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January 28, 2011 at 12:17

Alexander Lebedev sues General Electric subsidiary over airline collapse

Alexander Lebedev sues General Electric subsidiary over airline collapse guardian.co.uk

Alexander Lebedev, owner of the Independent newspapers and London's Evening Standard, is taking legal action in the high court to claim at least $23m (£14m) from subsidiaries of General Electric (GE) over the collapsed German airline Blue Wings which the Russian billionaire part-owned.

Companies owned by National Reserve Corporation, Lebedev's investment group, allege they suffered losses of between $23m and $30m after seven aircraft leased to Blue Wings were repossessed by a GE subsidiary. The GE subsidiary is disputing the claims.

The two sides will appear in the high court tomorrow over the release of disputed documents allegedly relevant to the case.

The claim is being brought by Alpstream, Lebedev's Swiss-based aircraft leasing business, and three associated companies. They claim that the GE aircraft leasing finance subsidiary PK Airfinance had unnecessary maintenance work carried out on the aircraft which it repossessed in early 2010 and then allegedly sold them to another GE subsidiary for less than their market value. In its submission to the court, PK responded that shortly after seizing the aircraft, it had noted that Blue Wings had failed to maintain them properly and that they were in a bad condition. PK also disputes the claims that it breached its duty to obtain a reasonable price for the aircraft.

Alpstream had acquired the aircraft with financing from PK and then leased them to Blue Wings, which ceased operations in January 2010 after financial difficulties. Under the terms of the financing agreement with PK, according to documents filed at the high court, in the event of default by the applicants on repayments to PK, the GE subsidiary had the right to repossess the aircraft. The proceeds from the aircraft's subsequent sale would be used first to repay loans provided by PK before junior loans provided by companies linked to Alpstream were reimbursed.

Alpstream claims that PK commissioned $54m of maintenance work to be carried out on the aircraft. The applicants allege that the cost of repairs appears to be much higher than would be expected to put the aircraft into leasable condition. Lebedev told the Guardian: "They have been spending our money on renovations." PK sold the aircraft to GECAS, another GE subsidiary, at an auction for $171.5m in May last year. A valuation commissioned by the applicants claims that the value of the aircraft when they were first repossessed in January 2010 was $168m, suggesting, they allege, that the $54m spent on repairs was not reasonable. Following the maintenance works, the applicants contend that the true value of the aircraft was about $199m.

PK also rejects the allegation that it had commissioned unnecessary maintenance to increase the outstanding debt held against the aircraft.

PK Air said in a statement: "As the matter is the subject of a court hearing, we do not believe it is appropriate to comment at this stage except to say that the claims are very much in dispute."

Tags: National Reserve Corporation

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