Steven Quayle and Mike Pinson explain the benefits the Isle of Man Aircraft Registry has for aircraft owners
The Isle of Man Aircraft Registry commenced business in May 2007 with the intention of becoming theworld’s leading aircraft registry for high quality private and corporate owned business jets and turbine-engine helicopters.
The registry has experienced a highly successful first four years of operation, registering its 400th aircraft in August 2011. This success is reflected as much in the quality, as in the quantity, of the aircraft: many of the registrations have been in respect of top-tier, often new, business jets such as Bombardier Challengers and Global Expresses, Gulfstreams and Dassault Falcons.
However, in the past 18 months the Isle of Man Aircraft Registry has also become a temporary home to off-lease commercial airliners. Isle of Man-registered aircraft are prohibited from undertaking commercial air transport and aerial work, but, provided an airliner is not being used for such purposes while it is registered in the Isle of Man, it may be eligible for registration.
Taking the register
Owners and financiers are attracted to the Isle of Man Aircraft Registry for a number of reasons. The registry’s reputation is built on providing service that is both highly professional and customer focused. With commercial airliners particularly, the ability to meet challenging commercial deadlines for an aircraft’s registration may be of vital importance.
The registry is a division of the Isle of Man government and is designed to attract business to the Isle of Man, rather than directly generate profit. Consequently, the Isle of Man is one of the most cost-effective jurisdictions in the world for the registration of aircraft.
Aircraft, crew licences and maintenance organisations that comply with reputable international standards (such as FAA and EASA) are generally accepted by the registry without the imposition of further requirements. Additionally, the Isle of Man is within the British time zone and enjoys close transport links with London and Dublin, where many operating lessors are based, although Isle of Man-registered aircraft can be based anywhere in the world and do not need to be physically imported into the Isle of Man for registration purposes.
Companies formed and managed in the Commonwealth, the European Economic Area and Switzerland are all qualified to be registered owners of Isle of Man-registered aircraft. This means that an aircraft can usually be re-registered in the name of its existing owner without the need to impose a further company in the structure.
In good company
Although there is no requirement to use an Isle of Man company for aircraft registration purposes, the Isle of Man is well-equipped to provide ownership structures, including in respect of repossessed aircraft and other distressed assets.
The legislation provides the ability to establish a purpose trust to hold the shares in the asset owning company. Such structures are popular where a financier requires the assets to generate an income for a period after enforcement. Security may be created to allow the financier to force the sale of the assets, and payment to the financier of the sale proceeds, when market conditions improve in the future.
A flexible range of corporate vehicles can be used to own the assets. The modern form of Isle of Man company, which is not subject to traditional maintenance of capital and corporate capacity restrictions, is the most popular choice. Other options include traditional companies, limited liability companies, hybrid companies, protected cell companies, and general and limited partnerships. Since 18 October 2011, it has become possible to establish Isle of Man limited partnerships with separate legal personality.
Financiers and lessors take particular comfort in the Isle of Man’s legal system and its similarities to that of England and Wales. This is bolstered by the use of the Privy Council as the island’s highest court of appeal. Isle of Man insolvency law is broadly similar to that of England and Wales prior to 1985. It is generally regarded as very creditor-friendly, with no concept of corporate rescue or administrators, and allows secured creditors to exercise self-help provisions in security documents.
Potential aircraft registrants also have the option to use share charges to arrange the sale of the chargor’s underlying asset. The English case of Blue Sky One Limited & Ors v Mahan Air & Anor (2010), which would be persuasive before the Isle of Man courts, has questioned the enforceability of aircraft mortgages that have not been created in accordance with strict lex situs principles.
Charges over the shares in aircraft-owning companies have recently been used to transfer the ownership of the companies to the financier or its nominee and replace the owning companies’ directors. Typically, the new directors would be engaged by the financier and encouraged to arrange a market sale of the aircraft.
This combination of registration and ownership vehicles – and the ongoing partnership between the public and private sector to develop the Isle of Man as an aviation centre – continues to make the Isle of Man an excellent choice of jurisdiction for aircraft owners and financiers.
Mike Pinson is departmental director and Steven Quayle is a senior associate at Cains Advocates