Avianca Holdings S.A.

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

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In re: Chapter 11

AVIANCA HOLDINGS S.A., et al.,1 Case No. 20-11133 (MG)

Debtors and Reorganized Debtors.

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DECISION RESOLVING (I) BURNHAM STERLING AND COMPANY LLC AND

BABCOCK & BROWN SECURITIES LLC’S MOTION TO COMPEL COMPLIANCE

WITH 11 U.S.C. §§ 365(d)(5) AND 503(b), AND (II) REORGANIZED DEBTORS’

TWENTY-FOURTH AND TWENTY-FIFTH OMNIBUS OBJECTIONS TO PROOFS OF

CLAIM

A P P E A R A N C E S:

Smith, Gambrell & Russell, LLP

Counsel for Debtors and Reorganized Debtors

1301 Avenue of the Americas, 21st Floor

New York, New York 10019

By: John G. McCarthy, Esq.

Michael F. Holbein, Esq.

O’Melveny & Myers LLP

Counsel for Burnham Sterling and Company LLC

and Babcock & Brown Securities LLC

7 Times Square

New York, New York 10036

By: Matthew Kremer, Esq.

Peter Friedman, Esq.

1 The Debtors and Reorganized Debtors in these chapter 11 cases, and each Debtor’s and Reorganized Debtor’s federal

tax identification number (to the extent applicable), are as follows: Avianca Holdings S.A. (N/A) n/k/a HVA Associated Corp.;

Aero Transporte de Carga Unión, S.A. de C.V. (N/A); Aeroinversiones de Honduras, S.A. (N/A); Aerovías del Continente

Americano S.A. Avianca (N/A); Airlease Holdings One Ltd. (N/A); America Central (Canada) Corp. (00-1071563); America

Central Corp. (65-0444665); AV International Holdco S.A. (N/A); AV International Holdings S.A. (N/A); AV International

Investments S.A. (N/A); AV International Ventures S.A. (N/A); AV Investments One Colombia S.A.S. (N/A); AV Investments

Two Colombia S.A.S. (N/A); AV Loyalty Bermuda Ltd. (N/A); AV Taca International Holdco S.A. (N/A); Aviacorp Enterprises

S.A. (N/A); Avianca Costa Rica S.A. (N/A); Avianca Leasing, LLC (47-2628716); Avianca, Inc. (13-1868573); Avianca-Ecuador

S.A. (N/A); Aviaservicios, S.A. (N/A); Aviateca, S.A. (N/A); Avifreight Holding Mexico, S.A.P.I. de C.V. (N/A); C.R. Int’l

Enterprises, Inc. (59-2240957); Grupo Taca Holdings Limited (N/A); International Trade Marks Agency Inc. (N/A); Inversiones

del Caribe, S.A. (N/A); Isleña de Inversiones, S.A. de C.V. (N/A); Latin Airways Corp. (N/A); Latin Logistics, LLC (41-2187926);

Nicaragüense de Aviación, Sociedad Anónima (N/A); Regional Express Américas S.A.S. (N/A); Ronair N.V. (N/A); Servicio

Terrestre, Aéreo y Rampa S.A. (N/A); Servicios Aeroportuarios Integrados SAI S.A.S. (92-4006439); Taca de Honduras, S.A. de

C.V. (N/A); Taca de México, S.A. (N/A); Taca International Airlines S.A. (N/A); Taca S.A. (N/A); Tampa Cargo S.A.S. (N/A);

Technical and Training Services, S.A. de C.V. (N/A). The Debtors’ and Reorganized Debtors’ principal offices are located at

Avenida Calle 26 # 59 – 15 Bogotá, Colombia.

Before the Court are two claim objections and one motion centering on the same dispute

between the Reorganized Debtors, which this decision refers to as Avianca, and two entities that

served as brokers or initiators of aircraft leases by which Avianca leased aircraft that were

necessary to Avianca’s business as an airline. Those entities are Burnham Sterling and Company

LLC and Babcock & Brown Securities LLC, referred to in this decision as the “Initiators.”

The dispute involves services rendered by the Initiators in furtherance of Avianca’s entry

into aircraft lease agreements before Avianca commenced its Chapter 11 case in this Court. The

terms of the leases that the Initiators helped arrange extended well past Avianca’s bankruptcy

petition date. The express terms of the leases and/or documents incorporated into the main lease

documents required Avianca to compensate the Initiators for their services through scheduled

lease payments that, like the leases themselves, extended well past Avianca’s eventual petition

date, and Avianca acknowledged at oral argument that the required payments are fairly

characterized as payments due under the leases.

The Initiators each filed timely proofs of claim, among other things asserting secured

prepetition claims for unpaid pre-petition amounts due, and/or administrative claims for unpaid

amounts that, under the agreed payment schedule imposed by the relevant leases, were due to be

paid after Avianca’s petition date. Avianca filed objections to the Initiators’ Proofs of Claim

raising essentially identical arguments, namely, that the claims were not secured and therefore

should be reclassified as general unsecured claims; that the Initiators were not entitled to

administrative claims on account of amounts that became due after the petition date but that were

earned entirely in the pre-petition period; and that various duplicative claims should be expunged

in favor of one allowed, general unsecured claim per Initiator creditor. [See Reorganized

Debtors’ Twenty-Fourth Omnibus Obj. to Proofs of Claim [ECF No. 2661]; Reorganized

Debtors’ Twenty-Fifth Omnibus Obj. to Proofs of Claim [ECF No. 2663]].

Meanwhile, the Initiators filed a motion of their own, to “compel compliance with 11

U.S.C. § 365(d)(5) and 503(b)” [Burnham Sterling and Company LLC and Babcock & Brown

Securities LLC’s Mot. to Compel Compliance with 11 U.S.C. §§ 365(d)(5) and 503(b) [ECF No.

2657]]. That motion sought an order compelling immediate payment of amounts asserted in the

Initiators’ proofs of claim, at least those that became due after Avianca’s petition date. The

motion also sought an order deeming those amounts to constitute an allowed administrative

claim against the estate.

For the reasons that follow, the Court grants in part the Initiators’ motion to compel

insofar as they seek an order requiring the timely payment of certain post-petition amounts due;

denies the Initiators’ motion insofar as it seeks allowance of an administrative claim for those

amounts; and correspondingly denies the part of Avianca’s claim objection that argues that the

Initiators are not entitled to relief under section 365(d)(5), while granting the portion of the claim

objection that seeks reclassification of the Initiators’ pre-petition claim and expungement of

duplicative claims.

By way of brief overview of the Court’s analysis, Code section 365(d)(5) provides that

the Initiators are entitled to “timely perform[ance]” of “all” of Avianca’s lease obligations that

“aris[e]” beginning 60 days after Avianca’s petition date until the assumption or rejection of the

relevant lease or leases. The governing agreements establish that the post-petition payment

obligations were and are obligations of the debtor under a lease. Further, those payment

obligations required payments on specified post-petition dates, and therefore, notwithstanding

Avianca’s contentions to the contrary, the lease-imposed payment obligations at issue “arose” on

the various dates that the leases made them due. The Initiators are not, however, entitled to an

allowed administrative claim pursuant to section 503(b), because those payments have not been

shown to constitute “actual, necessary costs and expenses of preserving the estate,” nor have the

Initiators provided a post-petition service or conferred a benefit on the estate, as is ordinarily

required as a condition of the allowance of an administrative claim. Finally, as noted, the Court

sustains Avianca’s claim objections to the extent it challenges the Initiators’ assertion of secured

status for their proofs of claim, and to the extent it seeks to expunge duplicative claims.

BACKGROUND

The facts that are central to this dispute are not contested, and are summarized only in

salient part here. The parties’ pleadings and exhibits provide more detailed histories of the

transactions at issue. Counsel also provided helpful clarifications and factual background during

argument on January 25, 2023, which this decision relies on without formal citation to the

transcript, as the drafting of this decision had been substantially completed before the transcript

became available.

As is typical of many airlines, Avianca leased at least many of the aircraft it used to carry

out its business operations. Avianca retained or contracted for the Initiators to assist Avianca in

locating suitable aircraft for Avianca to lease on acceptable terms, and the Initiators did so. The

result was the leases that play a role in this dispute, all of which were entered into before

Avianca’s bankruptcy petition. The Initiators’ work in furtherance of the lease transactions was

completed before the petition date, and there is no contention that the Initiators performed any

relevant services for Avianca at any time after Avianca’s petition date. The claim objections and

Initiators’ motion all concern payment obligations that are imposed by aircraft lease agreements

and do not concern any obligations arising at or after the time of any lease’s rejection.

Rather than pay the Initiators contemporaneously for their services, Avianca and each

aircraft’s owner/lessor negotiated and agreed to adopt as requirements of the relevant leases that

Avianca’s obligations to the Initiators would be paid in specified amounts on specified dates

running over time. Avianca acknowledged at oral argument that the terms of the relevant leases

require these payments to be made according to pre-agreed schedules. By way of slightly more

detailed example, the Initiators explain that section 5.2 of the lease agreement labeled “MSN

3992” provides that “[t]he Lessee shall on each Additional Rental Payment Date pay to the

Lessor at the Initiator Account, by way of additional rental payment, installments of the Initiator

Compensation . . . . [T]he . . . obligations to pay the Initiator Fees hereunder are unconditional.”

[Initiators’ Mot. to Compel [ECF No. 2657] at 3–4]. And Avianca’s papers acknowledge that its

obligations to the Initiators were “styled as additional or supplemental rent, which the Debtors

[i.e., Avianca] pay in the first instance to a lessor/owner trust.” [Debtors’ 24th Omnibus Claim

Obj. [ECF No. 2661] at 7].

Further, Avianca does not dispute (and the Initiators confirm) that the Initiators seek

payment of amounts that, according to the relevant leases and related documents, first became

due on or after 60 days following Avianca’s petition date, do not extend past the date of any

assumption or rejection of any aircraft lease, and have not been paid.

Avianca has objected to the Initiators’ assertion that their claim is secured, and the

Initiators do not oppose the request to reclassify the claim as unsecured. The Initiators likewise

do not oppose the portion of Avianca’s claim objection that seeks to expunge certain duplicative

claims.

The Court heard argument on the claim objections and the Initiators’ motion to compel

on January 25, 2023.

DISCUSSION

A. The Initiators’ Entitlement to Payment Is Pursuant to Lease Obligations That

Arose After Avianca’s Petition Date

The Initiators’ position flows from the literal meaning of Code section 365(d)(5), which

provides, with inapplicable exceptions omitted: “The trustee shall timely perform all of the

obligations of the debtor . . . first arising from or after 60 days after the order for relief in a

[Chapter 11 case] under an unexpired lease of personal property . . . , until such lease is assumed

or rejected notwithstanding section 503(b)(1) of this title, unless the court, after notice and a

hearing and based upon the equities of the case, orders otherwise with respect to the obligations

or timely performance thereof.” 11 U.S.C. § 365(d)(5). The Initiators observe (as is not

contested) that the parties’ dispute relates to “an unexpired lease of personal property” and that

the leases have not been, at least for the periods for which the Initiators seek compensation,

“assumed or rejected.” The Initiators also observe that the payment obligations at issue are

“obligations of the debtor . . . under” the governing leases and associated transaction documents.

Avianca acknowledged at argument, at a minimum, that the lease agreements require the

scheduled payments that the Initiators seek to compel.

In opposition, Avianca emphasizes that the Initiators’ entitlement to the payments flows

from work that the Initiators performed and completed before Avianca’s petition date, such that

in Avianca’s view all the Initiators have is a contractually required payment schedule on account

of a prepetition obligation—thus merely an unsecured prepetition claim, not something that

should support an administrative claim under the Code [Debtors’ 24th Omnibus Claim Obj.

[ECF No. 2661] at 11], and “not ‘true lease’ obligations as contemplated in section 365(d)(5)”

[id. at 9]. Avianca’s papers did not pinpoint any inaccuracy in the Initiators’ analysis of the

governing statutory text, but emphasized policy considerations and legislative history, arguing

that the purpose of section 365(d)(5) was to protect commercial landlords or lessors who

otherwise suffered prejudice when debtors languished in bankruptcy without paying rent and

other obligations to landlords or lessors, thus unfairly jeopardizing the economic health of parties

that were legally obliged to have continuing dealings with a debtor. [Id. at 9–10 (citing In re

Hayes Lemmerz Int’l, Inc., 340 B.R. 461, 472 (Bankr. D. Del. 2006) (describing Congressional

intent in enacting section 365(d)(5) as being to “give special protection to qualified lessors”); In

re Pudgie’s Dev. of NY, Inc., 202 B.R. 832, 837 (Bankr. S.D.N.Y. 1996) (opining that the

similarly drafted section 365(d)(3) should be “strictly construed” and holding that a prepetition

lease’s requirement that the lessee pay attorney fees was not entitled to full repayment under

section 365(d)(3) notwithstanding that the fees were not billed until after the petition date, where

the payment obligation “may fortuitously arise before or after the time period in question”); In re

Child World, Inc., 161 B.R. 571, 576 (Bankr. S.D.N.Y. 1993) (“Allowing landlords to recover

for items of rent which are billed during the postpetition, prerejection period, but which represent

payment for services rendered by the landlord outside this time period, would grant landlords a

windfall payment, to the detriment of other creditors, without any support from the legislative

history.”))].

At argument, Avianca sharpened its efforts to harmonize these observations with the text

of section 365(d)(5), arguing that the fact that the Initiators’ services were complete and the

payment dates agreed to before Avianca’s petition date means that Avianca’s payment obligation

“arose” before the petition date, and is not an obligation of the debtor that, in the words of

section 365(d)(5), was “first arising from or after 60 days after the order for relief” (i.e.,

Avianca’s bankruptcy petition filing date). The Court, however, finds this argument

unpersuasive. Neither party identified case law expressly defining “arising from” as that phrase

is used in section 365(d)(5), but the Initiators correctly observe that, under the leases’ terms, no

payment was due—and thus the debtor had no payment obligation as to any future scheduled

payment—until and unless its due date was reached. Further, the statute refers to plural “all

obligations” of the debtor “arising” under “a lease” (a singular noun), which signals that each

separate payment requirement under “a” lease constitutes a separate “obligation,” not merely one

portion of a singular, overarching “obligation” embodied in the underlying lease document. The

Court is satisfied that both the plain meaning of the statutory terms and the commercial realities

of the parties’ arrangement here was that there are multiple payment “obligations” that “arise” on

their respective due dates as specified in the applicable leases—just as the obligation to pay rent

for future periods undisputedly “arises” for purposes of section 365(d)(3) and (d)(5) not upon the

signing of the lease, but upon the due dates specified by the lease.

Meanwhile, as to whether the payment obligations can be said to be among “all of the

obligations of the debtor” under the leases, the parties agreed at oral argument that the payment

obligations at issue are imposed under the leases at issue, which are unexpired leases of personal

property. The Court acknowledges the policy and equitable concerns emphasized by Avianca as

voiced in Pudgie’s and Child World, and those decisions as well as Avianca here correctly

characterize at least a substantial animating concern voiced in relevant legislative history of

protecting lessors with ongoing obligations to a debtor, which may apply with less force to

payment obligations to parties other than the lessor even when those obligations are imposed by

the terms of the lease. But the Bankruptcy Code expressly and unambiguously requires timely

payment of “all of the obligations of the debtor” under a lease, not merely “rent” and not merely

payments to “lessors.” 11 U.S.C. § 365(d)(5). And equitable or policy concerns and legislative

history do not control if the statute’s express, unambiguous language dictates a different result.

Food Mktg. Inst. v. Argus Leader Media, 139 S. Ct. 2356, 2364 (2019) (“In statutory

interpretation disputes, a court’s proper starting point lies in a careful examination of the

ordinary meaning and structure of the law itself. Where, as here, that examination yields a clear

answer, judges must stop. Even those of us who sometimes consult legislative history will never

allow it to be used to ‘muddy’ the meaning of ‘clear statutory language.’”) (citations omitted); In

re R.H. Macy & Co., Inc., No. 93 CIV. 4414, 1994 WL 482948, at *4, *12 (S.D.N.Y. Feb. 23,

1994) (Sotomayor, J.) (“The problem that I have is that I am persuaded by the policy arguments

set forth by Judge Goettel in Childworld [sic]. * * * Unlike Judge Goettel, I cannot create an

ambiguity [in section 365(d)(3)] where I see none exists . . . . I must interpret ‘obligation’

according to its ordinary meaning. . . . I decline, as did the court in [another case], to read into

an unambiguous, clear statute a revision based on policy considerations. I feel compelled to

follow the clear and unambiguous terms of the statute[.]”). Or, as the Initiators put it, “Section

365(d)(5) should not be read to include language it clearly does not.” [Burnham Sterling and

Company LLC and Babcock & Brown Securities LLC’s Consolidated Reply (I) in Resp. to

Reorganized Debtors’ Twenty-Fourth and Twenty-Fifth Omnibus Objs. to Proofs of Claim and

(II) in Further Supp. of Mot. to Compel [ECF No. 2689] at 8 (citing Antonin Scalia & Bryan A.

Garner, Reading Law: The Interpretation of Legal Texts 93–100 (2012); Rotkiske v. Klemm, 140

S. Ct. 355, 360–61 (2019); Iselin v. United States, 270 U.S. 245, 251 (1926))].

The case law invoked by Avianca does not overcome this textual analysis to support the

result it seeks, both because reliance on equity and policy cannot overcome an express statutory

command, and because the cases Avianca relies on are materially distinguishable.

In Pudgie’s, the Court relied on the fact that the contracts in question—unlike those at

issue here—did not require payments to be made on a date certain or according to a set schedule,

such that the payment obligation could arise “fortuitously” either within or outside the statutorily

required full-pay period—thus not constituting the type of payments that the statute should be

read to mean in requiring “timely” payment of post-petition lease obligations. 202 B.R. at 837.

The Court declined to deem such a haphazard payment schedule a requirement for rent payments

within the time frame specified by section 365(d)(3) (which all parties and the Court agree has

no material analytical differences from subsection (d)(5) except that it applies to real property

leases rather than personal property leases). Id. As the Initiators emphasize, however, this

distinctive factual characteristic that justified the Court’s decision in Pudgie’s is absent here;

rather, the lease obligations here concededly make payment for the benefit of the Initiators due as

part of each periodic rent payment due under the governing leases. [Initiators’ Mot. to Compel

[ECF No. 2657] at 3–4]. In fact, Pudgie’s supports the Initiators’ position here because it

emphasizes that the statute affords a “preferred position with respect to those obligations arising

under the lease in a contractually determined time frame,” 202 B.R. 837—exactly what exists

here.

Meanwhile, the outcome of Child World arguably supports Avianca’s position, but it is at

least partially distinguishable, and, to the extent it can be said to call for a denial of the Initiators’

motion, the Court respectfully declines to follow it because such a reading would be contrary to

the unambiguous command of section 365(d)(5) for reasons already stated. Child World

concerned a debtor-tenant’s lease obligation to reimburse a trust-landlord for taxes related to the

leased property. The trust billed the Debtor/tenant for tax amounts due without regard to

whether the obligations arose before or after the petition date. The Court held that section

365(d)(3) did not require the debtor to make reimbursements for taxes that accrued before the

petition, notwithstanding that the bills were sent after the petition date. 161 B.R. at 576–77. The

Court reasoned that these obligations did not come due during the statutorily covered post-

petition period. Id. In so holding, the Court relied on legislative history reflecting the policy

objective of ensuring that landlords would be paid by “debtor-tenants” for “current services,” id.

at 576, and opined that payments that were billed post-petition for “services rendered by the

landlord outside this time period [] would grant landlords a windfall payment, to the detriment of

other creditors, without any support from the legislative history.” Id.

The Initiators observe that here, unlike in Child World, Avianca’s payment obligations

not only arise under the leases, but by the leases’ terms are due and at all pre- and post-petition

times were always due on dates specified by the leases that fall within the period that the Code

dictates must be timely paid in full. The Court can conceive of no construction that makes these

payment obligations under the leases anything other than Avianca payment “obligations” under

the leases whose “timely” payment necessarily falls within the post-petition time frame

addressed by section 365(d)(5). Supra at 7–8. Thus, unlike Child World, there is no element of

happenstance or timing uncertainty here that could arguably bring the payment obligation outside

the scope of section 365(d)(5).

Child World thus is materially distinguishable on its facts, and the materiality of its

factual difference from the present situation resulted in a legal analysis that did not assume that

the plain terms of section 365(d)(3) squarely govern. In other words, the Court in Child World

did not deem present or analytically contend with the existence of unambiguous statutory

language that compelled a ruling in favor of the landlord. Yet here, for the reasons explained

above, the statute’s unambiguous terms control and mandate the “timely” payment of an explicit

lease obligation that the Initiators seek to enforce. See supra at 6–9. In keeping with that

analysis, to the extent Child World is deemed to hold that timely full-payment obligations under

section 365(d)(3) or (d)(5) exist only as to landlords or lessors themselves (which overstates the

holding of Child World), or to hold that lease payments that are due post-petition but that are

owed on account of pre-petition events do not constitute such obligations, the Court respectfully

declines to follow such a holding, because the statute itself calls for full and timely payment of

“all of the obligations of the debtor” under the lease in question, not merely “rent” or “those

obligations that are directly payable to the landlord or lessor.” Reference to legislative history or

policy concerns is insufficient to override Congress’s explicit command. See R.H. Macy, 1994

WL 482948, at *12.

Not only are the legislative history and policy concerns identified by Avianca not

sufficient to override the unambiguous and squarely applicable statutory text, there are also

policy and statutory considerations that point in favor of the Court’s ruling today. First, section

365(d)(5) requires timely payment of lease obligations “notwithstanding section 503(b)(1) of this

title,” which provides that administrative claims “shall be allowed” if they are “actual, necessary

costs and expenses of preserving the estate. . . .” 11 U.S.C. § 503(b)(1)(A). Thus, section

365(d)(5) omits any benefit to the estate requirement, unlike the standard that governs the

requested allowance of administrative claims. This reality, in turn, lessens the persuasiveness of

objections that requiring full payment of all of a debtor’s lease obligations results in a “windfall,”

because Congress in enacting section 365(d)(5) explicitly required at least some degree of what

otherwise might be a windfall by saying that payments required by leases are due without regard

to the limits on availability of administrative claims under section 503(b).

Moreover, section 365(d)(5) has been in effect since 1994. See In re Oreck Corp., 506

B.R. 500, 503 n.6 (Bankr. M.D. Tenn. 2014) (noting that § 365(d)(5) was “formerly § 365(d)(1)

as enacted in 1994”). The parties to the leases and related transaction documents at issue here

are sophisticated, major financial concerns, including a major international airline, presumably

sophisticated international aircraft leasing brokers, and (according to document excerpts attached

to Avianca’s reply) major financial institutions including Wilmington Trust and Wells Fargo

Bank. The leases and transaction documents post-date the statute’s enactment. The parties’

decision to term Avianca’s obligations to the Initiators “lease” obligations, in a way that squarely

fits within section 365(d)(5), can only have been intentional. The Court has no basis to speculate

why the parties chose to proceed this way, but enforcing such a conscious negotiating decision

that renders Avianca’s recurring payment obligations to the Initiators “obligations of the debtor”

under a “lease” does not strike the Court as a windfall that can be said to contravene the intent of

Congress nearly 30 years after it enacted section 365(d)(5) using words that perfectly describe

the parties’ negotiated arrangements here. Indeed, as the Initiators observed at argument and

Avianca did not dispute, although section 365(d)(5) includes language authorizing courts to

excuse payments otherwise required by the section “after notice and a hearing and based on the

equities on the case,” Avianca has not proposed such a hearing, nor has it invoked that portion of

the statute in its response to the Initiators’ contentions.

The Court pauses to note that, although the parties’ briefs do not meaningfully discuss

cases interpreting sections 365(d)(3) or (d)(5) besides Pudgie’s and Child World, the Court’s

own research has identified several other such cases, and the Court has considered them. Child

World itself cites more than ten of these cases on both sides of the issue, noting that some of

them “interpreted § 365(d)(3) as providing that the billing date determines when lease

obligations arise” even though the taxes which were billed post-petition had accrued during “a

period which was almost entirely prepetition,” but opining that “[a] substantial majority of [the

cases] concluded that under § 365(d)(3), rent should be prorated to cover only the postpetition,

prerejection period, regardless of the fortuity of the billing date.” 161 B.R. at 576 (collecting

cases). The Court need not spend any time discussing these other cases other than to note that

they exist. The parties did not cite any of these cases, and even if they had, the Court’s own

review has identified no analytically relevant difference between these cases and Child World

which would compel the Court to alter its conclusion that the outcome here is dictated by the

unambiguous, plain language of the statute. Quite simply, the Court considers then-Judge

Sotomayor’s analysis in R.H. Macy, 1994 WL 482948, at *11–13, to be both correct, and

squarely on point here. See supra at 9.

Finally, in addition to seeking to compel payment pursuant to section 365(d)(5), the

Initiators’ motion seeks allowance of an administrative claim pursuant to Code section 503(b).

Allowance of such a claim, however, requires a two-part showing: “first, there must be a

postpetition transaction, making it a transaction between the debtor-in-possession and the

creditor; and second, the estate must receive a benefit from the transaction. . . . In other words,

to qualify for administrative priority, a debtor’s obligation to make a payment must have arisen

out of a postpetition transaction between the creditor and the debtor.” In re Grubb & Ellis Co.,

478 B.R. 622, 624–25 (Bankr. S.D.N.Y. 2012) (citations omitted). The showing the Initiators

have made is that they are entitled to payment under section 365(d)(5), but they have not

established a post-petition transaction or benefit to the estate as required to support allowance of

an administrative claim under section 503(b). The motion’s request for allowance of an

administrative claim is therefore denied.

B. Post-Petition Stipulations Do Not Extinguish the Initiators’ Entitlements

Avianca also argues that it entered into various post-petition stipulations which it contends,

without citing any law, “modified the terms of each of the lease agreements at issue, and—once

so-ordered by the Court—[] took precedence over the lease agreements and suspended the

operation thereof, including payment of the initiator fees.” [Reply in Supp. of Reorganized

Debtors’ Twenty-Fourth and Twenty-Fifth Omnibus Objs. to Proofs of Claim [ECF No. 2699] at

7–8; see also Debtors’ 24th Omnibus Claim Obj. [ECF No. 2661] at 11–12]. Although Avianca

refers to several such stipulations, it cites only one, which it calls the “Second Stipulation,” as

apparently illustrative of the rest. [Debtors’ 24th Omnibus Claim Obj. [ECF No. 2661] at 11–12

(citing Second Stipulation and Order Between Debtors and Aircraft Counterparties Concerning

Certain Aircraft [ECF No. 401])]. But Avianca fails to cite any specific provision of the Second

Stipulation that purports either to (a) relieve Avianca of its obligations to the Initiators specifically,

or (b) supersede or suspend the entirety of the underlying lease agreements more generally. Having

reviewed the Second Stipulation itself, the Court has identified no such provisions, nor did Avianca

identify any such provision when asked at oral argument.

On the contrary, the Court agrees with the Initiators that, because the Second Stipulation

expressly and repeatedly contemplates the potential future “assumption of the applicable Original

Aircraft Agreements [including the leases] pursuant to section 365 of the Bankruptcy Code” and/or

the potential future “reject[ion of] the Aircraft Agreements [including the leases]” [Second

Stipulation [ECF No. 401] at 2–10], the Second Stipulation cannot have extinguished the leases,

and that the stipulation is insufficient to relieve Avianca of its lease obligations to the Initiators

given the explicit wording of section 365(d)(5). As the Initiators rightly point out, section

365(d)(5) requires the performance of lease obligations “arising from or after 60 days after the

[petition date] . . . until such lease is assumed or rejected” [Initiators’ Reply [ECF No. 2689] at 9

(quoting 11 U.S.C. § 365(d)(5)) (alterations in original)], which the Second Stipulation made clear

would not occur until some future date. Avianca counters that the Initiators could and should have

objected “at the time the Second Stipulations were filed and approved” [Debtors’ Reply [ECF No.

2699] at 8], but Avianca has not shown that the Initiators had reason or need to object. Rather, the

Second Stipulation does not purport to alter the Initiators’ rights under the leases, so the Initiators

had no need to object to it.

The Court does not reach the Initiators’ additional argument that they cannot be bound by

the Second Stipulation because they are not parties to it. [Initiators’ Reply [ECF No. 2689] at 9–

10]. The Initiators do not appear on the Second Stipulation’s list of parties on whom it is binding

[Second Stipulation [ECF No. 401] at 9)], but the Initiators are third-party beneficiaries under the

original leases, and neither the Initiators nor Avianca has briefed the issue of whether and to what

extent a Court-approved, post-petition stipulation may modify the express rights of a third-party

beneficiary under a pre-petition lease agreement. For purposes of the present dispute, it is

sufficient that the Second Stipulation, by its terms, does not purport to modify the Initiators’ rights

under the leases and under section 365(d)(5), even assuming that it could do so. Therefore, for the

reasons stated above, the Court denies Avianca’s claim objection to the extent it is premised on

the Second Stipulation purportedly relieving Avianca of its obligations to the Initiators. The Court

accordingly also rejects the argument that the Second Stipulation defeats the Initiators’ motion to

compel.

C. The Initiators’ Duplicative Claims Should Be Expunged, and Their Claims Are

Not Secured

Requiring far less discussion is Avianca’s objection to the Initiators’ assertion that their

pre-petition claim was secured as opposed to unsecured, and Avianca’s objection to various

duplicative claims asserted by the Initiators. [Debtors’ 24th Omnibus Claim Obj. [ECF No.

2661] at 8–9, 12–14]. The Initiators concede that their pre-petition claim is not secured, and that

duplicative claims can be expunged in favor of one already-filed proof of claim that accurately

sets forth pre-petition amounts due to the Initiators. [Initiators’ Reply [ECF No. 2689] at 10–11].

The Court grants Avianca’s objection to the extent it seeks to reclassify the Initiators’ claim for

pre-petition amounts due to general unsecured status, and the Court grants Avianca’s request to

expunge duplicative claims. The parties confirmed at oral argument that there is no remaining

dispute on these aspects of the claim objection, and they have reached agreement on which

claims are to be expunged as duplicative.

CONCLUSION

For the reasons stated above, the Initiators’ motion to compel compliance with section

365(d)(5) is granted, and the Court will direct payment of amounts due under that section. The

Court, however, denies the Initiators’ motion to the extent it seeks allowance of an administrative

claim pursuant to Code section 503(b). The Court sustains Avianca’s claim objections to the

extent they seek to reclassify the Initiators’ secured claim and expunge duplicative claims, but

denies the objections to the extent they seek to disallow the Initiators’ request for payment of

post-petition amounts due to them under the leases as required by Code section 365(d)(5).

The parties are to confer and, on or before January 27, 2023, if practicable, jointly submit

a proposed order implementing the rulings in this decision.

It is so ordered.

Dated: New York, New York

January 26, 2023

s/ David S. Jones

Honorable David S. Jones

United States Bankruptcy Judge