Previously we discussed the basics of leasehold mortgages, and why they are critical to airport tenants such as Fixed Base Operations (FBOs), Maintenance Repair and Overhaul (MRO) operations and Aircraft Charter and Management (ACM) operators. When these types of business on airports seek business loans they are usually subject to the terms and conditions of a leasehold mortgage. Here are some of the key features of leasehold mortgages.
The first question to ask is if a leasehold mortgage is allowed. The answer to this is usually found directly in the lease language. Until recently most airport leaseholds were silent with regard to leasehold mortgages, but more recent lease documents tend to state whether or not they are allowed and if so under what terms. The consent of the airport is almost always needed to enter into a leasehold mortgage on an airport.
Since airports (landlords) and banks (lenders) have different interests in a tenant (again usually an FBO, MRO or ACM) who is a party to a leasehold mortgage, there are usually provisions to address the parties’ interests. For example, a lender will not want an airport to terminate a lease if the tenant is delinquent, so there will likely be notification provisions whereby the lender is notified if there is a default under the lease. There will also likely be a cure provision allowing the lender to cure a default or breech under the lease. Similarly, in the event the lender has to foreclose and take possession of the collateral, an airport would not want to see a bank running an aviation service business on its airport; therefore it will usually have a say as to how the business is managed (i.e. by an experienced FBO management company) going forward even after the lender has taken possession.
The continued growth of aviation infrastructure is critical for FBOs and other airport service providers, especially those at capacity who need additional facilities for growth. Aviation infrastructure management and FBO management companies need to consider these areas as they deploy capital to grow their airport businesses.