Pacific region) has been the main driver of growth for the business aviation market. Asia has the largest number of customers for this aircraft type and an increasing number of manufacturers and suppliers are now based (or have subsidiaries) here.

Aircraft management companies are focusing on Asia as a source of revenue.

The relationship between aircraft owner and manager may run into turbulence and in our experience increasingly so.

Aircraft management contracts

It is costly and complicated to operate, manage and maintain a business jet.  Aircraft management companies may add value by providing expertise and pooling of resources for buying fuel, sourcing pilots and spare parts. They may have specialist know-how on specific aircraft types. They may even be able to put a jet out on charter to raise revenue.

Typical problems

Misunderstandings and disputes may arise between owner and manager of an aircraft. Often these arise out of the small print in the management contract. Or a dispute may stem from something not provided for in the contract. There may be additional costs associated with maintenance of an aircraft not allocated at the time the contract was entered into. Who should pay for these expenses?

We see disputes arising from ‘double-dipping’ or charging mark-ups which lie outside what the contract provides.

Issues of a technical nature are common. We have come across complaints of aircraft corrosion arising from a management company’s failure to follow OEM-recommended cleaning processes.

Consider insurance

Be clear on who is responsible to arrange insurance. Look to extend coverage to the owner and manager of the aircraft and specify their capacity as named or additional insured under the policy.

10 top tips for aircraft owners on managing disputes

  • Make sure that the contract is well-drafted, comprehensive and covers all possible scenarios that may arise during the management of the aircraft.
  • Ensure that the aircraft management company has discussed any charges and mark-ups with the owner, so there are no ‘nasty surprises’ for either party down the line. I have come across cases where management companies levy mark-ups absent any contractual basis for doing so.
  • Be clear about any deposits/working capital that you are asked to pay. Keep track of your money.
  • Check the monthly invoices from the aircraft management company with a fine toothcomb. Arrange for a member of staff to perform this task if you don’t have the time.
  • Have a good working knowledge of the contract. If the contract is well-drafted it should provide clear guidance to both sides on how the agreement will operate, and hopefully misunderstandings can be avoided.
  • Involve third experts if necessary – there may be tax, insurance, technical and regulatory issues to consider. The agreement will need to cater for these items and be structured accordingly. In my experience technical disputes can be a particular bugbear.
  • If you get into a dispute with your opposite party, then keep talking. It is important to keep lines of communication open.
  • Be open to compromise and a settlement in those discussions. Everyone is busy and has better things to do. Disputes can take up time and resources.
  • Do not burn your bridges. Remember, the contract is likely to require you to maintain relations once the dispute has been resolved. An enemy in court might still be a partner in business!
  • If all else fails, look to terminate the contract and transition to a different aircraft management company.

This alert is for information only and is not legal advice.