The Maltese Government has expressed the intention to establish a successful Aviation Register directed towards drawing international airlines and other companies in this industry to serve as an important milestone in building an aviation service cluster in Malta. To this end a Bill entitled the "Aircraft Registration Act", to regulate the registration of aircraft and aircraft mortgages in Malta has recently been published. The Bill features the Implementing law on the Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol, geared towards making asset-based financing easier while enhancing secured creditors' rights to enforce their interests in the aircraft. Accordingly, creditors will be able to reduce the interest rates charged to compensate for the risk they would otherwise be exposed to. This will lead greater amounts of financing available to airlines on more attractive terms. This Convention is rapidly developing into a market standard in aircraft finance transactions.
The Bill strives to promote the aviation cluster business concept by creating an appropriate legal framework that would increase industry interest in Malta. The framework of the Bill is essentially intended to minimise the potential bureaucracy relating to the formal requirements for registering an aircraft, making the register accessible to as many owners and operators as possible, and providing financiers with an effective procedure for the registration and enforcement of security over aircraft and their engines. To this effect the Bill prescribes which persons are qualified to register an Aircraft whether used for the provision of air services or otherwise. These include:
- Citizens of Malta and citizens of Member states of the European
Union or of an EEA State. Such individual must have a place of
residence or business in Malta, the European Union (EU), the
European Economic Area (EEA) or Switzerland;
- An undertaking formed and existing in accordance with the laws
of Malta, a Member State of the European Union, the EEA or
Switzerland. The undertaking must have its registered office,
central administration and principal place of business within
Malta, the EU, the EEA or Switzerland;
- A natural person who is a citizen of or an undertaking
established in an approved jurisdiction other than the ones
above-mentioned. These shall be qualified to register an aircraft
in construction or one which is not used to provide air services
provided they satisfy certain conditions prescribed in the
Bill.
The Bill includes forward-looking provisions which serve to accommodate industry requirements, such as fractional ownership of aircraft and the ownership of aircraft by trustees. Where the applicant for registration is a trustee, the Director General shall pay regard to the underlying beneficiaries of the relevant trust so as to determine the eligibility to register an aircraft. No regard shall be paid to the nationality or residence of the trustee.
Furthermore, the Bill also establishes the conditions for eligibility of registration of joint or fractional ownership in that where the application is based on ownership and where the interest in an aircraft is vested in more than one person, all the owners of the shares in the aircraft must be eligible as qualified persons. Where the application is based on the operation of an aircraft and where such operation is being carried out by more than one person, then all the operators of the shares in the aircraft must be eligible as qualified persons.
The application for registration of an aircraft is to be made in writing and addressed to the Director General. Applications are to include particulars and evidence relating to the aircraft, the ownership, acquisition, chartering and operation thereof and qualifications of the registrant as may be prescribed. This is in order to enable the Director General to determine whether the aircraft may be properly registered and to enable the Director General to issue an operational or non operational certificate of registration. Application for registration is essential for the Director General to determine the classification of the aircraft.
Since 2004, Malta has in place a comprehensive legislation governing trusts and allowing their use in a manner that can be commercially advantageous. Being based on Jersey trust law, Maltese trust legislation is based on robust principles that have led to the enactment of a law that is commercially sound whilst also offering highly practical and workable solutions, for the benefit of the users thereof. The new law providing for the registration of aircraft in Malta acknowledges the benefits that will result from the employment of trusts in this field, and specific mention is made of fractional ownership and trusts which could be employed when the ownership/use interests of a plurality of persons (legal or natural) is to be regulated in relation to an asset, the aircraft, by interposing a trust relation. Thus, provision for regulation and co-ordination of the beneficiaries' rights and interests will be made in the trust deed, which can provide for innumerable arrangements, in line with the contingencies of the case at hand.
The existence of the trustee, being the registered owner of the aircraft, in favour of the determined beneficiaries (in a fixed trust scenario) or for the benefit of determinable beneficiaries (in a discretionary trust scenario) allows the arrangement to operate in a more streamlined manner whilst permitting the rights of the beneficiaries to be enforced against the trustee in case of default, thus protecting the beneficiaries who would be the stakeholders in this arrangement. The trust deed that would be set up in each case would be tailor-made in line with the requirements/ wishes of the parties, given the flexibility that the trust mechanism would afford in this field.
The Bill additionally seeks to consolidate the laws on aircraft registration and aircraft mortgages. Mortgages are unknown to Maltese Civil law. Nonetheless, they now form part of Maltese law solely for purpose of putting a ship or aircraft as a security for a loan or debt. The Bill delineates that a mortgage is indivisible notwithstanding that the underlying contractual obligation may be divisible. Furthermore, it is lawful for a mortgage to be executed and registered in favour of a security trustee. Such security trustee shall be recognised as the mortgagee and shall be entitled to exercise all the rights in relation to that mortgage. The role of a security trustee in such a scenario is fundamental because of the huge costs involved in aircraft financing where financiers may wish to share the burden of these costs. The law acknowledges this and provides for a situation where, rather than having each financier enforcing the security, a pool of financiers could appoint one of themselves as security trustee. This is based on the advantages that are recognized in the context of syndication of creditors.
The Bill provides for the scenario where there can be more than one mortgage on an aircraft. This creates an order of priority of mortgages on the same aircraft. Extensive enforcement rights are afforded to the mortgagee upon the serving of a notice. The owner (mortgagor) remains the owner for as long as may be necessary for the mortgagee to make the aircraft available as security. In such circumstances, the mortgagee is indeed considered as the owner of the aircraft. The Act affords a self help remedy whereby the mortgagee is bestowed with the absolute power to sell the aircraft or the share in respect of which he is registered. When there are several mortgages, a subsequent mortgagee can only do so if he notifies the prior mortgagee, unless ordered by the court. Interestingly the notion of self help is unknown to Maltese Law, under the Maltese Civil Code. These remedies render the mortgage an ideal solution for the provision of security to banks.
Malta offers first-class value for aircraft registration. Malta is an EU member state and as such a Maltese registered aircraft has freedom of movement within the EU countries both on international and internal flights. Malta is wholly compliant with the safety and supervisory standards of the European Aviation Safety Agency. The country's location provides an excellent bridge between the majority of EU airports as well as most Middle East and North African destinations. Malta's Civil Aviation Authority ensures a quick reaction time to all aircraft registration and Air Operator Certificate AOC applications. Initial and recurrent fees associated with operating a business jet in Malta are amongst the most competitive in Europe. In addition, Malta offers a very advantageous corporate and personal tax system. The benefits of Malta's corporate tax system include a full imputation system of corporate tax enabling shareholders to benefit from a 6/7ths tax refund on dividends distributed; an outstanding holding regime and an extensive network of double taxation treaties.
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.
