CHOOSING A REGISTRY - FEATURE
‘Don’t let the tail wag the dog’
Selecting the right registry has a big influence on the operation (and costs) of your business jet. Here, two leading aviation lawyers offer legal perspectives on what to consider before choosing a registry. Words by Mike Stones
CHOOSING A REGISTRY
‘Don’t let the tail wag the dog’
Selecting the right registry has a big influence on the operation (and costs) of your business jet. Here, two leading aviation lawyers offer legal perspectives on what to consider before choosing a registry. Words by Mike Stones
FEATURE
IT’S A CRITICAL choice. Choosing the right registry has a key impact on how you can use your business jet, who is licenced to fly it and what it costs to operate. “So, don’t let the tail wag the dog,” says Alan Cunningham, partner with law firm Hunton Andrews Kurth.
“In other words, don’t choose a registry first and then second, start thinking about how you want to use your aircraft,” Cunningham tells us. “Deciding on use will mean that certain registries will self-select out of the range of choices open to you.”
Engaging an aviation lawyer at the beginning of the process – rather than towards the end – can help to navigate the many pitfalls that lie in wait for the unwary or the inexperienced, he says.
A good starting point when considering aircraft use is to answer the question: to charter or not to charter? If you want to use the aircraft solely for personal use, then the full range of registries is open to you.
For many owners, charter remains an attractive proposition – despite the potential regulatory headaches. While the (realistic) aim for most should not be to generate significant profit, many value the opportunity to offset the fixed costs of aircraft ownership such as hangarage, insurance and other charges, says Cunningham.
But if you want to charter your aircraft to earn income to offset the costs of ownership, the choice of registries becomes narrower and more complicated. Certain registries will not be open to you. For example, both the Isle of Man Aircraft Registry and the Cayman Islands Aircraft Registry allow only private use of aircraft on their books and do not permit commercial charter operations.
Instead of offset, Cunningham prefers the word defray. “When we say ‘defray’, we mean to defray some or all the fixed costs of aircraft ownership, i.e. to make money by chartering or leasing out the aircraft that, will in turn, subsidise the owner’s costs of carrying the aircraft,” he explains.
One way of doing that is to operate the aircraft commercially. That means putting the aircraft on a register such as the Maltese registry or the San Marino registry and putting it on an operator’s Air Operator Certificate (AOC).
The operator then charters out the aircraft to third-party users and shares the profit with the owner. “That profit is notionally used by the owner to subsidise the costs of ownership and we often describe that as defraying some or all of the fixed costs of aircraft ownership. Charter income/profit is rarely enough to cover all the fixed costs of ownership,” he says.
Also, US FAA Part 91 regulations – providing general operating and flight rules for civil aircraft – specify that aircraft must be operated on a non-commercial basis, meaning they do not permit payment for the carriage of passengers or cargo – in other words charter. You cannot charter under Part 91 – it must be Part 135 rules.
“Changing registers rather than just changing an operator on the same register is expensive and time consuming.”
Alan Cunningham, partner with law firm Hunton Andrews Kurth.
“Changing registers rather than just changing an operator on the same register is expensive and time consuming.”
Alan Cunningham, partner with law firm Hunton Andrews Kurth.
But on Part 91 and some other registries, such as the Isle of Man, you can defray some or all fixed costs of aircraft ownership by dry leasing the aircraft to up to five lessees. (In commercial aviation, dry leasing refers to a leasing arrangement where the aircraft is provided without crew, maintenance, or insurance (the opposite of ACMI or wet leasing). In business aviation the aircraft is usually supplied insured and maintained. Even so, the lessee still accepts responsibility for all operational aspects of the aircraft while the aircraft is on lease to it.
“The lessees get the aircraft only – as a means of transport not transportation services – and must source their own pilots, trip planning, etc. They pay an hourly rate rental and sometimes commit to a minimum number of hours. But the lease income is then paid to the owner who uses it to defray some or all the costs of ownership,” he explains.
For example, if a jet owner regularly flies 200 hours a year, they can dry lease their aircraft to two business associates who each want to fly about 100 hours a year. The lessors then obtain their own transport services from a third-party flight service provider (usually, a regular operator) who will provide the lessee with pilots, trip planning and the like. “It’s not considered to be charter because you are providing the means of transport only – that is, the aircraft,” he says. “You’re providing a dry lease.”
Another “nuanced exception” to the no charter rule under Isle of Man regulations is known as a captive airline structure. For example, a large corporation, with many affiliates, may choose to designate one company within the group as the airline, which makes the aircraft available to other companies in the group via internal charter. This solution is available on certain registers that permit private operations only (Part 91, Isle of Man).
Also, some registries are perceived to be more permissive and less restrictive than others.
Plus, non-EU operators flying within the union require third country operator (TCO) permits. While not required for overflights, they are for third country operators offering commercial air transport (CAT) operations within the EU.
It can be a technical and regulatory jungle, in which navigating the path of compliance requires an expert guide. Unsurprisingly, Cunningham recommends engaging a proactive operator with experience in operating aircraft on a number of registers and an aviation lawyer who specialises in aircraft ownership, leasing and aviation regulatory work before choosing an aircraft register.
So, you’ve decided how you want to use your aircraft, what next? Other key questions include: who do you want to operate the aircraft and do you have favoured pilots? Should your aircraft be FAA compliant or EASA compliant? It’s worth remembering it might be easier to sell an FAA compliant aircraft in North America and an EASA compliant aircraft in Europe.
Those choosing charter will need an operator which has an AOC – needed for commercial air transport – in a particular location. This again will have implications for the selection of an aircraft registry. Your aircraft must be registered in a jurisdiction that fits the AOC of your operator.
Then, there is the question of pilots. If your aircraft is operated and registered on an EASA register, you need to use EASA-rated pilots. Similarly, in the US the pilots will need to be FAA-rated. However, as with many things in the registration juggle, there are exceptions. True, some registries insist pilots must be rated by the jurisdiction (FAA or EASA) in which they operate.
But not all. Cunningham explains: “Some registries – for example the 2-REG (Guernsey) and the M-REG (Isle of Man) will allow you to choose EASA [regulations] for maintenance and then, any pilot the owner chooses – whether Canadian, Swiss or British pilots – provided they have a valid licence for the aircraft type.”
This offers owners great operational flexibility in terms of who owners choose to fly their aircraft. “It also gives them the same structure for maintenance as an onshore registry and that then doesn't devalue the aircraft and makes it easier to sell.”
Another factor influencing your choice of registry is understanding the implications for tax, VAT and customs liabilities. The provision of passenger transport services (charter) and the provision of the means of transport (dry lease of an aircraft) often have different VAT treatment. Owners must find out what operations are permitted on a particular aircraft registry and then understand the tax, VAT and customs duty implications for an aircraft undertaking those operations.
It’s a complicated picture of do’s and don’ts where legal advice, at an early stage, helps owners join all the dots. Cunningham summarises his advice: “Don’t let the tail wag the dog. Decide what you want to do with the aircraft – completely private or lots of third-party charter? Or no third-party charter but a bit of dry leasing on the side?”
Answering those questions – plus under what regulatory regime, FAA, EASA or UK, do you want your aircraft and pilots to operate – will save trouble and expense later, says Cunningham. “If you make the wrong decision, changing registers rather than just changing an operator on the same register is expensive and time consuming.”
Mark Bisset, global head of Aviation Finance at Clyde & Co.
To charter or not to charter
ANSWERING the charter question is the first step towards selecting an aircraft registry to meet your needs efficiently and cost effectively, according to Mark Bisset, global head of Aviation Finance at Clyde & Co.
“Whenever I speak to an owner about where to register their aircraft, my first question is: do you want to operate the aircraft privately, or do you want to charter it? That’s the most fundamental question on the decision-making tree,” Bisset tells us.
Choosing to operate the aircraft solely privately opens the range of more than 200 registries worldwide. So, if charter is not for you, selecting a registry that deals only with privately operated aircraft may be your best choice, he adds.
But some owners tell Bisset they need to charter their aircraft to defray the costs of ownership. “That restricts their choice of registry, since a number accept only privately operated aircraft – such as the Isle of Man.”
To charter or not to charter
Mark Bisset, global head of Aviation Finance at Clyde & Co.
ANSWERING the charter question is the first step towards selecting an aircraft registry to meet your needs efficiently and cost effectively, according to Mark Bisset, global head of Aviation Finance at Clyde & Co.
“Whenever I speak to an owner about where to register their aircraft, my first question is: do you want to operate the aircraft privately, or do you want to charter it? That’s the most fundamental question on the decision-making tree,” Bisset tells us.
Choosing to operate the aircraft solely privately opens the range of more than 200 registries worldwide. So, if charter is not for you, selecting a registry that deals only with privately operated aircraft may be your best choice, he adds.
But some owners tell Bisset they need to charter their aircraft to defray the costs of ownership. “That restricts their choice of registry, since a number accept only privately operated aircraft – such as the Isle of Man.”
The next question is: who do you want to operate the aircraft? Chartered aircraft must operate on an AOC (Aircraft Operator Certificate). Your choice of operator is key because some operate exclusively on one AOC. So, if you want to sign with your preferred operator, you must also choose the registry with which it is associated. “If you want to charter your aircraft, the registry you choose has to fit the AOC used by the operator,” says Bisset.
But some operators work with many registries. For example, Saudi operator NasJet has aircraft with the registries of the US, Cayman Islands, San Marino and the registry of its home country Saudi Arabia.
Like his industry colleague Alan Cunningham, partner with law firm Hunton Andrews Kurth, Bisset uses the dog’s tail metaphor to warn against an ill-considered choice of registry. “There is a danger of the tail wagging the dog if owners choose a registry based just on one factor rather than a range of considerations that should guide their choice,” says Bisset.
Then there’s the question for foreign owners of whether to import their aircraft fully into the UK or the EU or to rely on temporary admission. For example, in the case of the UK, if you want to opt for temporary admission into the country, rather than full importation, you can’t then register that aircraft in the UK, he explains.
The same applies to the EU. But many owners choose to fully import their aircraft into the region. A number of firms – including OPMAS and Martyn Fiddler – specialise in aircraft importation.
There are a legion of other questions relating to what registries require from their clients. For example, what rules does it implement on structuring requirements and aircraft financing – must the aircraft be registered in the name of the owner? What rules does the registry enforce on aircraft inspections and Certificates of Air Worthiness. What are the initial and annual registration costs and what service is offered? (Admittedly, the costs of registration are marginal compared with the overall costs of aircraft operation and maintenance).
What are the requirements for the deregistration of an aircraft and has the jurisdiction in which the registry operates signed the Cape Town Convention? (This is an international legal treaty recognising who owns the aircraft.)
What about your pilots? Do you have preferred pilots who have flown your aircraft for years? If so, and you want to keep them, that needs to be factored into your choice of registry. Pilots obviously need to be qualified to fly the aircraft under the terms of the jurisdiction in which your preferred registry operates.
Owners can also be nervous about associating their aircraft with a particular country if they choose a registry in its jurisdiction. For executive jets criss-crossing the globe this can be a factor in an age of rising geopolitical tension, says Bisset.
There’s a perception some owners favour certain aircraft registries because they are understood to apply certain rules less forcefully than other registries. But while registries operate different rules and requirements, Bisset has seen no evidence of some offering more lenient regimes or ‘light touches’ compared with others.
Certainly, some registries are easier to deal with than others – at least from a lawyer’s perspective, Bisset tells us. (He highlights offshore registries for what he sees as its speed of service and efficiency). On the other hand, it can prove time-consuming to extract deregistered aircraft from some countries.
There is also a concern among some owners that registration in some jurisdictions may make their financial records available to non-aviation areas of government. “For example, if you place all your records with the FAA, some worry that other US authorities will have access to that information,” says Bisset. But some owners feel more secure using an offshore aircraft registry.
Then again, inertia can also save money when it comes to registering your newly acquired aircraft. “If you're buying an FAA registered aircraft, you'd be tempted to keep it on the FAA register because if you put it on an EASA register, you're probably going to have to spend money doing some work to it,” says Bisset. Seek technical advice to answer those questions, he adds.
So, do owners give the selection of a registry for their aircraft enough consideration? “That depends on how experienced they are,” he tells us. “An owner who knows what's what will know it's important, but I think an owner that's new to the business might be quite surprised at some of the considerations.”
For example, the tax implications of choosing a registration demands thought early in the process. Plus, buyers of new aircraft will have to consider the question of registration early on, because the manufacturer needs to know, he says.
“We’ve had owners ring up a week before delivery of their aircraft to ask about the tax implications of their purchase,” says Bisset. “It is rare, but it has happened. That’s way too late. Everything is connected to who the operator is, what the tax regime is, where the registry is located.
“Tax has a big number attached to it – and that’s just one aspect of choosing an aircraft registry. So, it pays to seek legal advice at the beginning of the process – not towards its end.”
The next question is: who do you want to operate the aircraft? Chartered aircraft must operate on an AOC (Aircraft Operator Certificate). Your choice of operator is key because some operate exclusively on one AOC. So, if you want to sign with your preferred operator, you must also choose the registry with which it is associated. “If you want to charter your aircraft, the registry you choose has to fit the AOC used by the operator,” says Bisset.
But some operators work with many registries. For example, Saudi operator NasJet has aircraft with the registries of the US, Cayman Islands, San Marino and the registry of its home country Saudi Arabia.
Like his industry colleague Alan Cunningham, partner with law firm Hunton Andrews Kurth, Bisset uses the dog’s tail metaphor to warn against an ill-considered choice of registry. “There is a danger of the tail wagging the dog if owners choose a registry based just on one factor rather than a range of considerations that should guide their choice,” says Bisset.
Then there’s the question for foreign owners of whether to import their aircraft fully into the UK or the EU or to rely on temporary admission. For example, in the case of the UK, if you want to opt for temporary admission into the country, rather than full importation, you can’t then register that aircraft in the UK, he explains.
The same applies to the EU. But many owners choose to fully import their aircraft into the region. A number of firms – including OPMAS and Martyn Fiddler – specialise in aircraft importation.
There are a legion of other questions relating to what registries require from their clients. For example, what rules does it implement on structuring requirements and aircraft financing – must the aircraft be registered in the name of the owner? What rules does the registry enforce on aircraft inspections and Certificates of Air Worthiness. What are the initial and annual registration costs and what service is offered? (Admittedly, the costs of registration are marginal compared with the overall costs of aircraft operation and maintenance).
What are the requirements for the deregistration of an aircraft and has the jurisdiction in which the registry operates signed the Cape Town Convention? (This is an international legal treaty recognising who owns the aircraft.)
What about your pilots? Do you have preferred pilots who have flown your aircraft for years? If so, and you want to keep them, that needs to be factored into your choice of registry. Pilots obviously need to be qualified to fly the aircraft under the terms of the jurisdiction in which your preferred registry operates.
Owners can also be nervous about associating their aircraft with a particular country if they choose a registry in its jurisdiction. For executive jets criss-crossing the globe this can be a factor in an age of rising geopolitical tension, says Bisset.
There’s a perception some owners favour certain aircraft registries because they are understood to apply certain rules less forcefully than other registries. But while registries operate different rules and requirements, Bisset has seen no evidence of some offering more lenient regimes or ‘light touches’ compared with others.
Certainly, some registries are easier to deal with than others – at least from a lawyer’s perspective, Bisset tells us. (He highlights offshore registries for what he sees as its speed of service and efficiency). On the other hand, it can prove time-consuming to extract deregistered aircraft from some countries.
There is also a concern among some owners that registration in some jurisdictions may make their financial records available to non-aviation areas of government. “For example, if you place all your records with the FAA, some worry that other US authorities will have access to that information,” says Bisset. But some owners feel more secure using an offshore aircraft registry.
Then again, inertia can also save money when it comes to registering your newly acquired aircraft. “If you're buying an FAA registered aircraft, you'd be tempted to keep it on the FAA register because if you put it on an EASA register, you're probably going to have to spend money doing some work to it,” says Bisset. Seek technical advice to answer those questions, he adds.
So, do owners give the selection of a registry for their aircraft enough consideration? “That depends on how experienced they are,” he tells us. “An owner who knows what's what will know it's important, but I think an owner that's new to the business might be quite surprised at some of the considerations.”
For example, the tax implications of choosing a registration demands thought early in the process. Plus, buyers of new aircraft will have to consider the question of registration early on, because the manufacturer needs to know, he says.
“We’ve had owners ring up a week before delivery of their aircraft to ask about the tax implications of their purchase,” says Bisset. “It is rare, but it has happened. That’s way too late. Everything is connected to who the operator is, what the tax regime is, where the registry is located.
“Tax has a big number attached to it – and that’s just one aspect of choosing an aircraft registry. So, it pays to seek legal advice at the beginning of the process – not towards its end.”
