On the advice of legal counsel, Pakistan International Airlines Corporation Limited (PIACL) is alleged to have struck an out-of-court settlement in a $26 million dispute with Asia Aviation Capital Limited (AACL) over two aircrafts, as PIA’s position in the case was relatively weak, according to well-informed sources.
PIACL and AACL Dispute on Two Aircrafts
According to sources, on October 27, 2023, the Ministry of Aviation informed the ECC that PIACL got two A320 aircrafts AP-BLY (MSN 2926) and AP-BLZ (MSN 2944) on lease from AACL for six years in 2015.
However, the leasing agreement required that the aircraft be redelivered following necessary repairs at a certified maintenance and repair facility (MRO), as is industry standard.
As a result, when the lease expired, PIACL positioned the aircraft at FL Technic MRO in Jakarta in September and October 2021.
The aircraft was scheduled to be redelivered in six to eight months.
Actual Dispute
However, this schedule could not be followed, resulting in a dispute between AACL and PIACL over who was to blame for the delay, the real amount of the lease rent, fines, and interest to be paid to AACL.
Furthermore, the issue over lease rent payment resulted in litigation on two earlier occasions, in 2019 and 2021, as a result of which PIACL was ordered to pay AACL $ 12.058 million.
“Since April 2022, PIACL tried extensively to reach out to AACL through inter- alia visits by senior officials to their headquarters at Kuala Lumpur, but they remained largely unresponsive,” the sources added.
AACL Court Notice
On September 11, PIACL received a Court Notice from AACL’s UK counsels, Herbert Smith Freehills, requesting an immediate payment of $31.3 million for outstanding rent, re-delivery rent, maintenance reserve, and interest charges on the two aircraft.
On their directions, PIACL’s UK-based counsels Norton Rose & Fullbright sought time from the High Court of Justice, England and Wales, London to respond to AACL claims. As a result, the next hearing date has been set for October 30, 2023.
At the same time, the Ministry of Aviation noticed that PIACL’s counsels had plainly said that PIACL’s position in this subject was quite weak.
Out-of-Court Settlement With AACL
Moreover, they had suggested that PIACL seek an out-of-court settlement with AACL not only for the claimed amounts, but also for future liabilities related to rental payments and re-delivery of the aircraft.
The proposed settlement might take one of three forms: cash payout, maintenance buy out, or purchase of one or both planes.
They further believe that because AACL’s claim does not include any factual dispute, it might be settled on summary judgment, with the matter being heard in around six weeks.
PIACL Board of Directors
Taking note of the situation, the PIACL Board of Directors recommended a two-member team led by Secretary Aviation to negotiate an out-of-court settlement with AACL in the company’s best interests.
Furthermore, after receiving this recommendation, the Caretaker Prime Minister Anwaar ul Haq Kakar authorized the negotiation team to travel to Kuala Lumpur on October 9, 2023.
After five rounds of negotiations with the Chief Executive Officer of Air Asia Aviation Group on October 9th, 10th, and 11th, the negotiation team was able to persuade them to settle the matter for a total of $ 26 million, which included the transfer of title to two aircraft in two installments.
To read our blog on “PIA reduces up to Rs. 6000 in Umrah flights tickets,” click here.
