A year since our briefing "LIBOR and Operating Leases" and the aviation sector is still waiting for a clear contender to replace LIBOR as the common reference rate in aircraft financings, operating leases and related hedging arrangements. The FCA's December 2021 deadline for LIBOR discontinuation is approaching but the "legacy book" of aircraft loans and leases which use LIBOR for rental and other payment provisions continues to grow. In the wake of the ECB's "Dear CEO" letter requiring board-level responses from regulated firms on preparedness for benchmark reform and Andrew Bailey of the FCA's latest speech at SIFMA, borrowers, lessors and lenders should consider taking precautionary action now in relation to their new transactions and any existing deals which will extend beyond 2021. Download PDF
The aviation industry continues to use it for aircraft financing , operating fees and related hedging products , adding to the number of new contracts compared to the outgoing reference rate , according to Clifford Chance . The law firm said it would be prudent for the industry to assume a divergence in the alternative reference rates used in different contracts and take action to avoid confusion between lease cash flows and related loan and deposit payments . There is also a risk that different contracts in the same commercial transaction may not share fallback triggers for alternative rates .