The Cayman Islands stand out as a significant hub for aircraft financing, offering a range of services including financing options, leasing arrangements, and versatile ownership structures. These services are not confined to aircraft registered in the Cayman Islands but extend to a broader spectrum.
A prevalent feature in these financing structures is the incorporation of a Cayman Islands Special Purpose Vehicle (SPV). This SPV plays a crucial role, offering benefits in terms of taxation, accounting practices, and regulatory compliance.
The objectives of employing an SPV in aircraft financing are multifaceted. Primarily, it aims to create a financial arrangement that does not impact the balance sheets of the involved parties, such as financiers or airlines. Additionally, it ensures a degree of separation from the financial risks associated with bankruptcy, especially relevant in the context of U.S.bankruptcy courts. This separation also means that in the event of insolvency, the SPV's assets are not accessible to the creditors of the originator. Another critical aspect is the limited recourse for financiers, confined mainly to the aircraft and any additional securities offered by the SPV. This is bolstered by stringent security measures around the aircraft, safeguarding it in case the SPV faces insolvency.
When setting up an SPV, the standard procedure involves establishing it as an exempted company in the Cayman Islands. The shares of this company are typically held by a local trustee, representing either a charitable trust or a purpose trust. This creates an 'orphan SPV' structure, ensuring that the SPV is not perceived as a subsidiary of the originator or financier. Profits from the eventual aircraft sale, usually minimal, are often allocated to the trust's charitable cause, reflecting the low-risk profile due to the SPV's limited liability.
Managing an SPV necessitates effective administration, which includes appointing directors and officers for daily operations. Local firms provide streamlined administrative services to facilitate this aspect of SPV management.
Aircraft financing in the Cayman Islands encompasses various legal structures. These include securing loans against the aircraft, entering into leasing agreements (either operating or finance leases), and capital market transactions underpinned by a mortgage on the aircraft. In a typical setup, anSPV acquires the aircraft and then enters into lease agreements. This structure is advantageous for its bankruptcy remoteness and the potential reduction in borrowing costs.
The introduction of the Cape Town Convention in the Cayman Islands in 2015 has further solidified its position as a favorable location for aviation financing. The convention establishes a universally recognized system for registering international interests in mobile equipment, including aircraft, and outlines standard procedures for creditors in case of default.
Compliance with the International Tax Co-operation (EconomicSubstance) Act is a crucial consideration in these financing structures. Thisact, along with its accompanying regulations and guidelines, mandates certainentities, like SPVs, to fulfill specific economic substance requirements.
In conclusion, the Cayman Islands offer a conducive environment for aircraft financing, backed by advanced legal and financial structures and supported by knowledgeable service providers. This makes it a prime location for crafting tailored financing solutions that cater to the needs of both financial institutions and airlines.
This article is only intended to give a general overview and summary of the subject matter. It is not, nor is it intended to be comprehensive, and it does not constitute, and should not be taken to be, legal advice. If you would like legal advice or further information on any issue of any kind raised by this guide, please get in touch with one of your usual contacts.
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