The leasing of a commercial aircraft to an airline in a foreign jurisdiction presents risks to the lessor and its secured lender, including whether an aircraft may readily be repossessed if a lease event of default occurs. Local counsel in that jurisdiction is typically engaged not simply to explain legal risks in its home country but also to help the lessor take reasonable precautions before the lessor delivers the aircraft to the lessee. In addition to protecting against default risk, the documents and collateral package prepared with the advice of local counsel help (1) satisfy the standard of care that a servicer must exercise in an aircraft secured financing and (2) make the aircraft with lease attached marketable to prospective purchasers. The opinion letter local counsel can deliver at closing should satisfy the expectations of finance parties and potential buyers, as well as create a roadmap that corresponds to the due diligence and precautions a lessor should take.
Who Gives the Opinion, Lessor's Counsel or Lessee's Counsel?
In most cases, the lessor will retain local counsel of its choosing and at its expense. The lessee will normally use its internal counsel or external counsel. Internal counsel to the lessee could provide the lessor an opinion letter, but such an opinion letter generally would provide only cursory opinions as to internal matters such as due authorization, execution and delivery of the lease and related documents, and potentially no violation of any other agreement to which the lessee is a party. As to the matters on which it will opine, internal counsel is the most qualified to give such opinions because it is deeply involved with the lessee's organizational matters. External counsel to the lessee in the lessee's jurisdiction is more likely to give a fuller opinion on the other legal issues that arise from the lease and may sometimes rely on the opinion of the lessee's internal counsel as to the matters on which internal counsel is most competent. However, in some jurisdictions, the lessee's external counsel may take the position that it is customary for counsel to issue an opinion only to its own client, not to a counterparty. Moreover, even if the lessor relies on an opinion or opinions of the lessee's internal and/or external counsel, the lessor may not be entirely comfortable that all issues about which the lessor and its lender should be concerned are being brought to light. Therefore, at the end of the day, the customary course of action is for the lessor to have its own counsel provide an opinion letter, with perhaps the opinions as to due authorization, execution and delivery being provided in a separate opinion letter issued by lessee's internal counsel. If the lessee's counsel does provide the full opinion letter, the lessor's counsel should at least have the opportunity to review and comment on it and the documents the lessee's counsel examines to give the opinions.
To Whom Is the Opinion Letter Addressed?
Counsel should address the opinion letter not only to the lessor, but also to the lessor's lease servicer or aircraft manager and any equity or debt finance parties and trustees identified to such counsel. The opinion letter will later state that it may be relied on by its addressees only. So, addressees who have an interest in the aircraft and lease, in addition to the lessor, should be included in order for such parties to receive the full benefit of the opinion.
To Whom May the Opinion Be Disclosed?
A question, related to that of permitted addressees, is to whom may the opinion letter be disclosed by the addressees. The opinion will likely state that it is confidential and may be relied on only by its named addressees. Counsel will normally resist including as addressees "the Lenders from time to time" or other general terms meant to pick up transferees of the addressees. So, the opinion should also state that it may be disclosed to (but not relied on by) actual and potential transferees of the addressees and their finance parties, and to counsel and other advisers of the addressees and such other parties. Only the addressees may potentially have a claim against counsel for professional negligence, if the advice in the opinion violates professional standards. But transactional counsel and other advisers to the addressees will need to see the opinion to properly advise their clients. Similarly, actual and potential transferees and their finance parties, and the counsel and other advisers to each of them, will wish to see the opinion as part of their due diligence on whether adequate steps have been taken to protect the interests of the lessor in the aircraft and the lease.
Documents Examined and Searches Made
The opinion letter should recite that counsel has examined every document (including results of searches of public registries) that is relevant to the giving of the opinion letter, including the following (originals or copies of which — other than the "such other documents" described below — would also be provided to the lessor):
A complete opinion letter (or opinion letters in combination) should include the following: