Arctic Aviation Assets Designated Activity Company v The Companies Act 2014

• Jurisdiction: Ireland
• Judge: Mr. Justice Quinn
• Judgment Date: 16 December 2020
• Neutral Citation: [2020] IEHC 664
• Docket Number: 2020/366 COS
• Court: High Court
• Date: 16 December 2020

IN THE MATTER OF ARCTIC AVIATION ASSETS DESIGNATED ACTIVITY COMPANY

AND

IN THE MATTER OF NORWEGIAN AIR INTERNATIONAL LIMITED

AND

IN THE MATTER OF DRAMMENSFJORDEN LEASING LIMITED

AND

IN THE MATTER OF TORSKEFJORDEN LEASING LIMITED

AND

IN THE MATTER OF LYSAKERFJORDEN LEASING LIMITED

AND

IN THE MATTER OF PART 10 OF THE COMPANIES ACT, 2014

AND

IN THE MATTER OF NORWEGIAN AIR SHUTTLE ASA, AS A RELATED COMPANY WITHIN THE MEANING OF SECTION 517 AND SECTION 2 (10) OF THE COMPANIES ACT, 2014

[2020] IEHC 664

Quinn

2020/366 COS

THE HIGH COURT

Judgment of Mr. Justice Quinn delivered on the 16th day of December, 2020.

1 Among the industries hardest hit by the COVID-19 pandemic has been the aviation sector. Norwegian is a case in point. It has met serious challenges before now and has restructured. Radical measures were implemented in 2019 and again in 2020. But still more is required.

2 This petition concerns six companies in the Norwegian Group. They include the parent company, aircraft operating companies and a group of companies through which the Group structures its aircraft sourcing and financing. The survival of those companies is central to the survival of the Group as a whole.

3 Five companies in the Group (“the petitioners”) have petitioned this court for the appointment of an examiner pursuant to section 509 of the Companies Act, 2014 (“the Act”).

4 The petitioners are:

Arctic Aviation Assets Designated Activity Company (“AAA”);

Norwegian Air International Limited (“NAI”);

Drammensfjorden Leasing Limited (“DLL”);

Torskefjorden Leasing Limited (“TLL”);

Lysakerfjorden Leasing Limited (“LLL”).

5 The petitioners have also applied for the appointment of an examiner to Norwegian Air Shuttle ASA (“NAS”) which is the ultimate shareholder of the Norwegian group of companies and is the direct parent company of AAA and NAI. This application is made on the basis that NAS is a related company pursuant to s. 517 of the Act.

6 The petitioners each have their registered office and centre of main interests in the State, performing their operations from Dublin Airport. (See para. 71 – 79).

7 NAS has its registered office in Oslo, Norway and performs its head office functions at that location.

8 On 7 December, 2020, I heard the petition and delivered my ruling appointing an examiner to the petitioners and NAS. This judgment outlines the reasons for that ruling.

9 Firstly, I shall outline the background to the Companies and the events which led to this petition. Secondly, I consider the jurisdiction of this court in relation to the petitioners under the EU Insolvency Regulation and in relation to NAS under Irish company law, and associated recognition questions. Thirdly, I shall consider the evidence advanced as to the prospects of the survival of the Companies as a going concern and my conclusions.

10 In this judgment, the term “petitioners” refers to the five companies which have presented this petition. The term “Companies” refers to the petitioners and NAS. The terms “Norwegian” or “the Group” refer to the companies and all other companies in the Norwegian group registered in the State and elsewhere and includes companies which are not the subject of these or other insolvency or restructuring proceedings.

The Companies

11 Two of the companies are airline operators, namely NAS and NAI, NAS also being the ultimate parent company of the Group.

12 The other four companies, AAA and its subsidiaries; TLL, DLL and LLL perform a centralised asset management function for the Group as a whole. Their activity is aircraft management, trading, leasing and financing. They act as a “captive lessor” leasing aircraft to the Group airlines, including NAI and NAS. AAA manages the Group's new aircraft orders, sources aircraft financing, manages aircraft leased from external lessors and markets and trades aircraft to certain third parties.

13 AAA has 36 Irish incorporated subsidiary companies. Many of these facilitate the financing, trading and leasing of individual aircraft. DLL, TLL and LLL each perform this function for larger numbers of aircraft, 20, 24, and 28 respectively. AAA and its subsidiaries are referred as the “Asset Management Platform” or “the Platform”. AAA manages the Platform from its leased office at Dublin Airport, where it employs 7 full-time employees. AAA also acts as an intergroup lender to its subsidiaries in connection with aircraft leasing and financing activities and as guarantor of financing and leasing arrangements for both the subsidiaries and for the parent, NAS.

14 A total of 140 aircraft were leased by the Group at the time of presentation of the petition, although only a much smaller number were operating at that time. The debt and leasing obligations associated with the fleet are approximately $5.19 billion.

15 In January 2012, NAS contracted to purchase from Boeing 110 Boeing 737-8 Max, 92 of which remain undelivered. In November 2014, that contract was novated to AAA. NAS guaranteed the obligations of AAA thereunder. In October 2015, AAA contracted to purchase a further 19 Boeing 787-9 aircraft, 5 of which remain undelivered. These contract are referred to as OEM Purchase Contracts.

16 In June 2012, NAS contracted to purchase from Airbus 100 Airbus aircraft. On 1 December, 2014, that contract was novated to AAA, and NAS guaranteed the obligations thereunder.

NAI

17 NAI was established in Dublin in 2013 and operates flights within Europe. As of the end of 2019 NAI operated from bases in Denmark, Finland, Spain, Ireland and the UK. Its central base is at Dublin Airport. Prior to the onset of the COVID-19 pandemic it employed 41 employees in its own right. 29 people are still employed by it.

18 The establishment of NAI in 2013 was an important milestone for the Group as it was the Group's first EU licenced airline. This positioned the Group to avail of access to traffic rights through bilateral agreements between the EU and third countries.

19 NAI is a direct subsidiary of NAS.

NAS

20 NAS is listed on the Oslo B⊘rs (the Oslo stock exchange). It is the sole shareholder of AAA and NAI and the holding company for the entire group. It performs group management and corporate functions which include an internal treasury function operating “cash pooling” for the Group. All income generated from ticket sales in the Group is collected and held by NAS. As and when required funds are transferred by NAS to other Group companies including those companies which form part of the Asset Management Platform, to enable them to meet their ongoing obligations.

21 NAS holds an air operator's certificate (“AOC”) and functions as an international airline. It leases its fleet of 41 aircraft from the subsidiaries of AAA, which include DLL, LLL, TLL, and other group companies which are not the subject of this petition. These leases are managed in Ireland by AAA. AAA also manages new aircraft orders for NAS, and sources aircraft financing.

22 NAS is the guarantor of the obligations of the Asset Management Platform to third party aircraft lessors and financiers.

23 The Group comprises 65 companies. The protection of this court is sought only in respect of the petitioners and NAS which are regarded as crucial to the future survival of other parts of the Group.

24 The companies in the Platform are entirely reliant on NAS and its airline operating subsidiaries for their income streams. It is said that if NAS were to enter liquidation, it is likely that each of the petitioners would also enter liquidation.

25 Similarly, it is said that a liquidation of the Platform companies would cause severe disruption to NAS, in circumstances where NAS requires access to the fleet of aircraft to service its routes. That access is currently achieved through the Platform.

Recent trading

26 The reported trading results for the Group for the years 2017, 2018 and 2019 show increases in revenue up to 31 December, 2019. Total revenues of the Group to the end of December 2019 reached approximately €4 bn, of which approximately €3.2 bn was derived from ticket sales. The balance is derived from ancillary passenger revenue freight, “ third party products”, and other revenue.

27 The two most significant events which have contributed to the current status of the Group are:

(1) The impact of the global grounding of Boeing 737 Max in 2019.

(2) The COVID-19 pandemic.

28 On 12 March, 2019, eight of the Group's Boeing 737 Max aircraft were grounded by global aviation regulators due to two fatal accidents (on flights of different airlines) involving this aircraft type, one on 29 October, 2018, and a second on 10 March, 2019.

29 The Group also encountered serious operational and maintenance problems with a different Boeing aircraft, the 787 Dreamliner.

30 In February 2020, the Group had been targeting a net profit for 2020. Within a matter of weeks from identifying these targets, the impact from the COVID-19 pandemic emerged and the Group's focus shifted immediately from anticipated growth to survival.

31 The effect of the pandemic on the Group can be summarised as follows:

a) It lost most of its revenues. Demand for bookings fell by 99% in the second quarter of 2020.

b) From January 2020 to the presentation of the petition on 18 November, 2020, the Group carried 6.3 million passengers compared to 28.62 million for the same period in 2019, a fall in passenger numbers of 78%.

c) Revenue for the Group in the third quarter of 2020 was approximately €119 m compared to €1.13 bn for the same period in 2019, a decrease of 91%. The year to date revenues have fallen by 76%; and,

d) Operating losses for the Group in the year to date amount to €593 m, compared to a total loss of €149 m for the full year 2019.

32 In April and May 2020, the Group embarked on a restructuring plan entailing the conversion of debt and leasing commitments to equity, adjusting lease rentals to...