In re Island Helicopter Corp., Bankruptcy No. 884-40672-18 to 884-40681-18.
| Decision Date | 30 July 1986 |
| Docket Number | Bankruptcy No. 884-40672-18 to 884-40681-18. |
| Parties | In re ISLAND HELICOPTER CORP., et al, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
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Shaw, Goldman, Licitra, Levine & Weinberg, P.C., Garden City, N.Y., for debtors.
Cullen & Dykman, Garden City, N.Y., for Long Island Trust.
DECISION
Long Island Trust Company, N.A. (hereinafter "Trust"), has moved for an order conditioning the debtor's use of eight helicopters on the adequate protection of Trust's security interests in these aircraft, pursuant to 11 U.S.C. § 363(e). Trust also seeks to preclude the debtor's proposed use of certain insurance proceeds to purchase new helicopters, or in the alternative, to condition the proposed use of such proceeds on additional adequate protection.
The debtor has proposed to offer Trust adequate protection for Trust's security interest in seven of the eight helicopters specified in Trust's motion. The debtor disputes Trust's inclusion of an eighth helicopter in the instant motion and contends that Trust inappropriately asserts its security interest in this helicopter. In addition, the debtor argues that Trust's security interest in the collateral does not extend to the subject insurance proceeds.
1) The debtor filed its voluntary petition under Chapter 11 of the Bankruptcy Code on April 19, 1984.
2) The debtor is in the business of providing charter and contract helicopter services, and operates and maintains a fleet of helicopters in the course of this business.
3) A helicopter apparatus constitutes an amassment of approximately 70 major components that enable the aircraft to be utilized for its intended purposes. The Federal Aviation Administration (hereinafter "FAA"), in conjunction with the manufacturer, assigns each component a specific time-life that is measured in terms of actual flight hours. Upon the expiration of a component's time-life, the component must either be replaced by a component with remaining time-life, or overhauled; as a result, components are manufactured to be interchangeable among similar aircraft as such need arises. The individual helicopter constructed from these requisite components is identified by a data plate on which the manufacturer inscribes an identifying serial number. Examples of these components include the airframe, pod shell, engines, transmission, drive shaft, rotor blades, aircraft stabilizers, and landing gear.
4) In 1975, the debtor gave Trust a security interest in a Bell 206B helicopter, Serial No. 1229, Registration No. N4FL (hereinafter "Bell N4FL") to secure a loan of $209,574. In 1976, the debtor offered Bell N4FL, along with six other helicopters, as collateral to Trust for an indebtedness of $468,000. Trust duly recorded the chattel mortgages and security agreements for these transactions with the Aircraft Registration Branch of the FAA in Oklahoma City, Oklahoma.
5) A security agreement between the parties dated February 14, 1975 granted Trust a security interest in Bell N4FL for all future obligations of the debtor to Trust. The security agreement contains no provision that relates to Trust's release of its lien.
6) The debtor has repaid in full the two loans from Trust pertaining to Bell N4FL, as recited in Finding No. 4, supra.
7) Trust has refused to accede to the debtor's requests to release the lien Trust holds on Bell N4FL.
8) In 1985, Bell N4FL was totally destroyed in a crash that occurred during use in Connecticut. The debtor is presently in possession of the data plate for Bell N4FL.
9) The debtor has historically self-insured the Bell helicopters in its fleet. This policy is predicated on the economies to the debtor of incurring the costs of rebuilding these aircraft as compared to the costs of obtaining insurance for them. The debtor apprised Trust of this policy, and Trust never requested that the debtor deviate from this course of action.
10) From 1977 to 1982, the debtor pledged to Trust certain collateral as follows:
a) two Sikorsky S-58T helicopters: one, Serial No. 58-1630, Registration No. N2657Z (hereinafter "Sikorsky N2657Z"), and the other, Serial No. 58-1514, Registration No. N26567 (hereinafter "Sikorsky N26567"), to secure an indebtedness of $900,000;
b) one Aerospatiale SA-360C helicopter, Serial No. 1006, Registration No. N49505 (hereinafter "Aerospatiale N49505") to secure an indebtedness of $750,000;
c) one Aerospatiale SA-360C helicopter, Serial No. 1029, Registration No. N360CP (hereinafter "Aerospatiale N360CP") to secure an indebtedness of $600,000;
d) one Aerospatiale AS-355E helicopter, Serial No. 5042, Registration No. N57818 (hereinafter "Aerospatiale N57818") to secure an indebtedness of $594,395.52;
3) one Bell 206L helicopter, Serial No. 46610, Registration No. N16959 (hereinafter "Bell N16959") to secure an indebtedness of $341,000;
f) one Bell 206L helicopter, Serial No. 45101, Registration No. N16696 (hereinafter "Bell N16696") to secure an indebtedness of $453,280.80.
In addition, the debtor pledged Bell N16959 and Bell N16696 as collateral to secure any future obligations to Trust incurred by the debtor.
11) In December, 1983 at Newark Airport, New Jersey, Aerospatiale N360CP crashed subsequent to takeoff. Many of this helicopter's major components were destroyed on impact, including the rotor blades and mast, transmission, engine, and tail rotor and rotor gear box. The helicopter's pod component sustained only minor structural damage.
12) The debtor utilized Aerospatiale N306CP's pod component and accompanying minor components to rebuild another Aerospatiale helicopter, Registration No. N213EH, not held by Trust as collateral. The debtor exercised sound business judgment and decided that the transfer of these components from Aerospatiale N360CP to the other aircraft would return a usable helicopter to the debtor's fleet in the most expeditious manner. As of the date of this hearing, the debtor had commenced the procurement of components to rebuild Aerospatiale N360CP.
13) In 1985, Aerospatiale N49505 was substantially destroyed when it crashed into the East River after its takeoff from the 34th Street Heliport, New York City.
14) The security agreements between the parties pertaining to Aerospatiale N49505 and Aerospatiale N360CP obligated the debtor to insure these aircraft as follows:
2. Debtor shall: ... keep the collateral insured in an amount not less than the sum secured by this agreement against loss and damage by fire, theft and such other risks as Secured Party Trust may require, with the policy(s) made payable to Secured Party as its interest may appear; and give immediate written notice to Secured Party of any loss or damage to the Collateral.
Where the debtor failed to obtain insurance, Trust was empowered to acquire insurance for the collateral and charge the debtor for the costs thereof. The debtor further agreed to assign to Trust all insurance proceeds due under any policy insuring the collateral. Trust also retained control over the disposition and use of any such insurance proceeds. Trust failed to include these security agreements in its filings with the FAA.
15) Trust did not require the debtor to obtain insurance for any particular risk to the collateral beyond loss and damage for fire and theft. Similarly, Trust did not exercise its option to acquire insurance for the collateral and charge the debtor accordingly.
16) The debtor obtained hull insurance with a 5% deductible on all helicopters that it did not self-insure. Proceeds under such policies were to be paid to the debtor upon the partial or total destruction of the insured aircraft. With regard to the insurance policies the debtor obtained for Aerospatiale N360CP and Aerospatiale N49505, neither policy named Trust as loss payee nor otherwise directed that insurance proceeds payable under the policies were to be paid to Trust.
17) In February, 1984, the debtor received insurance proceeds for the damage to Aerospatiale N360CP in the amount of approximately $470,000. The proceeds were thereafter included into the debtor's general operating bank accounts that it maintained with Trust.
18) The debtor received insurance proceeds for the destroyed Aerospatiale N49505 in the amount of approximately $525,000. These funds were also placed into the debtor's general operating bank accounts.
19) Five helicopters held by Trust as collateral are currently being utilized by the debtor: Sikorsky N2657Z, Sikorsky N26567, Aerospatiale N57818, Bell N16959, and Bell N16696. These helicopters are being maintained in accordance with FAA regulations and industry standards. These aircraft are also regularly serviced under the debtor's maintenance program.
20) Patrick Mallen is Vice-President of Technical Services for the debtor. This court recognizes Mr. Mallen's considerable talents and abilities in the field of helicopter maintenance. During the pendency of the debtor's reorganization, Mr. Mallen has upgraded and redesigned the debtor's helicopter maintenance program to increase efficiency and cost effectiveness. The changes Mr. Mallen has instituted include: the writing of maintenance operations manuals; the design of work tools which cannot be readily or economically purchased by the debtor; and, the design and construction of refurbished interiors for the helicopters. In addition, Mr. Mallen has secured for the debtor from many manufacturers permission to fabricate and overhaul component parts that the debtor would otherwise be required to purchase at greater cost.
21) Since April, 1984, the debtor has expended approximately $2,400,000 on regular maintenance for the collateral. The debtor represents that this sum includes expenditures for major components in the amount of $1,029,625.26.
22) Barry Desfor is the general manager and chief appraiser of Helicopter Financial Services, Inc., publisher of the...
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