Leasing companies and banks choose Norway over other Scandinavian jurisdictions for registration of aircraft

Being the only Scan­di­na­vian juris­dic­tion which has rat­i­fied the Cape Town Con­ven­tion, leas­ing com­pa­nies and financiers have dis­cov­ered that the Nor­we­gian Civil Air­craft Reg­istry pro­vides for inter­na­tional secu­rity which is not avail­able in other Scan­di­na­vian jurisdictions.

The Cape Town Con­ven­tion on Inter­na­tional Inter­ests in Mobile Equip­ment of 16 Novem­ber 2001 and its Pro­to­col on Mat­ters Spe­cific to Air­craft Equip­ment (col­lec­tively referred to as the “CTC”) has been rat­i­fied by Nor­way as the only Scan­di­na­vian juris­dic­tion. The CTC is today rat­i­fied by 52 coun­tries, and it entered into force in Nor­way 1 April 2011.

Avi­a­tion finance is a highly inter­na­tional busi­ness, and the mobil­ity of the equip­ment being financed has always raised sev­eral cross bor­der chal­lenges. These chal­lenges relate among oth­ers to dif­fer­ent laws in dif­fer­ent coun­tries regard­ing recog­ni­tion of rights and dif­fer­ent rules relat­ing to insol­vency. Hav­ing the Ster­ling Airways bank­ruptcy in mind, the need for har­monised rules is obvi­ous. When Ster­ling Airways went into bank­ruptcy in Den­mark a few years ago, the repos­ses­sion and export of air­craft from Den­mark turned out to be a lengthy and com­plex mat­ter for leas­ing companies.

Another rea­son for need­ing inter­na­tional rules on recog­ni­tion of rights in avi­a­tion finance is the fact that engines are removed and very often installed on other air­crafts than the one they belong to, and in some instances also being sub­ject to a pool­ing arrange­ment in which sev­eral air­lines may par­tic­i­pate. Engines owned and financed by third par­ties may there­fore be oper­ated by other air­lines in other juris­dic­tions than the one the engines were leased to in the first place. An inter­na­tional regime that pro­tects the rights of the own­ers and the financiers is there­fore key to this industry.

The CTC is the answer to these chal­lenges. Even if it does not pro­vide a solu­tion to all chal­lenges, it is the legal regime which is being embraced by the avi­a­tion finance com­mu­nity. The CTC pro­vides for an inter­na­tional reg­istry in which rights in air­craft and engines may be reg­is­tered. Such reg­is­tra­tion will then be recog­nised and enforce­able in juris­dic­tions hav­ing rat­i­fied the CTC. The inter­na­tional reg­istry is based in Ire­land, but works on a web based solu­tion in which the par­ties make the nec­es­sary fil­ings on line. As opposed to what is pos­si­ble in the Nor­we­gian Civil Air­craft Reg­istry, mort­gages can be reg­is­tered both in the air­frame and the engines separately.

The CTC does also pro­vide for an instru­ment which may give leas­ing com­pa­nies, banks or oth­ers being appointed the pos­si­bil­ity of quickly repos­sess­ing the air­craft, e.g. in case of insol­vency of the air­line to which the air­craft is being leased. Under the scheme of the Cape Town Con­ven­tion, an Irrev­o­ca­ble De-registration and Export Request Autho­ri­sa­tion (IDERA) can be issued, giv­ing a spec­i­fied entity the pow­ers to take the nec­es­sary steps in order to de-register an air­craft from reg­istry. The IDERA needs to be exe­cuted by the reg­is­tered owner of the air­craft, and will also be filed with the Nor­we­gian Civil Air­craft Reg­istry. In case of insol­vency of an air­line, this could be an effec­tive rem­edy as a preap­proved entity, e.g. the financier, has been granted the sole rights of repos­sess­ing the Air­craft, rights which will be acknowl­edged by the Nor­we­gian Civil Air­craft Reg­istry due to the CTC being in force in Norway.

For this rea­son it was reported some time ago that the air­line SAS was forced to move air­craft on oper­a­tional lease agree­ments from other Scan­di­na­vian air­craft reg­istries to Nor­we­gian reg­istry  in con­nec­tion with its restruc­turing process. Hav­ing the air­craft on a CTC com­pli­ant reg­istry does also affect the finance costs in today’s avi­a­tion finance mar­ket. Norway is one of the few countries qualifying for the discount under the Aircraft Sector Understanding (ASU) of OECD export credit agencies. This shows the increas­ing impor­tance of the CTC.