Colm Barrington's Fly Leasing aircraft firm is target of US lawsuit
Fly Leasing, the Dublin-based aircraft lessor headed by former Aer Lingus chairman Colm Barrington, has been targeted in a class action suit as a result of its accounting practices.
Mr Barrington, who was non-executive chairman of Aer Lingus up to the time of its sale last year to IAG, and Fly Leasing chief financial officer Gary Dales have also been personally named as defendants in the suit, which has been filed in New York. Mr Barrington is chief executive of Fly Leasing, which is listed on the New York Stock Exchange.
At the end of December, Fly Leasing had 80 aircraft in its portfolio, on lease to customers in 28 countries.
Fly Leasing notified shareholders last month that it has been working with the US Securities and Exchange Commission (SEC) regarding its annual report for 2014.
The talks relate to Fly Leasing's accounting policy for so-called intangible assets and liabilities for aircraft acquired by the company which have in-place leases.
There's no suggestion that there has been any deliberate attempt to mislead shareholders, and the issue stems solely from the technical accounting methodology. A resolution of the issue with the SEC is unlikely to have a material impact on Fly Leasing's accounts, it's believed.
It's understood the accounting issue is similar to that which arose when leasing giant AerCap acquired rival IFLC in 2014.
In that situation, aircraft assets acquired by AerCap from IFLC had to be returned to their market value.
It's believed the SEC is arguing that when a lessor buys an aircraft that is on lease, and the jet will come back in a better condition from its lease than it is in currently, then the increased value as a result of maintenance has to be recognised as an intangible asset.
Fly Leasing has indicated that it could be delayed in filing its 20-F annual report in respect of 2015 as a result of the on-going discussions with the SEC. However, it's thought the company is still working towards having that report filed by the end of this month.
In results issued last month, Fly Leasing said that it has provided information to the SEC to support its accounting policy, and has discussed its accounting policy with the watchdog.
"While we currently have not concluded on the potential impact on our financial statements of the (SEC) staff's comments, if any, if it is determined after the conclusion of the (SEC) staff's review that Fly Leasing should separately recognise other intangible assets or liabilities from what has been previously recorded, the impact could be material to Fly Leasing's previously issued consolidated financial statements and require modification to its accounting for the current and prior year results reported herein," it added. Fly Leasing's shares fell in New York on the same day it revealed the SEC talks.
The accounting issue was seized upon by lawyers in order to launch a class action lawsuit against Fly Leasing.
"As a result of defendants' wrongful acts and omissions, and the precipitous decline in the market value of the company's securities, plaintiff and other class members have suffered significant losses and damages," the complaint claims.
It adds that during the period covered by the action, "defendants engaged in a plan, scheme, conspiracy and course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions, practices and courses of business which operated as a fraud and deceit upon the plaintiff".