Sherice Arman, an attorney in Maples and Calder’s Cayman Islands office, is writing on behalf of the Civil Aviation Authority of the Cayman Islands (CAACI)

In today’s world, where the time value of money is critical, many more companies and individuals are opting to acquire private aircraft. The choice of a jurisdiction for registration of such aircraft becomes crucial to the process and is influenced by many factors. Each owner, operator and financier has different requirements and driving forces.

Some of the key factors which influence owners, operators and lenders when choosing a jurisdiction for registration of aircraft are tax efficiency, confidentiality, security, internationally recognized standards of regulation, commitment to superior service levels by regulatory staff, international reputation of the register, neutrality and/or anonymity of the registration prefix, professionals within the industry with expertise in the aviation industry, stable legal, political and economic environment and certainty with respect to regime for enforcement of mortgages.

The Cayman Islands is an English speaking overseas territory of the United Kingdom. As an overseas territory of the UK, the Cayman Islands benefits from a high level of political, social, economic and judicial stability, whilst at the same time, exercising a high degree of autonomy, having been a stable parliamentary democracy since 1831. The Cayman Islands’ legal system is based on English common law, with the Privy Council in England being the jurisdiction’s final court of appeal. This provides an added degree of comfort to international lenders, owners and operators of aircraft.

The Cayman Islands is well known in the industry as a tax neutral jurisdiction and, as such, the purchase, sale or lease of an aircraft in the Cayman Islands or of aircraft registered in the Cayman Islands does not give rise to tax consequences in this jurisdiction. This means that there is no income tax, sales tax, capital gains tax, profit tax, use tax or tax on lease payments are imposed by or in the Cayman Islands. In addition, its internationally well respected financial services industry also provides owners, operators and lenders with access to a full range of services, including banking facilities and legal expertise, to set up and administer sophisticated structures for ownership and leasing purposes.

The Cayman Islands follows international regulatory and safety standards for air transportation. The regulatory obligations for effective safety oversight exercised by CAACI is based on the Convention on Aviation signed in Chicago in 1944 by member states (the UK is the signatory) of the International Civil Aviation Organization, an agency of the United Nations. The Convention puts in place a commitment to foster the growth and safety of international air transportation through compliance with common Standards and Recommended Practices.

Although the Cayman Islands typically accepts only aircraft operated in the ‘private category’, it is entirely possible to register any type of parked aircraft on the Cayman Islands Register of Aircraft (eg. during the period of fit out) thereby allowing a financier the benefit of registration of a Cayman Islands registered mortgage, after which the aircraft may be registered on another register when it is ready for commercial operation.

In order to complete registration, an aircraft must first be inspected for airworthiness, however, this can be done wherever the aircraft is located and a certificate of airworthiness is then issued once the aircraft satisfies the necessary requirements. The aircraft is given a registration number which is prefixed by ‘VP-C’ and followed by two additional unique identification letters. The VP-C registration is generally accepted internationally as being politically neutral and therefore offers owners some additional level of anonymity.

The CAACI has regulatory oversight of the Register and it has developed a reputation amongst many owners, operators and lenders for providing a safe, stable and well respected flag for registration of an aircraft. Although it demands the highest standards from its owners and operators, the CAACI also holds itself to these same standards by offering responsive and efficient service to the industry. This has enabled it to enjoy a place of recognition within the aviation industry internationally. The CAACI is known for quality and not necessarily quantity, especially given its selective process with respect to acceptance of aircraft on the Register.

As further evidence of its commitment to efficient customer service, the CAACI has introduced a new online electronic data management functionality called VP-C Online which allows it to further improve its already outstanding service levels. With the new system the CAACI can manage documentation online through a secure portal. This means that it can accept registration applications and issue certificatesandauthorisationsonline,evenoutsideofoffice hours. The new online capability offers owners and operators real-time access to registration documentation, certificates and survey information online.

Cayman Islands mortgage registration

The Cayman Islands Mortgage Register for aircraft offers a secure mortgage register to financiers with a system of enforcement based on the English legal system. The CAACI, maintains a Mortgages Register pursuant to the Mortgaging of Aircraft Regulations 1979. Registration of a mortgage in the Mortgages Register offers a system for obtaining priority for a security interest in an aircraft and protection from de- registration of an aircraft without the registered mortgagee’s consent. Under Cayman Islands law, a mortgage over an aircraft includes the aircraft itself and the store of any spare parts.

Registration of the mortgage over an aircraft, can’t take effect until the aircraft is registered, but a mortgagee may secure its interest prior to registration of the aircraft by registering a priority notice prior to the registration of the aircraft. The effect of registration of a priority notice is that it prevents any other security interests over the aircraft being registered in advance of registration of the mortgage, which is protected by the priority notice during the effective period of the priority notice.

Where such a notice has been entered in the Mortgages Register and the contemplated mortgage is then made and registered within 14 days after entry of the priority notice, the mortgage will be deemed to have priority from the date that the priority notice was registered.

There is no specified form of mortgage over a registered aircraft and, although not a requirement, the mortgage may be registered. As with registered mortgages, priority arises from date of registration. The registration of a priority notice gives the lender or prospective lender priority from the date of registration of the notice. A lender’s rights under any registered mortgage will not be affected by the aircraft’s removal from the Mortgages Register.

At a time when so many jurisdictions are competing for business, the Cayman Islands continues to set itself apart by concentrating on quality service and attention to owners, operators and lenders, rather than simply on growing numbers of aircraft on its Register. It does so by identifying and solving issues of its owners, operators and lenders. It remains committed to ensuring that the Cayman Islands experience is in keeping with the standards that the industry has come to expect from this jurisdiction.

For further information please speak with your usual Maples and Calder contact or:

Sherice Arman +1 345 814 5248 [email protected]

 

About the author

Sherice Arman is of Counsel at Maples and Calder and has over 14 years of experience in the area of corporate and commercial law. Her practice areas include banking and asset finance and corporate finance. She is recognised as an industry leader in the field of ship and aircraft finance in the Cayman Islands and is often called upon by the Cayman Islands Shipping Registry and the Civil Aviation Authority of the Cayman Islands for collaboration and guidance.

Sherice is ranked in a number of legal directories, including PLC Which Lawyer?, Legal 500, IFLR 1000 and Chambers and Partners.