Aircraft Financing: Fifth Edition

Editor’s Introduction\nOrbis Introduction\nAuthors\nPart I Market Context\n	1 Aviation Finance Introduction\n		(Raymond Sisson – SCALE Aviation; Credit Suisse)\n		Introduction\n		Overview of funding 2020/2021 to date\n		Airline landscape\n		Aircraft leasing\n		Commercial bank lending\n		Investment banks and capital markets\n		E-notes or equity certificates\n		Lessor EETC summary\n		Lessor EETC with multiple airlines summary\n		Conclusion\n	2 Overview of Aircraft Financing Markets\n		(José Abramovici –Crédit Agricole CIB)\n		Introduction\n		Post-World Trade Center attacks\n		Global financial crisis (GFC)\n		Covid-19 crisis\n		Source of funds for airlines during the Covid-19 crisis\n		Global liquidity in today’s market\n		Main trends for aircraft finance\n		The need for finance\n		Regulatory frameworks\n		The end of the dominance of the US dollar\n		Financing objective: the financier’s perspective\n		Aircraft as investments\n		Debt and tax lease market\n		Carbon emissions\n		Tax based leasing\n		Islamic leases\n		The aircraft leasing market\n		Debt capital markets\n		Private equity markets and hedge funds\n		Public equity markets\n	3 Aircraft Capital Markets\n		(Zarrar Sehgal – Clifford Chance)\n		Introduction\n		Structure\n		Private placements and Rule 144A offerings\n		Enhanced equipment trust certificates\n		Asset-backed securities transactions\n		Green bonds\n		Trends 2015–2021\n		Conclusion\nPart II Business Model – Key Elements\n	4 Aircraft as Investments\n		(Dick Forsberg – Senior Advisor – PwC AFAS)\n		Introduction\n		Why invest in aircraft?\n		Airlines\n		Lessors\n		Who invests in aircraft?\n		Selecting the right assets\n		Understanding aircraft values\n		Acquiring the assets\n		Taking care of asset value\n		Monetising the metal investment\n	5 Legal Issues in Aircraft Finance\n		(Rob Murphy – Arthur Cox LLP)\n		Introduction\n		Structural issues\n		The role of special purpose companies\n		Leases\n		Share security\n		Aircraft mortgages\n		Liens\n		Cape Town Convention\n		Summary\n		Legal issues\n		Legal opinions\n		Conflict of laws\n		Political and repossession risks\n		Sovereign immunity\n		Liabilities of the financier and lessor\n		Liability under the Civil Aviation Act 1982\n		Liability in tort\n		Product liability\n		Liability under health and safety law\n		Possessory liens\n		Other rights of detention\n		Airport charges\n		Navigation charges\n		Aircraft registration\n		Validity of collateral\n		Priority of collateral\n		Enforcement of collateral\n		Sale arrangements\n		Penalties\n		Exchange control\n		Judgment currency\n		Choice of law\n		Enforceability of English court judgments post-Brexit\n		Contractual issues\n		Quiet enjoyment\n		Hell or high water clause\n		Wilmington Trust SP Services Dublin Ltd v Spicejet\n		Return condition and maintenance-related matters\n		Manufacturer’s warranties\n		Insurance\n		Engine pooling\n		Cross-default and cross-collateralisation\n		Asset value guarantees\n		General indemnities\n		Tax-leveraged financings\n		Withholding taxes\n		Aircraft trading/transfers/security\n		‘As is’ disclaimer\n		Other case law developments\n		Global Knafaim Leasing Ltd v Civil Aviation Authority Ltd\n		Pindell Ltd v AirAsia BhD\n		Shaker v VistaJet Group Holdings SA\n		Alpstream AG v PK Airfinance Sarl\n		Novus Aviation Ltd v Alubaf Arab International Bank BSC(c)\n		Checklist of key documents\n	6 Cross-border Aircraft Leasing: Key Taxation Considerations\n		(Joe O’Mara – KPMG)\n		Introduction\n		Tax issues on origination of aircraft leases\n		Stamp duties\n		Import taxes\n		Registration taxes\n		Tax issues during an aircraft lease\n		Withholding tax and lease payments\n		Sales taxes\n		Stamp duties\n		Security deposits and maintenance reserves\n		Tax issues on transfers of aircraft\n		Sales taxes\n		Stamp duties\n		Income taxes\n		Registration taxes\n		Contractual matters\n		Conclusion\n	7 In-House Valuation – Lessor Perspectives\n		(Randy Nightingale – Aircastle)\n		Internal valuation versus external valuation\n		Pros and cons of internal valuation team (internal team)\n		Pros and cons of external valuation (appraiser)\n		Key aircraft valuation terms\n		Appraiser differences\n		Approach to internal valuation\n		Structural influences\n		Components of valuation and risk\n		Other key valuation influencers\n		Necessary skills\n		Coordination with contributors\n		Importance of data and evaluation\n		Documentation, communication and applying best practices\n		Conclusion\n	8 Risk in Aviation Finance\n		(Arthur Gaskin – Aviation Consultant)\n		Introduction\n		Portfolio risk management\n		Asset risk analysis\n		Counterparty risk analysis\n		Transaction risk analysis and security\n		Jurisdictional risk analysis\n		Credit risk analysis of airlines and lessors\n		Accounting policies and the basis used for accounting\n		Foreign exchange, interest rate and fuel hedging strategy\n		Quantitative analysis\n		Cash flow statement analysis\n		Predictions of bankruptcy\n		Stress testing\n		Tax strategy\n		Qualitative factors in credit analysis\n		Ownership\n		Management expertise\n		Competitive environment\n		Business plan\n		Regulatory environment\n		Technical, maintenance and records issues\n		Covid-19\n		Tailored approach\n		Conclusion\n		Appendix I – Key financial ratios\n		Appendix II – Airline specific ratios\n		Appendix III – Key cash flow ratios\n		Appendix IV – Altman’s Z-score model\n		Appendix V – Further reading\n	9 Environmental Issues and the Aviation Industry\n		(Rob Murphy and Fintan Kerins – Arthur Cox LLP)\n		Introduction\n		Key targets\n		Aviation specific initiatives\n		CORSIA\n		Emissions trading scheme (ETS) – for the aviation sector\n		How emission reductions can be achieved\n		Aviation working group (AWG) initiatives\n		Sustainable investment/financing initiatives\n		EU taxonomy\n		Bonds and loans\n		Sustainability linked loan principles\n		Conclusion\nPart III Core Products and Regional Markets\n	10 Export Credit Financing\n		(Jeffrey Wool – Aviation Working Group; and William Coleman – Holland & Knight)\n		Introduction\n		Regulatory framework\n		The beginning\n		Sector understanding on export credits for civil aircraft\n		WTO litigation\n		From LASU to ASU 2007\n		The home market rule\n		ASU 2011\n		The ‘supercycle’\n		Export credit’s homecoming\n		Future developments\n		Conclusion\n		Annex Transaction structures\n		Part A\n		Part B\n	11 Operating Leasing – Lessor Perspectives\n		(Update by Rob Murphy – Arthur Cox LLP)\n		Introduction\n		Introductory considerations\n		Core products and regional markets\n		Key features of aircraft operating leases\n		Rental payments\n		Maintenance reserves/supplemental rent and related matters\n		Security deposit\n		Term\n		Quiet enjoyment\n		Net lease\n		Insurance\n		Deregistration\n		Return conditions\n		Transfer/assignment/security\n		Demand for operating leasing\n		Efficiency of financing\n		Fleet planning flexibility\n		Residual value risk\n		Cost of capital equipment\n		Supply of available aircraft\n		Select business model considerations\n		Core themes\n		Diversification of funding sources\n		Flexible capital structure\n		Management of aircraft throughout their lifecycle\n		Maintenance accounting\n		Differentiation of aircraft operating lessors\n		Lease management capability\n		Technical compliance\n		Repossession\n		Reconfiguration\n		Remarketing\n		Aircraft/lease servicing\n		Conclusion\n	12 A Lessee’s Guide to Aircraft Leasing\n		(Michelle Johnson – flydubai)\n		Introduction\n		Types of leases\n		Finance lease\n		Operating lease\n		The leasing arrangement\n		Operational flexibility\n		Lessee’s other obligations\n		Other provisions\n	13 Pre-delivery Payment Financing\n		(Rob Murphy – Arthur Cox LLP)\n		Introduction\n		Key issues relating to the security package\n		Legal nature of PDP\n		Lenders’ key concerns\n		Assignable price/step-in price/access to credit memoranda\n		Escalation in purchase price\n		Amendments to purchase agreement\n		Insolvency risk\n		Standstill period\n		Realisation of the security\n		Buy-back option\n		Disclosure of the purchase agreement\n	14 Regional Markets\n		Brazil\n		(Edward Sheard – GECAS; and Fabio Falkenburger – Machado Meyer)\n		Introduction\n		Types of lease transactions\n		Taxation\n		Other issues to be considered by lessor\n		Insolvency issues\n		Insurance (war risks)\n		Security interest over aircraft and engines\n		Outbound leasing and export financing of Brazilian manufactured aircraft\n		Russia\n		(Mikhail Loktionov and Alexey Tokovinin – Freshfields Bruckhaus Deringer)\n		Introduction\n		Registration of aircraft\n		Effect of RCA registration\n		Deregistration from the RCA\n		Aircraft mortgages\n		Leasing of aircraft\n		Repossession of aircraft\n		Recognition of foreign judgments\n		India\n		(Marylou Bilawala – Wadia Ghandy & Co; and Gautam Nayak – CNK & Associates LLP)\n		Introduction\n		Acquisition of aircraft\n		The regulatory regime applicable to the airline industry\n		Operation, maintenance and management of airports\n		Foreign exchange requirements\n		Air transport operators and foreign direct investment in air transport operators in India\n		Import taxes\n		Lease rentals\n		Tax gross up clause\n		Transfer of ownership of aircraft\n		Stamp duty on documents\n		Cape Town Convention\n		Growth of the corporate jet sector\n		Setting up aircraft operating lease units in International Financial Services Centres (IFSC)\n		Conclusion\n		China\n		(Wang Ling and Wang Ning – KWM)\n		Introduction\n		Key legal and regulatory issues in the Chinese aviation market\n		Cape Town Convention in China\n		Recent developments in the Chinese aviation market\n		Germany\n		(Konrad Schott – Freshfields Bruckhaus Deringer)\n		Introduction\n		Legal environment\n		German regulatory and civil law\n		Insolvency and restructuring\n		Outlook\n		Japan\n		(Paul Greenwell and Akihiko Takamatsu – Clifford Chance)\n		Introduction\n		JOLCOs and JOLs\n		Japanese airline insolvencies\n		Titleholder structure\n		Japanese aviation market and legal issues\n	15 Islamic Finance\n		(William Coleman – Holland & Knight)\n		Introduction\n		Sharia’h fundamentals\n		Sources and schools\n		Themes\n		Sharia’h contracts\n		Governing law versus the Sharia’h\n		Structures\n		ljarah and ijarah wa iqtina\n	16 Insurance Considerations\n		(Glen Brighton – Willis Towers Watson)\n		Introduction\n		What is the risk?\n		Asset risk\n		Liability risk\n		Insurance-based risk transfer\n		Lessee insurances\n		Lessor insurances\n		Airline insurance – detailed principles and practices\n		The insurance buying environment\n		Airline insurance coverage – detailed analysis\n		Aircraft financing and insurance\n		Aircraft hull insurance\n		Loss payable clause\n		Breach of warranty cover\n		Contribution rights\n		Waiver of subrogation\n		Notice of cancellation or change\n		Set-off rights\n		Liabilities\n		Severability of interests\n		Indemnities\n		Reinsurance\n		Practical application of insurance to financing\n		Certificates of insurance\n		Letter of undertaking\n		Conclusion\n	17 Aircraft Repossession – Practical Considerations\n		(Phil Seymour – IBA Group)\n		Introduction\n		Operational and cost considerations\n		The legal process\n		Legal costs\n		Securing the aircraft\n		Pre-ferry flight parking and maintenance\n		Suitable parking facility\n		Engine repossession considerations\n		Possible liens\n		Securing the records\n		Inspection of aircraft\n		Regulatory considerations\n		Maintenance and refurbishment\n		Insurance\n		Ongoing asset management\n		Post-repossession action items\n	18 Global Aircraft Trading System (GATS®)\n		(Dominic Pearson – Watson Farley & Williams LLP)\n		Introduction\n		The need for a ‘game change’ and the development of GATS as a new system for trading aircraft\n		GATS legal framework\n		Trust structure; avoidance of lease novation\n		UINs\n		Trust branches\n		Designated transactions; GATS standard form instruments\n		Favourable FAA/ACC opinion for United States trust branch GATS instruments\n		Partial beneficial interest transfers\n		Limitation on GATS trustees’ resignation rights\n		Advance requirements\n		Benefits of GATS to financiers\n		The GATS Platform\n		GATS e-Ledger; searches\n		Entity profiles and categorisation\n		GATS professional entities\n		User accounts and authentication\n		GATS escrow facility; GATS fees\n		Digital signatures and GATS digital certificates\n		Visualisation of digital signature on GATS instruments\n		Configuration of execution block\n		Multiple signatories per transacting entity; witnessing of digital signatures\n		Validation of GATS instruments\n		What’s next for GATS?\n	19 Airline Restructurings\n		(William Glaister, Philip Hertz, Jennifer DeMarco, Gabrielle Ruiz and Marisa Chan – Clifford Chance)\n		Introduction\n		Consensual restructurings\n		Statutory restructuring processes\n		Insolvency procedures\n		Jurisdiction\n		United States\n		Automatic stay\n		Other key Chapter 11 measures\n		Jurisdiction\n		‘Ipso facto’ provisions – Section 365 of the Bankruptcy Code\n		US certificated air carriers – Section 1110 of the  Bankruptcy Code\n		Alternative A of the Cape Town Convention\n		United Kingdom\n		Schemes of arrangement\n		Jurisdiction\n		Restructuring plans\n		Alternative A of the Cape Town Convention – UK Cape Town Regulations 2015, reg 37\n		Cape Town Convention compliant arrangements\n		‘Ipso facto’ provisions – Insolvency Act 1986, s 233B\nPart IV Regulatory Matters\n	20 The Regulatory Framework for Airline Operations\n		(Alan Ryan – Freshfields Bruckhaus Deringer)\n		The international framework\n		Introduction\n		Chicago Convention 1944\n		Five Freedoms Agreement\n		Bilateral treaties\n		The EU regulatory framework\n		EU competition rules and the air transport sector\n		TFEU, Article 101\n		TFEU, Article 102\n		Merger Regulation\n		Ground handling\n		State aid\n		Slot allocation\n		Introduction\n		Slot Allocation Regulation\n		Airline licensing\n		US airline licensing requirements\n		Aircraft registration – Chicago Convention\n		Nationality requirements\n		Registration in the EU\n		Under Regulation 1008/2008\n		Code-sharing\n		Conclusion\n	21 International Conventions Affecting Aircraft Financing Transactions\n		(Laura Cunningham and Domhnall Breatnach – Arthur Cox LLP)\n		Introduction\n		Cape Town Convention and Aircraft Protocol\n		International interests\n		Perfection and priority of international interests\n		Remedies for creditors\n		Declarations\n		Geneva Convention\n		Rome Convention on Precautionary Arrest\n		Rome I Regulation on contractual obligations\n		Rome II Regulation on non-contractual obligations\n		Brussels Regulation on jurisdiction and enforcement of judgments\n		Hague Convention on Choice of Court Agreements\n		Third-party liability conventions\n		Further reading\n	22 Basel III and IV – The Regulatory Framework\n		(Brendan Wallace and Ruth Lillis – Arthur Cox LLP)\n		Introduction\n		Basel Capital Accord and Basel II\n		Basel III\n		Part 1: strengthening the global capital framework\n		Part 2: liquidity standards\n		Treatment of object finance under Basel III\n		Basel IV\n		Basel III and Basel IV– impact for aviation finance\n	23 Accounting Developments in Aircraft Finance\n		(Killian Croke – KPMG)\n		Introduction\n		Which framework?\n		Lease accounting\n		IFRS\n		US-GAAP\n		Lease modifications\n		Leases – responding to the Covid-19 pandemic\n		Aircraft and related components, depreciation and amortisation\n		Impairment of aircraft and related assets\n		Maintenance accounting\n		Use of special purpose entities/companies\n		Conclusion\n	24 Aircraft Financing – The Compliance Universe\n		(Rob Murphy and Fintan Kerins – Arthur Cox LLP)\n		Introduction\n		Anti-money laundering and countering the financing of terrorism\n		Anti-bribery and corruption\n		Sanctions and export controls\n		Cyber resilience and data protection\n		Price fixing, market abuse\n		Insider dealing\n		Other regulatory filings/procedures\n		Summary\n		Conclusion\n	Index