January 18, 2019 / 6:41 PM / 6 months ago

UPDATE 3-Avianca Brasil's legal fight with plane leasing firms escalates

(Adds statement by Avianca Brasil)

By Marcelo Rochabrun

SAO PAULO, Jan 18 (Reuters) - Avianca Brasil's battle with its aircraft leasing firms intensified on Friday after Brazil's aviation regulator said it would no longer ground 10 of the struggling carrier's planes and another lessor renewed its effort to repossess 10 others.

Aircastle Ltd and General Electric Co's GE Capital Aviation Services (GECAS) unit, among other lessors, have been trying to repossess planes from Brazil's fourth largest airline since it fell behind on lease payments, but their efforts were hampered when Avianca Brasil filed for bankruptcy protection in December.

ANAC, the country's aviation regulator, announced on Friday that it would not intervene in the dispute, a move that came a day after it had said it would ground 10 of Avianca Brasil's 46 planes at the request of GECAS.

"Avianca will be able to operate its previously scheduled flights normally," ANAC said in a statement, citing what it described as an agreement between Avianca and its aircraft leasing firms.

Separately, a representative for U.S.-listed Aircastle said on Friday the firm would file an appeal of a legal order that stayed repossession of Avianca Brasil's planes for 15 days until Feb. 1. Aircastle has leased 10 planes to Avianca Brasil and the airline is its largest customer.

The escalating legal battle has added to the uncertainty surrounding Avianca Brasil's ability to maintain its current flight schedule, even as the carrier so far has successfully fended off multiple repossession attempts.

Avianca Brasil said in a statement that it "continues operating normally," but did not directly address a question on how an appeal from Aircastle could affect its operations.

The 15-day stay on repossessions currently in place was requested by a bankruptcy judge in Sao Paulo after the airline and its lessors failed to reach an agreement at a hearing on Monday, according to the legal order, which the lessors signed.

It specifically states that the leasing firms did not agree with the judge’s decision, Aircastle said in a statement.

"His decision is completely contrary to the Cape Town Convention," Aircastle said, referring to a little-known international treaty that allows for swift repossession of aircraft. Brazil and the United States are among the countries that have signed the treaty. (Reporting by Marcelo Rochabrun Editing by Christian Plumb and Paul Simao)

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