Republic Airways Holdings Inc.

UNITED STATES BANKRUPTCY COURT FOR PUBLICATION
SOUTHERN DISTRICT OF NEW YORK
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In re: Chapter 11
REPUBLIC AIRWAYS HOLDINGS INC., et al., Case No. 16-10429 (SHL)
Debtors. (Jointly Administered)
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MEMORANDUM OF DECISION
A P P E A R A N C E S :
ZIRINSKY LAW PARTNERS PLLC
Attorneys for the Debtors
375 Park Avenue, Suite 2607
New York, New York 10152
By: Bruce R. Zirinsky, Esq.
Sharon J. Richardson, Esq.
Gary D. Ticoll, Esq.
HUGHES HUBBARD & REED LLP
Attorneys for the Debtors
One Battery Park Plaza
New York, New York 10004
By: Christopher K. Kiplok, Esq.
LUSKIN, STERN & EISLER LLP
Attorneys for Citibank, N.A.
Eleven Times Square
New York, New York 10036
By: Michael Luskin, Esq.
Stephan E. Hornung, Esq.
SEAN H. LANE
UNITED STATES BANKRUPTCY JUDGE
Before the Court is the Debtors’ motion for an order authorizing them to (i) transfer title
to and abandon certain owned aircraft and engines and reject a related aircraft lease, and (ii) to
fulfill their obligations under a certain engine purchase agreement and directing Citibank, N.A.
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to cooperate with the closing of that agreement (the “Motion”) [ECF No. 100]. Citibank, N.A.
(“Citibank”) filed a limited objection to the Motion (“Citibank’s Objection”) [ECF No. 147]. On
March 22, 2016, a hearing was held on the Motion and after argument from the parties, the Court
issued a bench ruling granting the Debtors’ Motion in accordance with conditions stated on the
record. This decision is issued to provide a more detailed explanation of the Court’s ruling on
this issue.
BACKGROUND
Republic Airways Holdings Inc. (“RAH”) and certain of its wholly-owned direct and
indirect subsidiaries (together with RAH, “Republic” or the “Debtors”) filed for Chapter 11
bankruptcy relief on February 25, 2016. See Declaration of Bryan K. Bedford Pursuant to Local
Bankruptcy Rule 1007-2 (the “Bedford Decl.”) ¶ 1 [ECF No. 4]. RAH provides scheduled
regional passenger services through its wholly-owned air carrier subsidiaries, Shuttle America
Corporation (“Shuttle”) and Republic Airline Inc. Id. ¶ 2. Republic owns or leases
approximately 300 aircraft, many of which are subject either to secured debt or lease financing
arrangements. See id. ¶ 39; Motion ¶ 7.
Certain aircraft and engines that the Debtors seek to surrender, return, transfer title to, or
abandon are subject to liens of Citibank, pursuant to a mortgage and security agreement to secure
the Debtors’ obligations with respect to a credit and guaranty agreement (the “Citi Credit
Agreement”). Bedford Decl. ¶ 35; Motion ¶ 9. When the Motion was filed, the principal amount
outstanding under the Citi Credit Agreement was approximately $23 million, which is secured by
the aircraft and engines listed on Annex 1 and 3 to the proposed order (the “Citi Collateral”).
See Motion ¶ 9. Specifically, the Citi Collateral consists of: (i) six Embraer ERJ-145 aircraft; (ii)
one Rolls-Royce AE3007 engine; (iii) one General Electric CF34-10E6 engine; and (iv) all
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records and documents related to these aircraft and engines (the “Aircraft Records”). See Annex
1 and 3 to the proposed order [ECF No. 100]; Citibank’s Objection ¶ 10. One Embraer ERJ-145
is leased to a third party, Aerodynamics Incorporated. See Annex 2 to the proposed order [ECF
No. 100]. Currently, certain engines included in the Citi Collateral are not in the original
airframes and engines in the airframes are subject to third party security interests. See
Supplemental Response of Citibank, N.A. to the Motion (“Citibank’s Suppl. Response”) ¶ 3
[ECF No. 179]; see also Annex 1 to the proposed order. Additionally, some of the engines are
not in the same location as the aircraft. See Citibank’s Suppl. Response ¶ 3; Annex 1 to the
proposed order.
The Debtors assert that the Citi Collateral is not required for its long-term business plan.
See Motion ¶ 9. To that end, the Motion seeks an order authorizing it (i) to surrender, return, and
transfer title to certain aircraft or engines and all related “equipment” as defined by 11 U.S.C. §
1110(a)(3), including the Citi Collateral; (ii) to abandon these aircraft, engines and related
equipment pursuant to Section 554(a); and (iii) to reject the lease with Aerodynamics
Incorporated that covers one ERJ-145 pursuant to Section 365. See Motion ¶ 8.1
Citibank does not object to the surrender and return of the Citi Collateral. See Citibank’s
Objection ¶ 1. Rather, Citibank contends that the Debtors’ proposed “surrender and return”
procedures do not satisfy Section 1110(c) of the Bankruptcy Code. See id. Specifically,
Citibank argues: (i) a fifteen-day period to retrieve the Citi Collateral is unreasonable; (ii) the
Debtors should be required to maintain insurance coverage and existing storage maintenance
1 The Motion also initially sought an order authorizing Republic to perform its obligations under a certain
purchase agreement under which Shuttle had agreed to sell to MTU Maintenance Lease Services B.V. the General
Electric CF34-10E6 engine, serial number 994823 (the “GE Engine”). See Motion ¶¶ 10–11. The GE Engine is
included in the Citi Collateral. Citibank objected to that portion of the Motion arguing that the sale did not comport
with the Bankruptcy Code. The Debtors have withdrawn their request to sell the GE Engine and instead, now seek
to surrender it to Citibank. See Debtors’ Reply to Citibank’s Objection (“Debtors’ Reply”) ¶ 3 [ECF No. 167].
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programs on the Citi Collateral at least until the earlier of thirty days after entry of an order or
the date Citibank takes possession; (iii) the Aircraft Records must be surrendered and returned at
the same time the Citi Collateral is surrendered and returned; and (iv) Citibank should have the
right to assert any administrative expense claims it may hold. See id. ¶¶ 19, 24, 26, 30.2
Additionally, in a sur-reply styled as a supplemental response, Citibank argues that the Debtors,
at their own cost, must remove any third-party engines from Citibank airframes and replace the
Citibank engines in the proper airframes. See Citibank’s Suppl. Response ¶¶ 4, 6.
DISCUSSION
Under Section 365 of the Bankruptcy Code, a debtor in possession, subject to court
approval, “may assume or reject any executory contract or unexpired lease of the debtor.” 11
U.S.C. § 365(a). The purpose behind Section 365(a) is “to permit the trustee or debtor-in-
possession to use valuable property of the estate and to renounce title to and abandon
burdensome property.” In re Orion Pictures Corp., 4 F.3d 1095, 1098 (2d Cir. 1993) (internal
quotations and citation omitted). Generally, courts “approve motions to assume, assume and
assign, or reject executory contracts or unexpired leases upon a showing that the debtor’s
decision to take such action will benefit the debtor’s estate and is an exercise of sound business
judgment.” In re MF Glob. Holdings Ltd., 466 B.R. 239, 242 (Bankr. S.D.N.Y. 2012); see also
NLRB v. Bildisco & Bildisco, 465 U.S. 513, 523 (1984) (stating Section 365 is traditionally
subject to the “business judgment” standard). Courts will generally not second-guess a debtor’s
business judgment concerning whether an assumption or rejection benefits the debtor’s estate. In
2 Citibank also objected to other provisions in the Debtors’ proposed order not identified here, including
objections to a proposed sale of equipment. The request to sell equipment was withdrawn and Citibank’s other
objections were addressed in the Debtors’ subsequently Revised Proposed Order. See Revised Proposed Order
(attached as Exh. A to Debtors’ Reply). Accordingly, these issues are not addressed in this decision.
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re MF Glob., 466 B.R. at 242; see In re Genco Shipping & Trading Ltd., 509 B.R. 455, 463
(Bankr. S.D.N.Y. 2014).
Section 554 of the Bankruptcy Code provides that “[a]fter notice and a hearing, the
trustee may abandon any property of the estate that is burdensome to the estate or that is of
inconsequential value and benefit to the estate.” 11 U.S.C. § 554(a). The trustee’s power to
abandon property is discretionary and is “bounded only by that of the court.” In re Interpictures,
Inc., 168 B.R. 526, 535 (Bankr. E.D.N.Y. 1994); see cf. In re MF Glob. Inc., 535 B.R. 596, 608
(Bankr. S.D.N.Y. 2015) (concluding trustee established a sound business reason to abandon
certain property—“jettison[ing] unnecessary systems and records” to quickly close a
proceeding—and granting trustee’s motion to abandon).
Citibank’s Objection does not challenge the Debtors’ business judgment or discretion
under Sections 365 or 544 to return the aircraft and related equipment. Instead, Citibank
complains about the manner in which it will be done. This dispute revolves around the meaning
of Section 1110 of the Bankruptcy Code. That section—entitled “Aircraft equipment and
vessels”—is a special form of protection in bankruptcy cases for aircraft lenders and lessors.
Section 1110 provides certain special rights to parties involved in aircraft financing.3 See United
3 Section 1110 provides, in part:
(a) (1) Except as provided in paragraph (2) and subject to subsection (b), the right of a secured
party with a security interest in equipment described in paragraph (3), or of a lessor or conditional
vendor of such equipment, to take possession of such equipment in compliance with a security
agreement, lease, or conditional sale contract, and to enforce any of its other rights or remedies,
under such security agreement, lease, or conditional sale contract, to sell, lease, or otherwise retain
or dispose of such equipment, is not limited or otherwise affected by any other provision of this
title or by any power of the court.
(2) The right to take possession and to enforce the other rights and remedies described in
paragraph (1) shall be subject to section 362 if--
(A) before the date that is 60 days after the date of the order for relief under this chapter, the
trustee, subject to the approval of the court, agrees to perform all obligations of the debtor under
such security agreement, lease, or conditional sale contract; and
(B) any default, other than a default of a kind specified in section 365(b)(2), under such security
agreement, lease, or conditional sale contract--
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Airlines, Inc. v. U.S. Bank N.A., 406 F.3d 918, 924 (7th Cir. 2005). “More specifically, the
provision allows a party with a security interest in aircraft or related equipment to take
possession of its collateral pursuant to the terms of the contract, notwithstanding the automatic
stay normally imposed by Section 362 upon the filing of the bankruptcy, unless the debtor meets
certain conditions.” In re AMR Corp., 485 B.R. 279, 304–05 (Bankr. S.D.N.Y. 2013), aff’d, 730
F.3d 88 (2d Cir. 2013), cert. denied, U.S. Bank Trust Nat’l Ass'n v. AMR Corp., 134 S. Ct. 1888
(2014). “These conditions include that, within the first 60 days of the case, the debtor4 must
agree to perform its contractual obligations as they become due and that the debtor must also
(i) that occurs before the date of the order is cured before the expiration of such 60-day period;
(ii) that occurs after the date of the order and before the expiration of such 60-day period is cured
before the later of--
(I) the date that is 30 days after the date of the default; or
(II) the expiration of such 60-day period; and
(iii) that occurs on or after the expiration of such 60-day period is cured in compliance with the
terms of such security agreement, lease, or conditional sale contract, if a cure is permitted under
that agreement, lease, or contract.
(3) The equipment described in this paragraph--
(A) is--
(i) an aircraft, aircraft engine, propeller, appliance, or spare part (as defined in section 40102 of
title 49) that is subject to a security interest granted by, leased to, or conditionally sold to a debtor
that, at the time such transaction is entered into, holds an air carrier operating certificate issued
pursuant to chapter 447 of title 49 for aircraft capable of carrying 10 or more individuals or 6,000
pounds or more of cargo; or
(ii) a vessel documented under chapter 121 of title 46 that is subject to a security interest granted
by, leased to, or conditionally sold to a debtor that is a water carrier that, at the time such
transaction is entered into, holds a certificate of public convenience and necessity or permit issued
by the Department of Transportation; and
(B) includes all records and documents relating to such equipment that are required, under the
terms of the security agreement, lease, or conditional sale contract, to be surrendered or returned
by the debtor in connection with the surrender or return of such equipment.
(4) Paragraph (1) applies to a secured party, lessor, or conditional vendor acting in its own behalf
or acting as trustee or otherwise in behalf of another party.
11 U.S.C. § 1110(a).
4 The language of Section 1110 actually refers to the actions of the trustee, not the debtor. See 11 U.S.C. §
1110(b)(2)(A). But the bankruptcy trustee in this case, and most cases under Chapter 11, is the debtor in possession.
See In re Harp, 166 B.R. 740, 746 (Bankr. N.D. Ala. 1993) (“Chapter 11 debtors-in-possession . . . have fiduciary
responsibilities to unsecured creditors and other parties in interest requiring them to act in the capacity of a
bankruptcy trustee.”).
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cure certain—but not all—contractual defaults.”5 Id. at 305. In practice, Section 1110 limits the
benefit of the automatic stay for a debtor’s aircraft and related equipment to the first 60 days
after filing of the bankruptcy petition, at which point “the debtor generally must either elect to
cure all non-bankruptcy defaults and perform under the contract or surrender the aircraft” and
related equipment.6 Id. at 305–06.
But what happens when a debtor no longer wants the collateral? Section 1110
contemplates that the debtor “immediately surrender and return” any unwanted collateral if the
lender or secured party becomes entitled to take possession because the automatic stay has
terminated. See 11 U.S.C. § 1110(c). Thus, a debtor is faced with the “rather stark choice” to
perform and cure the relevant contractual obligations or surrender the equipment. See Collier on
Bankruptcy ¶ 1110.01 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2016). Although the
statute provides an immediate “surrender and return,” it does not specify the conditions for the
surrender and return, including whether a debtor must comply with any conditions of return in
5 Under Section 1110(a)(2)(B), a debtor is not required to cure those defaults that are “of a kind specified in
section 365(b)(2).” 11 U.S.C. § 1110(a)(2)(B). These include:
a default that is a breach of a provision relating to--
(A) the insolvency or financial condition of the debtor at any time before the closing of the case;
(B) the commencement of a case under this title;
(C) the appointment of or taking possession by a trustee in a case under this title or a custodian
before such commencement; or
(D) the satisfaction of any penalty rate or penalty provision relating to a default arising from any
failure by the debtor to perform nonmonetary obligations under the executory contract or
unexpired lease.
11 U.S.C. § 365(b)(2).
6 As a practical matter, parties often agree to extensions of the 60-day deadline, which is permitted under the
statute. See 11 U.S.C. § 1110(b) (providing that the right to take possession is subject to the parties’ right to agree to
extend the 60-day period). A detailed explanation of how Section 1110 operates can be found in In re UAL Corp.,
299 B.R. 509 (Bankr. N.D. Ill. 2003). Delving into the history of Section 1110, the court examined whether (1) an
election under Section 1110(a) gives rise to an administrative claim, and (2) a debtor’s failure to cure pre-petition
defaults on aircraft within the 60-day period prevents the effectiveness of a Section 1110(a) election. Id. at 516–20.
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the underlying agreement. 11 U.S.C. § 1110; see Collier ¶ 1110.02[5]. As the Collier on
Bankruptcy treatise states:
there is no reported authority under the present version of section
1110 as to whether a debtor has an obligation to do more than
make the aircraft immediately available to the lessor or secured
party at its location and in its condition on the applicable date, or
as to whether the costs of repair and repositioning are
administrative expenses, if the lease is not timely rejected before
the 60th day of the case.
Collier ¶ 1110.02[5]. Perhaps not surprisingly then, “[t]he terms of return are frequently
disputed in airline cases.” Id.; see, e.g., In re US Airways Grp., Inc., 287 B.R. 643, 645 (Bankr.
E.D. Va. 2002) (stating that one theme of the objections before the court was whether the debtors
should be permitted to abandon or reject under Section 1110 without complying with
requirements in the underlying loan or lease agreements); In re Northwest Airlines Corp., Case
No. 05-17930, Hearing Transcript of October 7, 2005 (“Northwest Airlines Hr’g Transcript”) at
40:9–41:24 [ECF No. 1847] (transcript attached as Exh. D to Debtors’ Reply) (objecting party
argued that the “surrender and return” of aircraft under Section 1110(c) should comport with
terms of underlying leases).
Applying these principles to the parties’ dispute in this case, the Court rejects the
majority of Citibank’s objections. First and foremost, the Court declines to adopt Citibank’s
suggestion that the Debtors return the aircraft with the matching engines. Citibank’s Suppl.
Response ¶ 4. Citibank complains that some of their engines are not in the same location as the
matching aircraft, and that some engines in their airframes are owned by unidentified third-
parties so that those engines must be removed before the aircraft may be returned to Citibank.
Id. ¶ 3. But Citibank’s request is akin to requiring the Debtors to comply with the conditions for
surrender in the underlying agreements between the parties. That argument has been rejected by
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the few courts that have spoken on this issue. In US Airways Group, Inc., for example, the court
was confronted with a debtors’ motion seeking to reject an unspecified number of aircraft and
equipment leases and to abandon an unspecified number of aircraft and equipment. 287 B.R. at
644. In that case, the financing parties argued that the debtors should not be permitted to
abandon or reject aircraft without complying with the requirements in the underlying loan or
lease agreements. Id. at 645. These requirements included returning the aircraft and engines to a
place designated by the lender or lessor, reinstalling any original engines that were not currently
on the aircraft, and providing all manuals, logs, certifications and documentation. Id. The court
observed that the dispute arose in the context of the debtors’ motion to seek “fast track” authority
to abandon or reject aircraft and related equipment, with that relief sought given the stringent 60-
day deadline under Section 1110 and fear of increased costs after that deadline passed. Id. at
646. Ultimately, the court did not require compliance with contractual requirements for return of
the collateral. Id. at 647. Instead, it held that the aircraft lenders and lessors were not foreclosed
from asserting a claim arising from non-compliance with such requirements. Id. at 647 (stating
“the court neither excuses such non-compliance nor forecloses any claim the lender or lessor
might assert arising from such non-compliance”).
Other courts have similarly rejected attempts to put conditions on the “surrender and
return” obligations under Section 1110. As the court in the Northwest Airlines bankruptcy
observed:
[T]he hallmark of Section 1110 is speed. Congress heeded the
insistence of aircraft lenders and lessors that they be able to
retrieve their property without delay. It will be difficult to
convince this Court that a lender has acted reasonably if it tarries in
accepting surrender and return or taking possession of its property.
Northwest Airlines H’rg Transcript at 72:7–12. Thus, the court in Northwest Airlines rejected the
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argument that the debtors must comply with all the return provisions of a given lease or security
agreement, noting that “[t]hat is precisely what Section 1110 does not provide.” Id. at 71:3; see
also id. at 70:22–71:22 (noting that Congress did not require surrender and return to comply with
the security agreement or lease, “no doubt recognizing the cost and burdens this would place on
the debtors, their estates and their other creditors”).7
Similar return requirements were rejected in the Delta Air Lines case. The court refused
to require the debtors to repair aircraft or transport unserviceable aircraft to the Section 1110
parties, concluding that the statute does not give lenders and lessors a “miracle right to have [the
debtors] put it all back together again.” In re Delta Air Lines, Inc., Case No. 05-17923, Hearing
Transcript of October 17, 2005 (“Delta H’rg Transcript”) at 17:2–3 (transcript attached as Exh. C
to Debtors’ Reply) (noting that it did not seem to be the intent of the statute to require aircraft be
returned in a particular condition). The court made clear that Section 1110 meant that “you get
[the equipment] immediately and you get it as is, where it is.” Id. at 18:15 (finding it
counterintuitive to require immediate return of equipment while also imposing conditions on its
return); cf. In re Ames Dep’t Stores, Inc., 306 B.R. 43, 51 (Bankr. S.D.N.Y. 2004) (rejecting
argument that debtor must comply with burdensome lease covenants in order to reject a lease
under Section 365). Like the court in US Airways, the court in Delta reserved decision on
whether the Section 1110 counterparties might have administrative expense claims. Delta Hr’g
Transcript at 16:24–17:24; see, e.g., In re Cont’l Airlines, Inc., 146 B.R. 520, 527–28 (Bankr. D.
7 The court noted that its decision was not inconsistent with the unreported order in In re Atlas Worldwide
Holdings, Inc., Case No. 04-10792 (Bankr. S.D. Fla.) (order attached as an exhibit to ABN AMRO Bank N.V.’s
objection in Northwest Airlines Corp., Case No. 05-17930 [ECF No. 500-1]). In the Atlas case, the court did not
render a final decision requiring debtors to return equipment according to the lease conditions, but instead set
another hearing to determine what conditions were appropriate under Section 1110 and if the debtors should be
affirmatively required to perform such obligations or if they would simply give rise to a claim.
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Del. 1992) (noting that debtors’ failure to return aircraft in compliance with return conditions in
the lease may result in administrative claim for damages for aircraft lessor).
The same result is appropriate here. The Court will not require that the Debtors return
the aircraft and related equipment in a particular condition for surrender and return. But nothing
in the Court’s ruling forecloses any claim that Citibank may have for costs associated with the
surrender and return. So while Citibank has complained that it will be required to pay the cost of
taking the engines off the airframes that do not match, they have a right to file a claim for these
expenses. Indeed, the Debtors revised the proposed order on this Motion at Citibank’s request to
explicitly preserve Citibank’s right to file such a claim. See Debtors’ Reply ¶¶ 18, 19; Revised
Proposed Order at 4 (attached as Exh. A to Debtors’ Reply); see also Order Authorizing Debtors
to Transfer Title to and Abandon Certain Owned Aircraft and Engines and Reject Related
Aircraft Lease, entered March 23, 2016 at 4–5 [ECF No. 215].
Citibank suggests that it would be better for the parties to split the costs associated with
the surrender and return of the aircraft, rather than leave the cost determination to a later date in
the claims process. See Hearing Transcript of March 22, 2016 (“March 2016 Hr’g Transcript”)
at 81:24–82:4 [ECF No. 225]. In doing so, Citibank relies upon the reasonableness standard
cited by various courts in connection with surrender and return of aircraft collateral. See
Northwest Airlines H’rg Transcript at 71:19–72:22 (applying a “reasonableness” standard for the
surrender and return process of Section 1110); In re FLYi, Inc., 2005 WL 7141581, at *2 (Bankr.
D. Del. Dec. 5, 2005) (holding that bankruptcy courts apply a reasonableness test in applying
Section 1110). Of course, reasonableness is determined on a case by case basis in each airline
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bankruptcy.8 But the Court is not convinced that a splitting of such costs now is appropriate here
given the Court’s lack of information about the actual conditions associated with these aircraft
and engines. See March 2016 Hr’g Tr. at 56:21–57:24; 61:20–62:12 (the Court questioning the
conditions of the aircraft, for example the number of engines that would need to be uninstalled
from aircraft and length of time such procedures would take, with the Debtors unable to provide
such information due to the factual nature of the circumstances). In addition, the Court is
concerned about such an approach here given what appears to be Citibank’s lack of due diligence
in addressing the surrender and return of these aircraft. See id. at 64:1–24 (Debtors’ counsel
representing that Citibank waited sixteen days from the filing of the Debtors’ Motion to request
an inspection of the aircraft); see also Debtors’ Reply ¶ 9 (the Debtors in this case have raised a
similar concern of being “saddle[d] . . . with the delay and expense of navigating through a
thicket of obligations” rather than being able to immediately surrender and return the property);
see cf. In re US Airways Grp., 287 B.R. at 646 (noting debtors’ concerns about potential
additional expense to the estate for lack of prompt return and surrender). Citibank’s lack of
prompt action has made it more difficult to determine a reasonable approach at this time
regarding how to handle these costs.9 A claim filed by Citibank—and any resulting decision on
8 Indeed, some courts have imposed conditions on surrender and return at a debtor’s expense. See, e.g., In re
FLYi, 2005 WL 7141581, at *2–3 (holding that Section 1110 does not require compliance with return conditions of
lease but setting forth options for debtors to satisfy reasonableness requirement).
9 The Debtors note that Citibank’s objections about the location and lack of matched engines and airframes
was contained in a sur-reply filed after its original objection. While Debtors urge the Court not to consider
Citibank’s belated arguments, the Court thinks it more appropriate to address them on the merits, even if the belated
raising of these issues illustrates a practical consequence of Citibank’s failure to promptly attend to these issues
notwithstanding the deadlines in Section 1110. See In re US Airways Grp., 287 B.R. at 646.
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that claim—will be a more accurate reflection of the true burdens associated with the surrender
and return process than a simple splitting of the costs.10
The Court takes the same approach as to the records for these aircraft and related
equipment. Citibank requests that Debtors return such records at the same time it surrenders and
returns any aircraft or related equipment. But the Debtors have already made such records and
documentation available for pick-up by Citibank. See March 2016 Hr’g Tr. at 75:15–17; 79:14–
20. For the reasons set forth above, therefore, the Debtors have honored their obligations for
surrender and return of such records and documentation, subject once again to Citibank’s right to
file a claim. Cf. In re Mesa, 2010 WL 5263976, at *7 (providing for debtors to surrender and
return all records, logs, manuals and other documents on the applicable effective date and at the
same location as the aircraft and/or engines being surrendered and returned, unless otherwise
agreed between the debtors and applicable counterparty).
In contrast to the conditions for the issues above, the Court has sufficient information to
impose reasonable terms on the Debtors’ obligation to continue insurance coverage and
maintenance. On this issue, the parties’ proposals disagree. The Debtors offer to continue
insurance coverage and maintenance until the later of: (1) the entry of a Court order on the
10 There are some orders in airline bankruptcy cases setting forth return conditions or associated costs where
the parties reached agreement on these issues or there was no objection to the debtor’s proposed procedures. See In
re Pinnacle Airlines Corp., Case No. 12-11343 (Bankr. S.D.N.Y.) [ECF Nos. 164, 187-1] (no objection filed to
debtors’ motion to reject aircraft consistent with surrender and return process in Section 1110); In re Mesa Air Grp.,
Inc., 2010 WL 5263976, at *6–11 (Bankr. S.D.N.Y. Feb. 23, 2010) (order providing for, among other things,
surrender and return procedures that were agreed upon as reflected in amended agenda for hearing at Case No. 10-
10018, ECF No. 338); see also Final Order Authorizing Debtors to Reject Certain Aircraft, Engine and Propeller
Leases Pursuant to Section 365(a) of the Bankruptcy Code at 4, In re Delta Air Lines, Inc., Case No. 05-17923 [ECF
No. 790] (attached as Exh. B to Citibank’s Objection) (requiring debtors to cover costs of moving engines from their
current airframes to the airframes associated with those engines but capping debtors’ responsibility at an agreed
upon amount of $180,000, see Delta Hr’g Transcript at 19:17–23 (debtors’ counsel noting an agreement had been
reached “up to some caps --”)). While agreements between parties are obviously encouraged in these situations, the
parties here have not reached an agreement. In any event, the Debtors obviously have an incentive to cooperate in
the surrender and return of aircraft and related equipment so as to reduce potential claims against the estate.
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Motion,11 and (2) the earlier of either (a) the 15th day after the relevant effective date,12 or (b) the
date that Citibank takes possession of the equipment. See Debtors’ Reply at Schedule 1; id. ¶¶
13–14. Translating the Debtors’ proposal into actual dates, insurance coverage and maintenance
would end on the later of: (1) March 23, 2016, the date an order was entered on the Motion, and
(2) March 19, 2016, which was 15 days after the effective date but three days before the hearing
on this Motion. Citibank is at the other end of the spectrum, requesting the earlier of 30 days
from the date of the Court’s order or whenever Citibank retrieves its collateral. See Citibank
Objection ¶ 24. If Citibank delayed in retrieving its collateral, however, it could impose upon
the Debtors’ estate the cost of an additional 30 days of insurance and maintenance. Balancing
the need for a prompt return of the equipment with Citibank’s right to have a reasonable
opportunity to achieve such prompt retrieval of the collateral, the Court concludes that the
Debtors must provide insurance coverage and maintenance for a period of 15 days from the date
of the Court’s order ruling on the Motion. See Northwest Airlines Hr’g Transcript at 71:21–
72:12; 73:11–23 (imposing a “reasonableness” standard on surrender and return obligations
under Section 1110). Giving Citibank the benefit of the additional time is reasonable
considering that Citibank has the burden of retrieving its collateral. See id. at 71:21–72:12.
11 The Court’s order on the Motion was entered on March 23, 2016. See ECF No. 215.
12 The Debtors defined the “effective date” as March 4, 2016. See Annex 1 to Revised Proposed Order.
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CONCLUSION
For the reasons stated above, the Court grants the Debtors’ Motion as set forth above and
in accordance with the order entered by this Court on March 23, 2016. [ECF No. 215].
Dated: New York, New York
April 8, 2016
/s/ Sean H. Lane______________________
UNITED STATES BANKRUPTCY JUDGE
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