1 Legal framework
1.1 Which laws typically govern aviation finance transactions in your jurisdiction?
General commercial contract law governs aviation finance transactions. However, depending on the financing structure, other laws that may govern a transaction include securities laws and the Uniform Commercial Code (UCC) as enacted by a specific state. Further, parties must be generally aware of the federal laws governing aviation regulation and tax implications of the transactions.
1.2 If aviation finance documents are governed by laws other than your local law, what local law requirements (documentary and procedural) are required to ensure that foreign law documents are recognised and enforceable locally?
In order for aviation finance documents to be recognised and enforceable in the United States, they should comply with the legal requirements of the governing jurisdiction. In addition, for interests governed by the Cape Town Convention (CTC), the CTC expressly provides that the parties may agree to the law that governs their contractual rights and obligations.
2 Finance structures
2.1 What aviation finance structures are most commonly used in your jurisdiction?
The availability of financing structures in the United States for parties that desire to purchase
aircraft is partially dependent on whether the party seeking financing is an operator or, instead, is an operating lessor that intends to lease the aircraft to an operator. Some of the most common basic financing structures utilised by operators include:
- term loan facilities in the commercial lending markets secured by mortgages on one or more identified aircraft;
- in the case of major airline operators, enhanced equipment trust certificate offerings in the capital markets to finance an identified group of aircraft; and
- in the case of operators with investment grade credit, unsecured bond offerings in the capital markets.
Some of the most common financing structures utilised by operating lessors include:
- term loan facilities in the commercial lending markets secured by mortgages on one or more identified aircraft and collateral assignments of the related leases;
- warehouse facilities in the commercial lending markets providing committed financing from a lender or lending syndicate to acquire leased aircraft over a period of time satisfying agreed characteristics (eg, aircraft types, lessees, geographic concentrations), which may be recourse or non-recourse facilities;
- asset-backed securitisations in the capital markets, which provide non-recourse long-term financing on a portfolio of identified leased aircraft; and
- in the case of operating lessors with investment grade credit, unsecured bond offerings in the capital markets.
2.2 What are the advantages and disadvantages of these different types of structures?
The advantages, disadvantages and issues arising from the financing structures described above are largely commercial in nature. Some of the primary considerations in selecting a financing structure are:
- pricing (eg, absolute financing costs and prepayment penalties, make-wholes or other requirements);
- interest exposure (ie, fixed rate financings versus floating rate financings);
- the recourse nature of the financing (eg, recourse to a corporate credit versus recourse only to the aircraft);
- restrictive financial covenants (eg, debt service coverage rations, loan-to-value tests, minimum equity tests and borrowing base tests); and
- restrictive operational covenants (eg, limitations on asset dispositions, restrictions on leasing).
2.3 What other factors should operators bear in mind when deciding on a financing structure?
Most operators must acknowledge the existence of the financing and consent to certain provisions of the financing arrangement. The financing structures do not generally affect the operations of an operator.
2.4 Who are the most common providers of aircraft finance in your jurisdiction? Do any restrictions apply in this regard?
Providers of aircraft finance vary greatly. While banks may participate in a loan or be a lender within a loan facility, some banks will also own aircraft with the intent to lease them. Non-traditional lenders – such as hedge funds, private equity firms and other private companies – also participate in the space.
3 Title transfer
3.1 How is title to an aircraft legally transferred in your jurisdiction?
Title to an aircraft is legally transferred through a bill of sale.
3.2 What are the formal and documentary requirements for transferring title?
Assuming that the aircraft is registered in the United States, a bill of sale transferring title of an aircraft must be recorded with the Federal Aviation Administration (FAA). The bill of sale filed with the FAA must meet the signature requirements of the FAA, which generally require that the signature be an original or be an electronic signature acceptable to the FAA.
3.3 What is the process for transferring title?
The seller issues a bill of sale describing the aircraft to the purchaser. The bill of sale is then recorded with the FAA.
3.4 Are any charges, fees or taxes levied on the transfer of title?
The transfer of title is considered a taxable event in most jurisdictions, but many jurisdictions have an exemption for sales tax related to aircraft. There is a recording fee associated with the recording of the bill of sale with the FAA.
3.5 Other than in case of insolvency, are there any laws under which the registered title holder may be forced to relinquish ownership of the aircraft (eg, expropriation, confiscation)?
Certain US airlines have entered into the Civil Reserve Air Fleet programme, whereby the airlines have agreed to support the US Department of Defense in emergency situations. The airlines utilised selected aircraft when Department of Defense needs eclipse their capacity. In certain circumstances, airlines that have entered into the Civil Reserve Air Fleet will be required to provide aircraft to the Department of Defense.
4.1 What body administers the aircraft register in your jurisdiction?
The US Department of Transportation (DOT) is an executive branch department within the US federal government and has regulatory authority with respect to all transportation matters within the United States. The Federal Aviation Administration (FAA), an operating administration of the DOT, has primary responsibility for the regulation of aviation and maintains the FAA Registry. The FAA Registry is an ‘owner registry', in that the FAA registers aircraft and issues certificates of registration to aircraft owners.
4.2 What information is included in the aircraft register? Is this publicly accessible?
The FAA Registry records the ownership of an airframe, but not the engines or propellers. The FAA Registry also contains the supporting documentation related to the owner that the owner must provide the FAA as part of registration of the aircraft. Mortgages, leases and other liens are also part of the FAA Registry; and a mortgage, lease or other lien may be filed against an airframe, engine or propeller. All information registered with the FAA Registry is publicly available.
4.3 What are the formal and documentary requirements for registration of an aircraft? What is the process for registration? What is the effect of registration? What is the effect of deregistration?
An aircraft registration application must be filed for each new owner of an aircraft. The application must be accompanied by statements in support of registration evidencing and confirming the citizenship of the owner. As more fully detailed in response to question 4.7, each owner of an aircraft registered in the United States must be a ‘citizen of the United States' as defined in the Federal Aviation Regulations. The FAA registers aircraft based on FAA-established ownership tests, which are broadly intended to identify the apparent owner and require complex analysis. Determination of an owner for FAA purposes may conflict with a determination for other purposes, including local law, tax or accounting. The sole purpose of registration with the FAA Registry is to establish nationality of an aircraft for international purposes, and it is not conclusive evidence of ownership in a proceeding under the laws of the United States.
4.4 If your jurisdiction has ratified the Cape Town Convention, can a local law deregistration power of attorney be acquired by a lessor/financier, and if so, does it provide any additional protection for such parties?
The United States is an ‘owner registry', as such, in most cases the owner/lessor may deregister an aircraft as a matter of right. If the party seeking deregistration is a secured party (ie, not the registered owner), an irrevocable deregistration and export request authorisation (IDERA) submitted to the FAA in compliance with the Cape Town Convention (CTC), or if the aircraft is not subject to the CTC, a deregistration power of attorney, may be utilised in lieu of the owner's request. In this circumstance, the authorised party seeking to deregister and export an aircraft under an IDERA or deregistration power of attorney must submit to the FAA a written certification in accordance with Section 47.47 of Title 14 of the US Code of Federal Regulations (‘Federal Aviation Regulations'), confirming "that all registered interests ranking in priority to that of the requestor have been discharged or that the holders of such interests have consented to the cancellation for export purposes".
4.5 What are the formal and documentary requirements for registration of an aircraft lease? What is the process for registration? What is the effect of registration? What is the effect of deregistration?
In addition to the FAA Registry, the FAA maintains a central recording system where conveyances affecting FAA equipment, including leases and mortgages, may be recorded. ‘FAA equipment' includes:
- US registered civil aircraft;
- aircraft engines with at least 550 rated take-off horsepower (or its equivalent);
- aircraft propellers capable of absorbing at least 750 rated take-off horsepower (or its equivalent); and
- engines, propellers and spare parts being maintained or used by a US certificated air carrier.
While such documents need not be notarised, legalised or apostilled, and there are no requirements as to a particular form, they do need to be an original or a certified true copy of an original, in addition to meeting other requirements for a form acceptable to the FAA. The FAA will also accept digital signatures which comply with certain requirements. As a matter of industry practice, parties transacting on FAA registered aircraft typically engage special FAA counsel to review aircraft leases and security instruments in order to ensure compliance with FAA rules and regulations prior to filing. Deregistration of an aircraft will ground such aircraft unless it is deregistered simultaneously with registration in another jurisdiction. If an aircraft is deregistered without an immediate reregistration, any operation of the aircraft would be illegal, and an owner would be required to take additional steps in order to seek the reregistration of the aircraft in the United States.
4.6 What are the formal and documentary requirements for registration of an aircraft mortgage? What is the process for registration? What is the effect of registration? What is the effect of deregistration?
The creation of consensual security interests in personal property, including aircraft mortgages and engine mortgages, is broadly governed by Article 9 of the Uniform Commercial Code (UCC). The perfection of security interests in personal property created under Article 9 of the UCC is generally accomplished by filing a UCC-1 financing statement with the appropriate filing office. However, Section 9-109(c) of the UCC provides that Article 9 does not apply to the extent that a federal statute or regulation or US treaty pre-empts it. The Federal Aviation Act mandated the establishment of a recording system for security interests in FAA equipment.
In order to perfect a mortgage in FAA equipment, the underlying security instrument (eg, aircraft mortgage or engine mortgage) must be recorded at the FAA. As a matter of practice, even where a mortgage covers FAA equipment, transaction parties nonetheless also file a UCC-1 financing statement – in part as a precautionary measure, and in part due to the fact that a typical mortgage granting clause is often broad enough to cover other collateral that may not be FAA equipment (eg, aircraft documentation, insurance contracts). and thereby not subject to federal pre-emption. No particular formalities are required to record a security instrument at the FAA and no other formalities are required for UCC filings.
Finally, the United States is a contracting state under the CTC. Accordingly, to the extent that the granting party under an aircraft mortgage or engine mortgage is domiciled in the United States or, in the case of an airframe, the airframe is registered at the FAA Registry, the international interests created in airframes or engines should be registered with the International Registry created under the CTC.
4.7 Can aircraft be registered in your jurisdiction even if the operator is not from your jurisdiction?
The FAA will register an aircraft at the FAA Registry in accordance with Section 44102(a)(1) of the Transportation Code if it is owned by: "(A) a citizen of the United States; (B) an individual citizen of a foreign country lawfully admitted for permanent residence in the United States; or (C) a corporation not a citizen of the United States when the corporation is organized and doing business under the laws of the Unites States or a State, and the aircraft is based and primarily used in the United States."
An owner of an aircraft is a ‘citizen of the United States' (as defined in Section 40102(a)(15) of the Transportation Code) if such owner is:
(A) an individual who is a citizen of the United States; (B) a partnership each of whose partners is an individual who is a citizen of the United States; or (C) a corporation or association organized under the laws of the United States or a State, the District of Columbia or a territory or possession of the United States, of which the president and at least two-thirds of the board of directors and other managing officers are citizens of the United States, which is under the actual control of citizens of the United States, and in which at least 75 percent of the voting interest is owned or controlled by persons that are citizens of the United States.
An aircraft is ‘based and primarily used in the United States' if at least 60% of the total flight hours flown by the aircraft are accumulated within the United States.
In addition, there are two other means by which non-US citizens may register aircraft at the FAA Registry. First, an aircraft may be registered at the FAA Registry if it is held in a US grantor trust where the trustee is a U.S. citizen or resident alien, even if the beneficiaries of that trust are non-US citizens. If the beneficiaries of the trust are non-U.S. citizens (such trust, a ‘non-citizen trust'), those beneficiaries must not have more than 25% of the aggregate power to direct or remove the trustee. However, non-US citizens may hold more than 25% beneficial interest in a non-citizen trust so long as their power to direct or remove the trustee is expressly limited by the trust instrument itself. Non-citizen trusts have come under close scrutiny in recent years and the FAA has a process in place to review and approve trust agreements for non-citizen trusts. Second, a domestic corporation that does not otherwise satisfy the US citizen requirements may register an aircraft at the FAA Registry if it is held in a voting trust. Similar to the non-citizen trust, the effect of the voting trust is to remove voting control over the ownership and operation of the aircraft from the non-citizen corporation and vest it in a trustee. Like non-citizen trusts, the FAA has a process in place to review and approve these trust arrangements.
5 Operating leases
5.1 Are there any mandatory or advisable terms that should be included in an operating lease from a local law perspective?
Leasing terms vary between financing structure. Most lessors are concerned with the ability to sell the aircraft and novate the lease. Further, all leases should contain the right to finance the aircraft, if the aircraft is not financed at delivery of the aircraft pursuant to the lease. Leases must comply with the provisions of the Federal Aviation Regulations, and certain standards of maintenance and operations should be contained in the lease.
5.2 What charges, fees or taxes arise from the execution of an operating lease?
5.3 Can either the lessor or the lessee assign or novate its rights in an operating lease in your jurisdiction?
Subject to any restriction on such assignment or novation contained in the lease, yes.
5.4 What are the respective obligations and liabilities of the lessor and lessee under an aircraft lease?
Generally, the lessee has the majority of the obligations and liabilities under the lease, including the obligation to insure and maintain of the aircraft. The lessee obligation to pay rent is absolute so long as the lease is drafted as a ‘net' lease.
The lessor under an aircraft lease is obliged to observe the quiet enjoyment of lessee's possession and use of the aircraft. The lessor may also be obliged to reimburse the lessee for certain maintenance events out of the maintenance reserves paid by the lessee and collected by the lessor, if such maintenance reserve concept is included in the lease terms.
5.5 In the event of default, what options are typically available to enforce the operating lease? Do all or some enforcement actions require court applications? If so what are the associated costs and timescales involved?
In the United States, a secured party or lessor, as applicable, may exercise remedies for initiating the possession or repossession of, and for disposing of, property through either judicial or non-judicial processes. The following focuses on the non-judicial remedies – although similar relief may be obtained through the courts where self-help remedies are not available or advisable. In general, remedies are divided between:
- obtaining possession of an aircraft; and
- disposing of or selling such aircraft.
Unless the parties expressly contract to bar self-help remedies, self-help is a statutorily permitted remedy for both secured financings (see Uniform Commercial Code (UCC) Section 9-609) and leases (see UCC Section 2A-525(2)) in almost every jurisdiction in the United States, provided that such remedy may be effected "without breaching the peace". Although the statutes do not specifically delineate what constitutes a ‘breach of the peace', using physical force to wrest control of the property away from the mortgagor/lessee is not permitted. There are no formal statutory requirements for initiating self-help possession/repossession of the property, other than the requirement that the subject secured financing or lease be in default.
While a lessor that repossesses an aircraft after a lease default is not subject to any restrictions on its ability to dispose of that aircraft, the UCC requires a secured party that repossesses an aircraft to comply with certain notice periods (in addition to any requirements of the underlying agreements). Furthermore, all aspects of the disposition should be made in a "commercially reasonable manner" as required by both the UCC and the Cape Town Convention (CTC). There are three types of non-judicial foreclosures of security interests of aircraft and other equipment collateral:
- a private foreclosure sale, where the secured party has identified a third-party purchaser of the collateral;
- a public foreclosure sale, pursuant to which the secured party makes the collateral available for sale by public auction; and
- a strict foreclosure, whereby the secured party retains the collateral in full or partial satisfaction of the secured debt (but partial satisfaction requires the express written agreement of a debtor, which is rarely obtained).
Private foreclosure sales and public foreclosure sales are governed by UCC Section 9-612, which requires 10 days' notice to interested parties (the CTC has a similar 10 working-day notice requirement and for aircraft subject to the Geneva Convention, 30 days' notice may be required).
For strict foreclosures, UCC Section 9-620 provides that a secured party may accept the aircraft collateral in full or partial satisfaction of the secured debt. Generally, strict foreclosures may be effected with 20 days' notice, unless additional time is required under the terms of the related security agreement between the mortgagor and the secured party. Strict foreclosures, which are often used where the mortgagor is willing to permit foreclosure without objection and the secured party has not otherwise identified a buyer for the collateral, provide the most streamlined procedure in these circumstances, and the required notice period may be shortened with the mortgagor's consent (at the time of the strict foreclosure).
A secured party could also pursue a judicial foreclosure under the laws of the applicable jurisdiction; however, given the higher costs and longer time periods required, most secured parties prefer to pursue non-judicial remedies.
5.6 Upon termination of the operating lease, how is repossession of the aircraft effected? Can airports assert a lien over all of the lessee's aircraft until unpaid charges have been discharged?
Upon termination of an operating lease, the lessee is generally required to conform the aircraft to certain conditions as set forth in the lease. Once the lessor agrees that the aircraft meets the return conditions, the return of the aircraft is evidenced through execution of a redelivery acceptance certificate. If the lease is terminated for cause or through some default of the lessee, the lessor may take any actions available to it as set forth in the lease or available to it under law. If evidence of the lease termination has been recorded at the Federal Aviation Administration or a lease term has expired, and the owner may provide evidence that "each holder of a recorded right has been satisfied or has consented to the transfer", an owner may submit a request to cancel the registration of an aircraft for export to another country. Airports may assert a lien over the lessee for non-payment of airport charges.
5.7 What disputes typically arise over operating leases in your jurisdiction and how are these typically resolved?
Disputes arise in all aspects of the operating lease. The parties may disagree on:
- the maintenance reserves calculation;
- the non-payment of rent; or
- the existence or non-existence of an event of default under the lease.
Most commonly, upon return of the aircraft a dispute may arise regarding the condition of the aircraft and if the aircraft meets the return conditions set forth in the lease.
The resolution of disputes can often be resolved by some form of monetary settlement or compensation. In certain circumstances, litigation may occur regarding the lease.
5.8 What other considerations should be borne in mind when concluding an aircraft lease in your jurisdiction?
No answer submitted for this question.
6.1 What types of security interests in aircraft are available in your jurisdiction? Which are most commonly used and which would you recommend (if different)?
Please see question 4.6.
6.2 What are the formal, documentary and procedural requirements for perfecting a security interest in an aircraft?
Please see question 4.6.
6.3 Can security be taken over engines and/or any other aircraft parts in your jurisdiction? If so, how?
Yes, security may be taken over an engine and other aircraft parts in the United States. The same requirements to perfect a security interest in an aircraft are to be used to perfect a security interest over engines and other aircraft parts.
6.4 What charges, fees or taxes arise from the perfection of a security interest in an aircraft?
There are recording fees to record a mortgage over an aircraft, engine or other part with the Federal Aviation Administration (FAA).
6.5 What are the respective obligations and liabilities of the owner and the secured party under the security interest?
Please see question 5.4, as they relate to the lessor's obligations to the lessee. In most cases, a secured party will be required to act in accordance with the obligations of the lessor in respect of the lessee. Between themselves and any financing agreement, the obligations and liabilities of the lessor are:
- to make the required financing payments;
- to ensure that insurance exists over the aircraft;
- to maintain the perfection of the secured party's security interest; and
- to provide a secured party with certain information during the term of the financing arrangement.
The obligations and liabilities of a secured party under a financing arrangement are to provide the financing and, absent a default, not interfere with the operations of the aircraft.
6.6 In the event of default, what options are available to enforce the security interest? Is self-help available in your jurisdiction or does enforcement action have to go through the courts?
Please see question 5.5.
6.7 Will local courts recognise a foreign court judgement in favour of a lessor/financier?
Most states, including New York, have adopted some form of the Uniform Foreign Money Judgments Recognition Act, which requires a local court to give effect to the "final, conclusive and enforceable judgments" of other countries provided that certain requirements are satisfied eg, interim decisions are not given effect). Although reciprocity is not formally listed as a consideration under the act, some courts have held that the existence of reciprocity by the foreign jurisdiction of similar judgments "is always a permissible consideration" for determining whether to recognise the foreign judgment.
In addition to the self-help remedies described above, US courts may order grounding, repossession or other injunctive relief on an interim basis. Depending on the type of relief sought, a court may require that a bond, other undertaking or other form of security be posted by the requesting lessor or secured party.
6.8 What other considerations should be borne in mind when perfecting a security interest in an aircraft in your jurisdiction?
When perfecting a security interest in an aircraft, a lessor or a financing party should be aware of several items in order to ensure that their interest is properly perfected. A lessor may assign its rights under an aircraft or engine lease pursuant to a lease assignment or security agreement. Both the lease itself and the lease assignment or security agreement should be recorded with the Federal Aviation Administration (FAA). Because the United States is a contracting state under the Cape Town Convention (CTC), the secured party should ensure that the security interest is properly registered with the International Registry, which means that the related lease interest must first be registered before the related assignment may be registered. All such collateral assignment or security documents must meet the requirements of the CTC in order to be properly registered and enforced. If there is a lease which does not qualify recordation at the FAA or registration with the International Registry, the lease may be considered chattel paper under the Uniform Commercial Code (UCC). Such a lease assignment may be perfected by possession of the original chattel paper lease and/or filing a UCC financing statement.
6.9 Has your jurisdiction ratified the Cape Town Convention? If yes, are there any notable exceptions to the ratification? If yes, in your opinion, could any conflicts arise between the Cape Town Convention and local law in an enforcement scenario? If yes, have any enforcement issues arisen in relation with regard to conflicts between the Cape Town Convention and local law?
The CTC has been ratified by the United States, and the United States has made declarations to apply:
- Article VIII of the Cape Town Protocol (choice of law);
- Article XII of the Cape Town Protocol (insolvency assistance); and
- Article XIII of the Cape Town Protocol (de-registration and export request authorisation).
Of particular note, the United States did not elect to make a declaration under Article XI (remedies on insolvency) of the Cape Town Protocol, and instead parties in the United States rely on Section 1110 of the United States Bankruptcy Code.
Ratification of the CTC has not caused any conflict or issues within local laws.
7 Aircraft sale and purchase
7.1 How are aircraft sale and purchases typically effected in your jurisdiction? Are there any differences in the sale of airframe versus engines?
Aircraft and engine sale and purchases are typically effected through a sale and purchase agreement. While generally the provisions of a sale and purchase agreement are consistent for the sale and purchase of an airframe or an engine, the Federal Aviation Administration (FAA) filing requirements will vary, as the FAA does not record the ownership of engines in the FAA Registry.
7.2 What players are typically involved in an aircraft sale and purchase?
The seller and purchaser are the parties to an aircraft purchase and sale, but the types of individuals or entities that may be the seller or purchaser vary greatly; they include aircraft manufacturers, operating airlines, international leasing companies, banks, investment funds and other companies. In certain circumstances and financing arrangements, while a purchaser may be the party to a sale and purchase agreement, the purchaser may nominate or designate a nominee to take title at closing. This nominee may be a nominee related to a financing arrangement, but may also be a trust or such other party as the purchaser designates.
Further, if the asset is subject to a lease from seller, as lessor, to a lessee, the seller, purchaser and lessee will enter into lease novation agreement simultaneously with sale and purchase.
Usually, the parties will elect an aviation law firm or aviation title company to collect and review the documents to be filed with the FAA at the closing of the sale and purchase of an aircraft. The elected third party is instructed to file the documents with the FAA for recording of the transfer of title at closing. This third party will also file an authorising entry point filing in order to make International Registry registrations immediately after closing.
7.3 Is the manufacturer/seller bound by a duty to disclose? What representations and warranties will it typically make?
There is no duty to disclose, but the purchaser usually performs an inspection of the aircraft prior to the purchase. Generally, the only representation that the seller makes in relation to the aircraft is that the aircraft is free and clear of all liens (other than a lien related to a lease, where applicable). Purchase agreements normally contain language confirming that the purchaser of the aircraft accepts the aircraft in ‘as is, where is' condition.
7.4 What due diligence is typically conducted in an aircraft sale and purchase?
A purchaser will usually review all documentation related to the aircraft, including maintenance records and schedules. The purchaser will generally review all of the airworthiness certificates and registrations of the aircraft. A purchaser may also physically inspect an aircraft prior to the purchase, subject to the limitations contained in the purchase agreement. Further, if the aircraft is subject to a lease, the purchaser will review all lease documents of the aircraft.
7.5 What are the formal, documentary and procedural requirements for conclusion of an aircraft sale and purchase?
In the United States, the sale and purchase of an aircraft generally concludes by the aviation law firm or aviation title company filing the documents required to record the transfer of title with the FAA.
7.6 What are the respective obligations and liabilities of buyer and seller during the transaction, and what are the consequences of any breach?
The obligations and liabilities of the buyer and seller, and the consequences of any breach thereunder are subject to the provisions of the sale and purchase agreement.
7.7 What charges, fees or taxes arise from the conclusion of an aircraft sale and purchase? Are there sales tax exemptions – for example, if the aircraft is being sold to an operator that will continue to use the aircraft to generate revenue?
Depending on the state in which the transaction closes, the sale and purchase may be subject to state sales tax. Many states offer some form of exemption from sales tax for sales and purchases of aircraft.
7.8 What other considerations should be borne in mind when conducting a sale and purchase of an aircraft in your jurisdiction?
Generally, the purchaser will desire to conduct an inspection of the aircraft prior to closing of the sale and purchase of the aircraft, and closing of the sale and purchase is contingent upon a satisfactory inspection.
The closing jurisdiction is also a consideration when conducting a sale and purchase, as the closing jurisdiction may subject the transaction to tax implications. A change of ownership affects the registration of an aircraft and terminates the prior permanent registration certificate of the aircraft. A copy of the aircraft registration application filed with the FAA serves as the temporary registration of the aircraft for the new owner until the FAA issues the permanent registration certificate for the aircraft in the name of the new owner. While the aircraft can fly domestically on the temporary registration certificate, it cannot operate in international airspace or to international destinations. With the change of ownership filings, a new owner may file a declaration of international operations with the FAA which requests expedited review of documents filed and expedited issuances of the permanent registration certificate for the aircraft.
7.9 Are the payments of deposits refundable under term sheets if a sale does not proceed and do the parties have a duty of good faith in the conduct of sale and purchase negotiations?
Whether a deposit is refundable depends on the provisions of the term sheet. The parties do have a duty of good faith in the conduct of the sale and purchase negotiations.
8.1 What insurance requirements apply to aircraft in your jurisdiction?
Part 205 of the US Department of Transportation's (DOT) regulations (14 Code of Federal Regulations 205) provides that no US or foreign direct air carrier may engage in air transportation between or to or from points in the United States unless it has in effect aircraft accident liability insurance coverage meeting the requirements of that part. Under that rule, it is the responsibility of each US and foreign air carrier to maintain on file with the DOT a correct and up-to-date certificate of insurance (OST Form 6410 or 6411) evidencing current insurance coverage.
Aircraft operating internationally are subject to the insurance requirements of the international jurisdiction as well as those of the United States.
8.2 If local insurance is required, can local insurers assign reinsurance contracts in your jurisdiction?
In the United States, local insurance is not required for aircraft. While reinsurance is accepted, it is not common for aircraft registered in the United States. Reinsurance may be assigned as part of the leasing or financing of the aircraft.
8.3 What other forms of insurance feature in the aircraft finance market in your jurisdiction?
No answer submitted for this question.
9 Trends and predictions
9.1 How would you describe the current aircraft financing landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
The travel downturn due to the COVID-19 pandemic continues to have a significant negative impact on the aviation industry, which has in turn affected the aircraft financing and leasing market. This trend will likely continue until a vaccine is developed or other such effective therapeutic treatment is available. The landscape is unprecedented in light of COVID-19 and new developments in the next 12 months are nearly impossible to anticipate; the trends will depend on how the COVID-19 pandemic plays out.
10 Tips and traps
10.1 What are your top tips for the smooth conclusion of an aircraft financing transaction and what potential sticking points would you highlight?
COVID-19 has changed what is normal for airlines, lessors and financiers, not to mention the general public who travel by air. Given this change, it is very difficult to provide general tips and identify potential sticking points. It is important for lessors and financiers to continually monitor the situation and appropriately react to this continually evolving environment.
Co-authored by Conor A. Gaughan.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.