Aviation law

High value moveable assets such as aircraft often need to be purchased via asset finance. Essentially, the aircraft itself, along with the money it generates, is used as security against a loan. There are a number of ways this can be arranged, and assessing the best set-up for each client, as well as setting up and carrying out the transaction, is part of the work of an aviation lawyer.

What does a job as an aviation law solicitor involve?

Aircraft finance is often structured on a project basis, meaning that repayment for the loan can be made based on the value of the aircraft itself, its earnings and the proceeds from its sale. However, a lender can also take an economic risk on the value of the aircraft. This can be viewed as a hybrid of a project financing. The easiest example of this type of financial arrangement is what is commonly referred to as ‘operating lease’ financing. Here the financier, who will be the owner of the aircraft, provides an aircraft on lease to the lessee (probably an airline) on the basis that money earning from renting out the aircraft may not be sufficient to repay to the lender its full capital investment in the aircraft, the cost of financing that investment and any profit/return the financier is seeking to make from it. In other words, the financier is taking the risk (sometimes described as residual value risk) that, at the end of the operating lease when it gets the aircraft back from the airline, the asset will have enough value (or be able to earn enough rent) to pay off the outstanding balance of its investment, financing costs and profit/return.

One of the biggest issues surrounding the financing of aircraft is related to how a financier can obtain security over something that is mobile. Lawyers will have to consider the best way to structure the transaction so as to minimise risk and maintain the value of the asset even though it may be registered in one location and operating in another, while the owner’s business is registered in yet another jurisdiction. They also need to think about the best place to register the asset and its security, and the governing laws of that location.

The choice of where to register an aircraft is particularly important because it is usually the laws of that country or state that govern recognition of ownership and mortgage interests in an aircraft and its operational and maintenance requirements. In some countries registers are subject to political interference, and in others they can only be altered by one person or organisation. In either case, it can difficult to deregister an aircraft if the airline defaults on payment.

Where an aircraft is registered is also important because of the different financial and legal structures in different countries. Lawyers need to consider whether the jurisdiction in which the aircraft is registered actually has a means of registering a mortgage over an aircraft against the aircraft itself. Also wrapped up in the issue of registration and security matters is the question of what laws are applicable. Financing of aircraft typically involves many different jurisdictions and so the question of which law applies in which particular circumstance is often complex. These are questions which lawyers acting for a financier needs to have answered before embarking on the transaction. For example, lawyers will need to think about:

• laws in the location in which the parties in the transaction are registered
• laws in the jurisdictions from which the parties are doing business
• laws in the location in which the aircraft is operated and/or registered
• laws in the jurisdiction in which enforcement of the debt is sought
• the particular law chosen by the parties to govern a contract.

A further issue to consider is political risk. The laws of a particular jurisdiction and/or the legal system could be changed arbitrarily during the life of a transaction, so political stability is important particularly given the length of many aircraft financing transactions. To guard against this risk, international aircraft financing transactions will have their principal documentation expressed to be governed by the laws of jurisdictions such as England or New York.

What skills do you need as an aviation law solicitor? 

• An interest in aircraft.
• Basic accounting abilities.
• Problem solving skills – particularly the ability to fit together seemingly incompatible requirements.

What is it like doing a trainee solicitor job in aviation law? 

Life as a trainee in aviation finance is whatever the trainee wants to make of it. Often, trainees are involved at the beginning of a transaction and play an increasingly responsible role as the transaction matures through the various aircraft deliveries. As a result, a trainee will have daily contact with clients and run the transaction under the close supervision of a partner and senior assistant. Otherwise, trainees are included in all aspects of a transaction, attending meetings and drafting documents.

Types of law practised

• Competition.
• Contract.
• Insurance.
• International private law.
• Litigation.
• Security.

About the author

MARC HAMILTON is a partner in the Paris office of NORTON ROSE. He graduated from Trinity College Dublin with a degree in psychology.