International aviation financing and leasing law
The course leads
This Course focuses on special private air law that covers cross-border financing and leasing transactions relating to expensive aircraft, aircraft engines and helicopters which are used for commercial and private purposes in the Russian Federation and other jurisdictions. For example, the price of an aircraft may run up to Euro 220 million and of an engine up to Euro 25 million. The main objective of international aviation finance law is to facilitate the acquisition of these expensive aircraft objects. It creates significant financial benefits to countries at all stages of economic development. The legal regimes will lead to reduced prices of airline tickets and air cargo which benefits passengers and companies. This Course also addresses various international Court cases, including some disputes that have contacts with the Russian Federation. For example, when a debtor defaults under the loan or lease agreement the creditor must be able to repossess and de-register the aircraft immediately. Unfortunately, this is not always possible which creates economic risk. Consequently, the needed aircraft is not leased or financed or at unnecessary high costs.
Topics covering currently arising problems:
- The international financing and leasing of aircraft objects has been described as follows. “Security rights on engines and spare parts which are enforceable in one jurisdiction may not be enforceable in another jurisdiction”. “The various scenarios discussed above invariably describe a lawyer’s paradise which is, as we all know, synonymous to a client’s depression”. Is this true?
- In the beginning of civil aviation, most airlines (‘flag-carriers’) were owned and financed by the governments of the states in which they were situated. Today, worldwide most airlines are privatised and need substantial loans to get modern and safe aircraft.
- At the global level there exists no uniform law governing aircraft lease and finance transactions.
- The aircraft and engines are extremely mobile and they are often operated in high-risk countries.
- Worldwide, this has resulted in extremely time-consuming and very costly aircraft finance and lease related litigation and most unsatisfactory Court rulings.
- Overview of the most frequently used aviation secured finance and operational and financial lease agreements.
- In many contracts regarding the finance and lease of Russian and other aircraft the parties include a choice of law clause which often refers to English or New York law. However, many legal practitioners do not know that this choice only has a limited effect. See the English Blue Sky (2010) and Air Foyle (2002) cases which have contacts with the Russian Federation.
- Cases relating to the collection of air navigation charges owned by the operators of aircraft to EUROCONTROL, Canadian and other local governmental agencies by detaining and precautionary arresting their aviation fuel and/or engines. Also Russian airlines, financiers and lessors are faced with these laws.
- The financing and leasing of aircraft engines: this global problem is caused by the allegation that the doctrine of accession governs the financing and leasing of engines. For example, the Danish case Cimber/Sterling, 2013. This theory means that the ownership of an engine is transferred to the owner of the aircraft when the former object is attached to the latter. Also Russian airlines, financiers and lessors may be confronted with these laws.
- The special remedies to repossess, export and de-register the aircraft of the financiers and lessors when the debtors default: some states are notorious repossession-states. At present, worldwide about 40 Russian and other cases exist which concern these issues.
- ‘Off-shore’ aviation financing: many countries which are economically in transition do not have modern aviation finance laws. To avoid this problem, the registration of the nationality of the aircraft takes place in another state. For example, the ‘flag’ of the aircraft is not of the Russian Federation in which it is permanently operated. It is done in an ‘aircraft registry of choice’!
- The rights of the airline-lessees: just like the financiers and lessors need protection, also the airlines which lease aircraft need secured rights. Under the laws of several countries the rights of the airline-lessees can form security interests. In turn, these rights can be the basis of international interests under the Cape Town Convention which treaty is adopted by the Russian Federation.
Sources of International Aviation Financing Law:
To a more or less extent the following international regulations will be discussed:
- The two draft Conventions by International Technical Committee of Legal Aeronautical Experts (CITEJA), (Paris 1931) for the first time in history of civil aviation laying down international substantive property law.
- The Convention for the Unification of Certain Rules relating to the Precautionary Attachment of Aircraft (Rome, 1933).
- The Convention on International Civil Aviation (Chicago, 1944). The Russian Federation has adopted this treaty. Of particular importance are
i. No dual registration as to nationality of the aircraft is allowed (article 18);
ii. National laws govern registration, de-registration and re-registration of aircraft (article 19);
iii. Is a certificate of de-registration required under all circumstances to be able to re-register the certain aircraft? No!
- The Convention on the International recognition of Rights in Aircraft (Geneva, 1948).
- The Convention on International Interests in Mobile Equipment (Convention) and Protocol thereto on Matters specific to Aircraft Equipment (Protocol), (Cape Town, 2001). The Russian Federation has adopted this treaty.
Be able to properly interpret the fundamental legal principles and practical aspects of international aviation financing and leasing laws.
Be able to understand the extremely complex international and national aviation finance and lease transactions.
Currently, there exists no adequate handbook for the subjects which are covered by the Course. All materials will be provided by AEROHELP Institute of Air and Space Law before the course takes place.