Aircraft financing is taking off in Bermuda

By added on 05/09/2014

Bermuda has become a high flyer in the world of aircraft finance and the Island is a world leader in offshore deals involving aircraft leasing and financing, including asset-based securities (ABS), reports the Royal Gazette.

Conyers, Dill & Pearman director Julie McLean said: “As the market continues its resurgence Bermuda has maintained its position as the preferred jurisdiction in lessor initial public offerings and asset-based securities.”

She added: “Historically, a great deal of aviation-based equity and debt has been raised through Bermuda.

“Recently, we have seen this trend continue and Bermuda has become the automatic choice for ABS deals with an offshore component.”

Ms McLean explained that the use of a Bermuda special purpose vehicle or a specially-formed company for aircraft transaction, funding and leasing arrangements could attract some tax, regulatory and capital restriction relief.

She said: “As a host jurisdiction for an ABS transaction, Bermuda offers tax neutrality. As a stable British Overseas Territory, the legal framework of Bermuda is based on common law principles with English common law having a persuasive role.

“The involvement of a Bermuda special purpose vehicle can act as a counterbalance to operator jurisdictions where such stability is less evident.”

And Ms McLean added that when the UK ratifies a 2001 international convention standardising transactions involving moveable property like planes it could provide a further boost to the industry.

It is expected that the terms of the Convention on International Interests in Moveable Property will be extended to Bermuda and a special Bermuda industry group is already looking at what parts of the convention should apply to Bermuda.

Ms McLean said: “The convention is another new development which should benefit Bermuda. Once it applies to us, a creditor or secured party engaged with the Bermuda borrower company in the aircraft financing transaction will be afforded all the rights, benefits and protections afforded to creditors under the convention.

“For certain export credit agencies and lenders engaged in the aviation industry, this is an important factor and results in some cases in a lower interest rate being offered to the borrower, a plus in a financing transaction.”

And she added: “Bermuda offers the aircraft industry a commercially flexible approach with considerable expertise and a solid, respected legal regime.”

Bermuda has 764 aircraft registered here, both commercially-operated and privately-owned.

The commercial aircraft include a fleet of more than 30 Airbus planes operated by Russia’s largest domestic carrier S7.

Earlier this month, Bermuda-based Intrepid Aviation, which owns aircraft worth around US$1 billion, announced it was planning an initial public offering of shares.

Intrepid also has around US$1.7 billion of new aircraft committed for delivery this year and next year, with customers including Italy’s Alitalia, China Airlines and Philippine Airlines.