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History of Residual Value Guarantees

In the late 1990s and early 2000s, manufacturers like Bombardier and Embraer increasingly began offering residual value guarantees (RVGs) to airlines and investors, typically structured on long-term leveraged lease transactions.1 In these RVGs, the manufacturer would guarantee that an aircraft would have a minimum guaranteed value at the expiration of the lease term. If the aircraft did not meet such guaranteed value at the expiration of the lease term, the manufacturer agreed to pay the difference between the guaranteed value and the actual post-lease value. Now, as these original leases have begun to expire, manufacturers have been experiencing high levels of potential liabilities. As of June 30, 2019, Bombardier’s maximum exposure for its RVGs was $185 million.2

Comerica Leasing Corporation v. Bombardier Inc.

In a recent case, Comerica Leasing Corp. v. Bombardier Inc.,3 Bombardier moved to dismiss Comerica’s claim for payment under the residual value guarantee of four aircraft, arguing that Comerica did not satisfy its condition precedent of having the lessee return the aircraft to Comerica.4 As discussed below, Bombardier prevailed in its motion to dismiss,5 demonstrating the importance of strict compliance with conditions precedent to payment for beneficiaries of RVGs.

Background of the Case

In this case, Comerica entered into leveraged lease transactions with Bombardier in which Comerica acquired four commercial aircraft.6 The transactions for each aircraft involved three separate agreements among several parties: a “Participation Agreement,” a “Lease Agreement” and a “Residual Agreement.”7 Comerica entered into the Participation Agreement whereby Comerica financed and acquired each aircraft from Bombardier through a trust.8 Comerica then leased the aircraft to Atlantic Southeast Airlines (and, later, ExpressJet Airlines, as successor in interest to Atlantic Southeast Airlines).9 Comerica and Bombardier also entered into a Residual Agreement for each aircraft pursuant to which Bombardier guaranteed each aircraft’s minimal residual value at the end of the lease and agreed to pay the difference if the actual post-lease value was less than guaranteed.10

The Residual Agreement provided that if “the Return Date has occurred, then within ninety (90) days after the earlier of” two contractually stated events, Comerica could demand payment from Bombardier under the Residual Agreement.11 The Residual Agreement then defined the “Return Date” as the date following the expiration of the lease term on which the lessee returns the aircraft to the lessor.12 In 2015, the lease term for each aircraft expired and Comerica sent Bombardier a written demand for each aircraft’s Payment Amount.13 Bombardier has not fulfilled any of Comerica’s demands for payment.14

In early 2016, Comerica filed its initial complaint for breach of contract and Bombardier moved to dismiss, asserting that Comerica had not satisfied the conditions precedent to Bombardier’s payment obligation under the Residual Agreement.15 The court granted Bombardier’s motion to dismiss with leave to amend,16 stating that ExpressJet’s return of the aircraft was a condition precedent for Comerica’s right to demand payment of the Payment Amount from Bombardier under the Residual Agreement.17 In August 2017, Comerica filed an amended complaint and Bombardier again moved to dismiss.18

Bombardier argued that Comerica had not alleged in its complaint that ExpressJet complied with the provision in the Participation Agreement which required ExpressJet to return the aircraft to Comerica at an “airport in the continental United States on [ExpressJet’s] route system selected by [Comerica] where [ExpressJet] has a major maintenance base for the aircraft.”19 Further, Bombardier argued that Comerica did not allege in its complaint that it followed the other return requirements under the Participation Agreement, such as requiring ExpressJet to deliver to Comerica the “transfer documentation”20  or assigning to Comerica the remaining rights ExpressJet had in the aircraft.21

In response to Bombardier’s arguments, Comerica asserted that ExpressJet had returned each aircraft by taking the aircraft out of service and making each aircraft available to Comerica at an airport in Georgia.22 However, the court agreed with Bombardier and granted its motion to dismiss.23 The court stated that ExpressJet making the aircraft available to Comerica at a specific location is not the same as returning the aircraft under the requirements of the Participation Agreement.24 Therefore, Comerica did not plead sufficient facts that it had satisfied its condition precedent under the Residual Agreement to give rise to Bombardier’s payment obligations.25


Though it is unclear from the record why Comerica did not take return of the four aircraft from ExpressJet, the result of this case once again underscores the importance of strict compliance with conditions precedent for beneficiaries of RVGs. The subjective nature of some conditions precedent to payment obligations under RVGs, which commonly include return conditions and timing deadlines, mean it is crucial for beneficiaries of RVGs to ensure careful compliance with these conditions and to involve the applicable manufacturer in the return process to avoid losing the benefit of its bargain.

1 Bryson Monteleone, Residual Value Guarantees, AIRLINE ECONOMICS, Jan./Feb. 2014, at 2.

2 Bombardier Inc., Third Quarterly Report, at 95 (Oct. 31, 2019).

3 Comerica Leasing Corp v. Bombardier Inc., U.S. District Court, Southern District of New York, No. 16-00614.

4 Id. at *1.

5 Id. at *18

6 Id. at *1.

7 Id.

8 Id.

9 Id. at *2.

10 Id. at *3.

11 Id. 

12 Id.

13 Id. at *4. 

14 Id

15 Id

16 Id.

17 Id. at *5.

18 Id.

19 Id. at *13.

20 Id.

21 Id. at *14.

22 Id. at *7.

23 Id. at *14.

24 Id.

25 Id


Joel R. Thielen