A federal appeals court has paved the way for lessors to reposess aircraft from United Airlines Inc. unless the airline immediately cures its defaults and pays the full amounts due under its rental agreements.

In a terse, strongly worded opinion, the U.S. Court of Appeals for the Seventh Circuit broke a stalemate in which United had prevented repossession while refusing to make payments. A three-judge panel held that United may not use antitrust law to circumvent §1110(a)(1) of the Bankruptcy Code, which excepts the enforcement of aircraft leases from bankruptcy protection.

Section 1110(a) “prevents bankruptcy judges from using any source of law, including antitrust, as the basis of an injunction against repossession,” Seventh Circuit Judge Frank H. Easterbrook wrote in a nine-page opinion issued in United Airlines Inc. v. U.S. Bank N.A. and The Bank of New York, No. 15-1871 (May 6, 2005).

United Airlines entered bankruptcy in 2002 operating approximately 460 airplanes, 175 of which were leased. While the lessors originally agreed to accept reduced rental payments, two-and-a-half years later, with no reorganization plan in sight, the banks serving as indenture trustees for three of the leases demanded that United immediately return 14 of the aircraft unless it cured all defaults and resumed the full rental payments provided by the original lease agreements.

Section 1110(a)(1) provides that an aircraft lessor’s right “to take possession…in compliance with a security agreement, lease, or conditional sale contract, and to enforce any of its other rights or remedies…to sell, lease, or otherwise retain or dispose of such equipment, is not limited or otherwise affected by any other provision of this title or by any power of the court.” [Emphasis added.]

Notwithstanding this provision, United filed an adversary action accusing the indenture trustees of violating antitrust provisions of the Sherman Act by insisting that United deal with them collectively on all 175 leased airplanes.

The bankruptcy judge held United’s antitrust claim was strong enough to enter a temporary restraining order (TRO) preventing repossession of the airplanes. He further ruled that §1110(a)(1) does not affect the court’s ability to award injunctive relief based upon nonbankruptcy laws such as the Sherman Act.

United appealed to the district court, which declined to rule on the appeal on the grounds that the TRO was not a final order.

Upon further appeal, Seventh Circuit Judge Easterbrook determined that the TRO became an appealable injunction when it extended past 20 days.

Determining that §1110(a)(1) does prohibit judges from issuing injunctions against repossession under nonbankrupty laws, the Seventh Circuit also rejected United’s antitrust argument outright.

“The antitrust claim is thin to the point of invisibility,” Judge Easterbrook wrote. “One might suppose that coordination is a normal function of indenture trustees, which exist under the Trustee Indenture Act of 1939 precisely because individual lenders may be too diffuse to protect their own interests.”

The U.S. Court of Appeals for the Second Circuit, Judge Easterbrook noted, “has described ‘as bordering on the frivolous’ a contention that the antitrust laws forbid creditors to coordinate their positions in bankruptcy.”

“Competition comes at the time loans are made; cooperation in an effort to collect as much as possible of the amounts due under competitively determined contracts is not the sort of activity with which the antitrust laws are concerned,” he concluded.

He had harsh words for United’s bargaining position.

“If an antitrust problem lurks in post-bankruptcy dealings, United is as much an offender as the lessors are. The lenders want to shop the planes, selling future months of their remaining useful lives to the high bidders. United by contrast wants to limit these lessors to a single bidder,” the judge wrote.

“The competitive solution is for both sides to have access to markets—and that outcome is achieved by allowing repossession.”

The decision provides strong support for aircraft lessors and confirms that coordination among creditors generally in bankruptcy proceedings to collect past amounts due does not violate antitrust laws.