Turkey: Aircraft Financial Leasing Expected To Boom

Last Updated: 23 November 2005
Article by Hakki Gedik

With the number of increasing tourists expected to visit Turkey in the near future, the increasing number of airlines offering domestic scheduled flights, and the effects of a growing Turkish economy resulting in an increasing demand for air cargo transportation, the need for aircrafts in Turkey is on the rise. Currently, there are 17 licensed airlines with a total number of 212 aircraft (17 of which are for cargo transportation) and 49 licensed air taxi operators registered in Turkey. For airlines that are expanding their air fleet or for corporations that are acquiring corporate jets, financial leasing is without a doubt one of the most commonly used financing solutions. This is due to the fact that financial leasing provides multiple benefits compared to that of conventional financing. It permits the use of aircraft with less initial cash expenditure than would be required in for the purchase of aircraft. It also conserves the lessee’s working capital. Moreover, it provides various tax advantages, especially in terms of Value Added Tax.

In Turkey, the Law on Financial Leasing1 ( “Law”) regulates financial lease agreements. The Law defines “financial lease agreements” as agreements pursuant to which the lessor grants to the lessee the possession right of a good the lessor purchases or acquires, upon request of the lessee from a third party, against the payment of a rent by the lessee. Therefore, for a financial lease agreement to be considered as such under the Law, the ownership of the leased property (i.e., of the aircraft) shall remain with the lessor during the entire term of the financial lease agreement. Moreover, the lessor should have purchased or acquired the aircraft from a third party. In that respect, sale-lease back agreements, where the lessee sells the good subject matter of the agreement to the lessor and then the said good is leased back to the lessee are considered by the Turkish Courts as not within the scope of the Law.

As for every financial lease agreement governed by the Law, aircraft financial lease agreements are finalized before a notary public. If the lessor company is resident abroad and does not have a branch in Turkey, the financial lease agreement in question must be registered by the Prime Ministry Undersecretariat of Treasury (“UT”). Such registration provides the lessor protection against claims by third parties with respect to the acquisitions of rights in rem attached to the aircraft.

Upon registration of the aircraft financial lease agreement with the UT, and depending on the status of the aircraft in question (i.e., whether or not the aircraft is already registered in Turkey etc.), the UT notifies the Turkish Civil Aviation Directorate of the existence of the financial lease agreement. The notification made to the Turkish Civil Aviation Directorate also provides an extra protection to the lessor against third parties’ possible claims regarding the aircraft.

Aircraft financial leasing, when undertaken in line with the provisions of the Law, provides many advantages both to the lessor and the lessee, and one can assert with certainty that it is likely to remain as one of the most popular financing methods in the aviation sector.

Footnotes

1. Published in the Official Gazette numbered 18795 and dated 28 June 2005.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Hakki Gedik
 
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