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xwb777
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Saudia sued over lease dues

Tue Oct 27, 2020 4:11 pm

Saudia Arabia national carrier, Saudia, is sued over unpaid dues that has not been paid yet. The lease payments are for 50 Airbus jets, 30 A320NEOs and 20 A330s.

ALIF Segregated Portfolio Company, wants to reclaim $460 million from Saudia, which the Saudia carrier has not even negotiated with its lessor. The airline has stated that it is currently in discussions with the lessor and that common sense will prevail in the end.

The leasing deal was signed at the 2015 Paris Airshow

Why did Saudia wait all this time to pay its debts? SV has been profitable for the past couple of years.

Link: https://www.aerotime.aero/rytis.beresne ... n+airlines
 
FCOTSTW
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Re: Saudia sued over lease dues

Tue Oct 27, 2020 5:20 pm

Unfortunately for the lessor, all of this makes sense. Saudia is betting on on an arbitration that will lead to a settlement with a reduced obligation. Once this dispute is setteled, what is not clear is whether the lessors will be willing to lease again to Saudia in the future.
 
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Polot
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Re: Saudia sued over lease dues

Tue Oct 27, 2020 5:34 pm

xwb777 wrote:

Why did Saudia wait all this time to pay its debts? SV has been profitable for the past couple of years.

The debts are probably all from this year, after the pandemic hit. If SV had never been paying them ALIF would have stopped (or should have stopped) giving them more aircraft.
 
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LAXintl
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Re: Saudia sued over lease dues

Tue Oct 27, 2020 6:21 pm

As stated $460 for 50 airplanes is probably only from this year.

With the market rates having dropped, the airline is clearly playing the game seeking restructure leases closer inline with today's pricing.
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Phosphorus
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Re: Saudia sued over lease dues

Tue Oct 27, 2020 6:33 pm

I had colleagues selling large volumes to large companies in Saudi Arabia. payment terms were borderline surreal. It was normal to have payment due date at 364 days after invoice date. And even these terms were routinely broken.
When discussions were finally set up and happened*, to cover the payment issue (and setting up meetings was an art in itself, while getting a meeting... see a note below), the basic message from the buyers was a dismissive "What seems to be the problem, we are buying large volumes from you, are you not happy with that? Should we take the business elsewhere? You shouldn't worry about credit risk -- we are AAA rated, our balance sheet is full of money -- see our latest report, duly audited by a Big 4 auditor company".
The concept the supplier wants some of that money, too, was almost foreign to them. The fact that the supplier was permitted to deliver their wares was charity enough; that he actually had the guts to demand payment was a borderline insurrection, and malicious ingratitude. That's why a "good cop -- bad cop" tag team was unavoidable; an accountant was typically "bad cop", while sales manager was typically "good cop".

*having a meeting set up not necessarily meant getting the meeting. I have a colleague, who went for a meeting to Saudi Arabia to discuss a sale. In any other settings, it was a meeting for a couple of hours. Maybe a lunch or dinner together, to either break the ice, or wrap up; maximum -- both.
He knew where he was going, so he booked three days, flexible tickets, and agreed with his boss that he might be away for up to a week.
Yes, he did spend that week (office hours, obviously) in the waiting room, being served coffees, snack buffet, and a million apologies from all levels of the company -- from a secretary and filing clerk, to senior VP. But the CEO was always praying for success of the venture, and his prayer could never be interrupted. All staff begged my colleague to stay, and extend by another day. And so he did, one day after another, until the week was up. No meeting. He did give THE last warning, they did try to hustle the CEO out, he was praying, and could not be bothered. He flew home, no meeting. Fortunately, his boss had experience of the region, and the guy did not get into trouble.
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MIflyer12
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Re: Saudia sued over lease dues

Tue Oct 27, 2020 6:42 pm

FCOTSTW wrote:
Saudia is betting on on an arbitration...


Does Saudi law - or wherever the contract is enforced - call for arbitration instead of enforcement?
 
xwb777
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Re: Saudia sued over lease dues

Tue Oct 27, 2020 9:38 pm

According to Reuters, Saudia is accused for unauthorized and unnotified parts and engine changes
https://mobile.reuters.com/article/amp/ ... ssion=true
 
strfyr51
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Re: Saudia sued over lease dues

Tue Oct 27, 2020 9:55 pm

FCOTSTW wrote:
Unfortunately for the lessor, all of this makes sense. Saudia is betting on on an arbitration that will lead to a settlement with a reduced obligation. Once this dispute is setteled, what is not clear is whether the lessors will be willing to lease again to Saudia in the future.

there's always somebody in the hots to lease airplanes. Years ago United found themselves in the same position when a leasing company wanted their airplanes back to lease at a higher rate than United was willing to Pay. 9-18 months later they came Back to United with the Same Airplanes they took from United with brand new deal of Less than United was paying them befoe they wanted their airplanes back... So if Saudia wants the airplanes? They'll pay for them. So? Is it Saudia's Problem? or their problem?
 
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lightsaber
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Re: Saudia sued over lease dues

Wed Oct 28, 2020 1:07 am

strfyr51 wrote:
FCOTSTW wrote:
Unfortunately for the lessor, all of this makes sense. Saudia is betting on on an arbitration that will lead to a settlement with a reduced obligation. Once this dispute is setteled, what is not clear is whether the lessors will be willing to lease again to Saudia in the future.

there's always somebody in the hots to lease airplanes. Years ago United found themselves in the same position when a leasing company wanted their airplanes back to lease at a higher rate than United was willing to Pay. 9-18 months later they came Back to United with the Same Airplanes they took from United with brand new deal of Less than United was paying them befoe they wanted their airplanes back... So if Saudia wants the airplanes? They'll pay for them. So? Is it Saudia's Problem? or their problem?

Is Saudia declaring bankruptcy? If not this is messier and will impact other loans in the future.

UA declared bankruptcy and rejected leases, the aircraft were returned and in that market, the leasing company might have lowered the payments, but I'm certain the term was extended. Oh, the ROI dropped, but did all the aircraft return? The issue is without a bankruptcy, for what can the leasing company ask for in back payments? Without that clear line of demarcation, both side will not negotiate as amicably as post bankruptcy.

This is an interesting market. Right now is a bad time to receive back aircraft, in particular widebodies.

Lightsaber
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davidjohnson6
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Re: Saudia sued over lease dues

Wed Oct 28, 2020 3:38 am

Under which jurisdiction would the leases to Saudia have been agreed ? In the event of a dispute ending up in court outside Saudi Arabia, how enforceable would a decision against Saudia really be ? I know aircraft can be arrested, but wondering whether the practicalities mean Saudia really can, if they lose a court case, be made to feel pain
 
moa999
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Re: Saudia sued over lease dues

Wed Oct 28, 2020 5:12 am

Depends. You probably can't go into Saudi to recover the aircraft.
But if Saudi wants to operate them to a more friendly airport then you can probably get them sized at that point.

But there are going to be a lot of these arguments between airlines, airports, lessors and banks over this very much black swan event.
 
dstblj52
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Re: Saudia sued over lease dues

Wed Oct 28, 2020 5:20 am

davidjohnson6 wrote:
Under which jurisdiction would the leases to Saudia have been agreed ? In the event of a dispute ending up in court outside Saudi Arabia, how enforceable would a decision against Saudia really be ? I know aircraft can be arrested, but wondering whether the practicalities mean Saudia really can, if they lose a court case, be made to feel pain

International leases especially to countries like that are usually done under uk law due to the long history of precedent around ships and later aircraft plus a lot of lessors are located in ireland due to tax advantages
 
oldJoe
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Re: Saudia sued over lease dues

Wed Oct 28, 2020 11:57 am

LAXintl wrote:
As stated $460 for 50 airplanes is probably only from this year.

With the market rates having dropped, the airline is clearly playing the game seeking restructure leases closer inline with today's pricing.


Restructure leases and at the same time ( 14th October 2020 ) take delivery of a brand new 787-10 ( HZ-AR28 ) is at least strange to explain
 
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Polot
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Re: Saudia sued over lease dues

Wed Oct 28, 2020 12:30 pm

oldJoe wrote:
LAXintl wrote:
As stated $460 for 50 airplanes is probably only from this year.

With the market rates having dropped, the airline is clearly playing the game seeking restructure leases closer inline with today's pricing.


Restructure leases and at the same time ( 14th October 2020 ) take delivery of a brand new 787-10 ( HZ-AR28 ) is at least strange to explain

SV already has the leased planes in their possession, so they can use nonpayment as leverage to help force a new price. SV doesn’t get the 787s until Boeing is paid-it is Boeing’s plane in Boeing’s possession . It is harder to use nonpayment as leverage for a better price as there is greater risk of losing the plane and risk losing any predelivery payments already made.
 
goosebayguy
Posts: 710
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Re: Saudia sued over lease dues

Wed Oct 28, 2020 5:15 pm

There was a B777 at CDG back in 2008, which was repossesed where Saudia had not paid the lease er...accidentally. Payment was quickly made.
 
FCOTSTW
Posts: 231
Joined: Fri Mar 23, 2018 8:14 pm

Re: Saudia sued over lease dues

Wed Oct 28, 2020 5:24 pm

MIflyer12 wrote:
FCOTSTW wrote:
Saudia is betting on on an arbitration...


Does Saudi law - or wherever the contract is enforced - call for arbitration instead of enforcement?


If Saudia played this very well, they might have signed a Saudi contract, with Saudi laws, and therefore their chance to get a favorable arbitration decision in their favor might be very high.
 
FCOTSTW
Posts: 231
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Re: Saudia sued over lease dues

Wed Oct 28, 2020 5:28 pm

lightsaber wrote:
strfyr51 wrote:
FCOTSTW wrote:
Unfortunately for the lessor, all of this makes sense. Saudia is betting on on an arbitration that will lead to a settlement with a reduced obligation. Once this dispute is setteled, what is not clear is whether the lessors will be willing to lease again to Saudia in the future.

there's always somebody in the hots to lease airplanes. Years ago United found themselves in the same position when a leasing company wanted their airplanes back to lease at a higher rate than United was willing to Pay. 9-18 months later they came Back to United with the Same Airplanes they took from United with brand new deal of Less than United was paying them befoe they wanted their airplanes back... So if Saudia wants the airplanes? They'll pay for them. So? Is it Saudia's Problem? or their problem?

Is Saudia declaring bankruptcy? If not this is messier and will impact other loans in the future.

UA declared bankruptcy and rejected leases, the aircraft were returned and in that market, the leasing company might have lowered the payments, but I'm certain the term was extended. Oh, the ROI dropped, but did all the aircraft return? The issue is without a bankruptcy, for what can the leasing company ask for in back payments? Without that clear line of demarcation, both side will not negotiate as amicably as post bankruptcy.

This is an interesting market. Right now is a bad time to receive back aircraft, in particular widebodies.

Lightsaber


I do not think that Saudia might be in any form of bankruptcy. I would rather think that they are taking advantage of the historical moment (COVID, etc.) to breach a contract, hoping to settle for less and owed.
 
Exeiowa
Posts: 351
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Re: Saudia sued over lease dues

Wed Oct 28, 2020 5:52 pm

This might be the test case that shows how this develops. It will inform us on how pain will be shared, and how much multi-jurisdictional contract enforcement will hold up in a crisis. And we know the entity asking for the money probably owes a lot of it to someone else in the food chain, if dominoes start falling we get contagion. For the wider airline industry they better hope Saudia pays, otherwise they might start getting less sympathetic creditors wanting to not be left holding the bag, as they rush for the exits.
 
ScottB
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Re: Saudia sued over lease dues

Wed Oct 28, 2020 8:31 pm

MIflyer12 wrote:
Does Saudi law - or wherever the contract is enforced - call for arbitration instead of enforcement?


All the referenced articles state the suit was filed in London High Court so the likely assumption is the contract was enforceable under U.K. law. The lessor is based in Dubai but incorporated in the Cayman Islands. Interestingly, this source (https://www.islamicfinancenews.com/offs ... nance.html) claims Airbus was a seed investor in the lessor.

Exeiowa wrote:
This might be the test case that shows how this develops. It will inform us on how pain will be shared, and how much multi-jurisdictional contract enforcement will hold up in a crisis. And we know the entity asking for the money probably owes a lot of it to someone else in the food chain, if dominoes start falling we get contagion.


A lessor doesn't just file suit at the drop of a hat. If the lessor is suing, they likely feel they are at an impasse with the lessee, and there are plenty of airlines returning aircraft to lessors right now. It could be a symptom of further contagion, but there would be far more concern if one of the majors in the U.S., Europe, or East Asia (and maybe EK) stopped paying its bills.
 
MIflyer12
Posts: 8475
Joined: Mon Feb 18, 2013 11:58 pm

Re: Saudia sued over lease dues

Wed Oct 28, 2020 9:11 pm

ScottB wrote:
MIflyer12 wrote:
Does Saudi law - or wherever the contract is enforced - call for arbitration instead of enforcement?


All the referenced articles state the suit was filed in London High Court so the likely assumption is the contract was enforceable under U.K. law. The lessor is based in Dubai but incorporated in the Cayman Islands. Interestingly, this source (https://www.islamicfinancenews.com/offs ... nance.html) claims Airbus was a seed investor in the lessor.


Thanks for that. Somehow I don't think UK commercial law calls for parties to split the difference and go away. Foreign investors wouldn't bother with the UK if it did - other than from countries where law is even less enforceable.
 
dstblj52
Posts: 521
Joined: Tue Nov 19, 2019 8:38 pm

Re: Saudia sued over lease dues

Wed Oct 28, 2020 9:29 pm

MIflyer12 wrote:
ScottB wrote:
MIflyer12 wrote:
Does Saudi law - or wherever the contract is enforced - call for arbitration instead of enforcement?


All the referenced articles state the suit was filed in London High Court so the likely assumption is the contract was enforceable under U.K. law. The lessor is based in Dubai but incorporated in the Cayman Islands. Interestingly, this source (https://www.islamicfinancenews.com/offs ... nance.html) claims Airbus was a seed investor in the lessor.


Thanks for that. Somehow I don't think UK commercial law calls for parties to split the difference and go away. Foreign investors wouldn't bother with the UK if it did - other than from countries where law is even less enforceable.

Nope but saudi has one main advantage the ability to threaten bankruptcy and force a lease return which the finance company obviously doesn't want so while yes they will win a lawsuit good luck collecting unless they want more planes which no one wants right now

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