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03
dec

Newsletter December 2013: Newsletter FLO – AVIATION

 

Newsletter December 2013: Newsletter FLO – Aviation

 

Arthur Flieger, Attorney at law Flieger Law Office bvba with the cooperation of Stijn Brusseleers, Attorney at law Flieger Law office bvba

 

A REVIEW ABOUT CORPORATE AVIATION IN 2012

Note that usually this newsletter is linked to legal issues, however the corporate aviation plays a major role in the aviation industry and therefore we decided to issue this corporation aviation newsletter.

Aircraft registration
A vast majority of private/corporate aircraft are registered in the home jurisdiction of the owner or operator. There is however a sizeable demand for registration under flags that offer political neutrality as well as a number of potential advantages, such as favourable taxation, confidentiality, asset protection, costs , security of recovery and operational and technical flexibility. In this respect it’s noteworthy that the Isle of Man announced in July 2012 that it had registered its 500th aircraft since commencing operations in May 2007.

The Manx registry has been successful, as it limits its potential client base by only accepting private aircraft not available for commercial use.

In 2012 several jurisdictions announced their intention to emulate that success. As such San Marino formally unveiled its own private registry in December 2012.

2013 saw also the launch of a Channel Islands register based in Guernsey. The Channel Islands register claims it will accept aircraft based anywhere in the world. It also claims that it will register craft of any size, a departure from the usual lower limit of 5,700kg imposed by other jurisdictions.

The emergence of these new registries demonstrates that there is no “one size fits all” jurisdiction and clients should always seek professional advice before deciding which will be the best fit for them.

As such Malta passed its Aircraft Registration Act, which was designed to facilitate the commercial operation of corporate jets from the island by simplifying the registration process and offering competitive tax treatment within the context of a full EU Member State.

The government attempted to recognise security of assets by establishing a mortgage registry and becoming one of a signatories to the 2001 Cape Town Convention on International Interests in Mobile Equipment.

In 2012 several commercial charter operators have been established in Malta and have been granted AOCs. In 2012 the Maltese government announced a simplification of the VAT treatment of privately-operated aircraft that are owned by a Maltese entity and leased to a third party. As a result, at the end of a given lease period a VAT-paid certificate will be issued permitting free circulation within the EU.

Basel III – corporate aviation
The third set of global recommendations on banking oversight and supervision, named Basel III, is applied from the beginning of 2013. The impact on corporate aviation finance will be substantial as banks look to tighten lending requirements further. The outlook is not completely negative however because other institutions and lessors have begun to enter the market, particularly in what might be described as “emerging markets”.

Emerging markets
There was in 2012 a dilution for corporate aircraft sales in Brazil, China, Russia and India. In the case of China , there is no doubt of huge market potential but the ability of Western financial institutions, operators and registries to tap into the market remains open to question. Operation restrictions for foreign-registered aircraft remain draconian and expensive and the very concept of private aviation within airspace that continues to be controlled by the military makes sustained and secure market growth a questionable phenomenon. In 2012 there were some agreements between the manufacturers Embraer and Cessna with local entities to establish manufacturing and marketing joint ventures will serve to reach customers more easily. There were however some unsuccessful negotiations between Hawker Beechcraft and a potential Chines buyer, which suggested a strong appetite for Chinese investment in the sector.

A major Indian corporation was in 2012 heavily fined for failing to pay customs duties on a foreign-registered aircraft, which it had allegedly made available for charter without importing. Three months later, nine foreign flagged corporate jets were seized by the Brazilian authorities, which claimed that they were owned by Brazilians and being operated domestically again without importation beyond the permitted time limit.

In April 2012 the Italian government introduced a “Super Tax” which levied an additional fee on foreign registered aircraft remaining in the country beyond 45 days, along with a passenger tax covering private charter flights.

These examples illustrate the challenges facing owners and operators of corporate jets and jurisdictions marketing “offshore” aircraft registries in emerging and emerged markets. Tax and duty facilities at a time of financial rigour come under added scrutiny.

USA
In 2012 President Barack Obama asked:

“Why wouldn’t we eliminate the tax breaks for corporate jets? My attitude is if you got a corporate jet, you can probably afford to pay full freight, not get a special break for it”.

These comments generated a swift rebuke from the heavyweights of the industry. The negative and enduring press coverage that followed for corporate aviation in the United States illustrates the continuing challenges facing the market in terms of perception.

Breaking orders
In 2012 the largest order in corporate aviation industry was awarded twice. In June 2012 fractional ownership operator Netjets confirmed the purchase including option of 425 aircraft – split between Bombardier and Cessna. In November 2012 Austrian block charter company Vistajet signed a contract with Bombardier for 142 Global Express aircraft, again including options. In 2012 saw manufacturers of corporate jets, turboprops and helicopters unveil a whole raft of new designs and enhanced versions of existing marques. Showcases in industry EBACE in Geneva, ABACE in Shanghai, LABACE in Sao Paulo, MEBA in Dubai and the annual meeting of the NBAA continue to see healthy visitor numbers , and willing exhibitors. 2013 was indeed a difficult year with a host of financial, political, fiscal and logistical challenges. Hopefully, there may be light at the end of the tunnel in 2013-2014.

 

For further information and comment, please contact Arthur Flieger at Flieger@fliegerlaw.com, Website: www.fliegerlaw.com, telephone: +32 3 238 77 66

 

Copyright A. Flieger
This publication is defined to provide accurate and authoritative information in regard to the subject matter covered. It is transmitted with the understanding that the publisher is not engaged in rendering legal, or any other professional services. If legal advice or other expert assistance is required, professional services should be sought. You can always contact A. Flieger at flieger@fliegerlaw.com.