NAFA member Juan Carlos Ferrer, Partner with Holland & Knight, discusses the important differences between domestic and cross-border aviation finance transactions.
Though there are some similarities between financing an aircraft registered in the U.S. versus financing an aircraft registered abroad, in truth those similarities are vastly outweighed by the differences and complexities associated with a cross-border aircraft financing. The following is an overview of some important differences between domestic and cross-border aircraft finance transactions, as well as some practice pointers to assist in navigating the potential pitfalls of financing a non-U.S.-registered aircraft.
Cape Town Convention
Financing an aircraft registered in a country that has ratified the Cape Town Convention (CTC) can provide comfort to aircraft financiers that they will ultimately be able to timely foreclose on the aircraft should a default occur. Many countries have ratified the CTC, but a surprising number of countries have not. And even among those countries that have ratified the CTC, it is important to fully understand what elections the ratifying country has made to govern creditors' rights in relation to aircraft. Countries that have opted for Alternative A of the CTC afford far greater protections to creditors than those that opt for Alternative B or for reliance on that country's existing insolvency laws.
Owner Registry vs. Operator Registry
The U.S. Federal Aviation Administration (FAA) registry is an "owner-based" registry where the eligibility requirements for obtaining U.S. registration for an aircraft are determined based on the citizenship of the owner of the aircraft. The citizenship of the operator is irrelevant for purposes of registering an aircraft in the U.S. However, most foreign aircraft registries are "operator-based" registries that look to the citizenship of the operator – and not the owner – of an aircraft in order to determine eligibility to register an aircraft in that jurisdiction. Understanding these types of nuances and how to deal with the challenges, as well as the opportunities that they present, is key to properly structuring cross-border aircraft finance transactions.
This article was originally published by Holland & Knight on September 23, 2024.
