OTTAWA (AFX) - The Supreme Court has affirmed a law that allows airport authorities to seize aircraft from bankrupt carriers, even if the planes are leased.
But in a ruling loaded with technical twists and turns, the court said Friday that aircraft leasing companies are not responsible for landing fees and other fees owed by airlines that go belly up.
The case involved the bankruptcies of Canada 3000 and Inter-Canadian Airlines.
After the carriers went broke, Nav Canada and a number of airport authorities had sued for the right to seize the airplanes operated by the companies, and to retrieve money owed for landing and navigation fees.
Had the high court ruled against the authorities, solvent airlines that are currently operating may have been forced to increase ticket prices to help recover more than C$30 million owed by the two bankrupt carriers for landing and navigation fees.
In a unanimous 7-0 decision, the high court ruled that, while companies that leased aircraft to the now-defunct airlines are not liable to pay the outstanding fees, the authorities had the right to seize the airplanes to recover what was owed.
'The legal titleholders are not subject to personal or corporate liability to pay the unpaid charges,' Justice Ian Binnie said in the written ruling.
'(But) the appellants are entitled to obtain judicially-authorized seize and detain orders to be exercised against the security posted in substitution for the aircraft.'
That puts aircraft leasing companies in a bit of a bind. And it could mean changes to future lease agreements to require millions of dollars in deposits from carriers to ensure outstanding fees are paid if they go broke.
Canada 3000 filed for court protection from its creditors in early November 2001. It went bankrupt just a few days later.
At the time, it owed C$13 million in landing fees to the Greater Toronto Airport Authority, C$8.35 million to other airport authorities and C$7.4 million in navigation fees to Nav Canada.
To retrieve the money, the authorities seized 36 leased airplanes worth roughly $1.1 billion U.S.
In December 2001, an Ontario court ruled that the planes must be returned to the leasing companies, but forced the corporations to set aside C$33 million to pay the landing and navigation fees.
In the case of Inter-Canadian, which went bankrupt in November 1999, a Quebec court ruled that Nav Canada and the other authorities could seize the bankrupt company's leased planes. That decision was overturned under appeal, and the leasing firms were made to post bond for C$5 million in owed fees.
The high court ruling means both cases will now go back to lower courts to decide how the outstanding fees, which were set aside under previous court decisions, will be distributed to the airport and navigation authorities.
Nav Canada, which provides civil air navigation services across the country, welcomed the ruling.
'This Supreme Court decision will further reinforce our credit and collection capability,' William Fenton, the company's vice president and CFO said in a statement.
Nav Canada said the decision will allow it to recover C$8 million in unpaid charges from Inter-Canadian and Canada 3000, which was accounted for in previous financial statements.
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