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aircraft. CATCO and CAC did not consider the economic realities
of the transaction to be those of a lease, and no provision was
made for the fair rental value of the aircraft, which was $60,000
per month per aircraft. CATCO and American entered the lease
agreement on June 8, 1990. American actually paid $1,000 in rent
for all 36 aircraft.
CATCO did not pay the first installment payment due
September 1, 1992. SPELI notified CATCO by telephone and by
letter that CATCO was in default and demanded payment of the
principal, interest, and late charges then due. CATCO continued
to look for potential buyers or lessees for the aircraft.
During that time, the U.S. Postal Service awarded a contract
to Postal Air, Inc. (Postal Air). CATCO and Postal Air entered
into a sales agreement in which Postal Air agreed to purchase 16
of the 36 aircraft from CATCO for a total purchase price of
$17,600,000. The day after CATCO signed the contract with Postal
Air, Emery Worldwide Airlines, Inc. (Emery), sought and was
granted a preliminary injunction preventing Postal Air and the
U.S. Postal Service from performing their contract.
The litigation between Emery and Postal Air was settled in
March 1993. As part of the settlement, Emery agreed to assist
Postal Air in meeting its obligations to CATCO. The settlement
agreement, dated March 28, 1993, required Emery to purchase eight
aircraft from CATCO for a total purchase price of $8,800,000 and
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