United States: Reestablishment Of Scheduled Air Service Between The United States And Cuba: What Is The Impact On Aircraft Finance?

Jonathan Epstein is a partner in Holland & Knight's Washington D.C. office

On February 16, 2016, the United States and Cuba penned an agreement reestablishing scheduled air service between both countries. This is just the latest in a series of steps by the Obama administration that have substantially increased the demand for air transportation to Cuba. While historically many aircraft financers prohibited lessees/borrowers from flying to Cuba, because of these changes financers are being asked to reexamine such prohibitions.

Complex Restrictions Remain in Place

While the relaxations of sanctions are significant, many of the U.S. embargo restrictions on Cuba are statutory and will remain in place until Congress acts. This means that:

  • Under economic sanctions administered and enforced by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC), "persons subject to U.S. jurisdiction" (including U.S. citizens, residents, U.S. companies, and their "owned or controlled" foreign subsidiaries) remain prohibited from dealing directly or indirectly with Cuba, unless authorized under an OFAC general or special license.
  • Under U.S. export controls administered by the U.S. Department of Commerce's Bureau of Industry and Security (BIS), no person can export or re-export goods (including temporary export of aircraft) subject to U.S. export jurisdiction to Cuba unless licensed or excepted by BIS regulations.

What Has Changed for Operations Between the United States and Cuba?

On February 16, 2016, the United States and Cuba signed a memorandum of understanding (MOU) reestablishing scheduled service between the countries, subject to certain frequency restrictions (in particular limiting flights to Havana to twenty-round trip flights per day). On the same day, the U.S. Department of Transportation initiated a proceeding to allocate these "slots" to U.S. air carriers. While U.S. carriers were already authorized to fly charter flights to Cuba, subject to a number of regulatory requirements for an operator to fly to Cuba, this will certainly increase demand and interest. This MOU expressly did not limit charter flight frequencies. Furthermore, changes over the last 14 months now allow:

  • Air carriers carrying "authorized" travelers directly between the United States and Cuba no longer need to be specially licensed by OFAC, or have to make payments through OFAC licensed entities.
  • While tourist travel between the United States and Cuba remains prohibited, OFAC has expanded the scope of authorized travel, and some travel that previously required special license is now generally authorized. This has led to a substantial increase in travel between both countries.
  • General aviation and air ambulances no longer need special authorization from OFAC, or "temporary sojourn" licenses from the BIS, to fly to Cuba (provided they are carrying authorized travelers).
  • The restrictions on "temporary sojourns" were clarified and aircraft and crew can now remain in Cuba for up to seven days.
  • An airline could seek a BIS license to pre-stage fly-away kits in Cuba, and a BIS license exception now allows one-for one replacement for most aircraft parts. An OFAC general license would allow U.S. operators to send (and even base) mechanics in Cuba to support air carrier services between both countries.
  • An airline can now enter into block-space, code-sharing, or leasing arrangements with Cuban airlines relating to the provision of air services between the United States and Cuba (although leasing to a Cuban entity will require separate authorization from BIS).

Operations between the United States and Cuba, to the extent they are authorized under OFAC/BIS regulations, also generally authorize ordinary and incident transactions thereto. Hence, the provision of insurance, banking transactions, and financing for such operations by persons subject to U.S. jurisdiction would also generally be authorized.

What Has Changed for Foreign Operators Operating from Third Countries to Cuba?

The relaxations by the U.S. primarily addressed travel and trade between the United States and Cuba. The principal areas that affect foreign operators are:

  • The U.S. has historically asserted export jurisdiction over virtually all major western aircraft for purposes of U.S. export restrictions on Cuba, Iran, Syria, Sudan and North Korea. In addition to U.S.-origin aircraft, the U.S. asserts jurisdiction on foreign-made aircraft containing more than de-minimus U.S. content by value or other controlled U.S. content.
  • The "temporary sojourn" exception to U.S. export laws has for many years allowed foreign carriers to fly to Cuba on aircraft subject to U.S. export jurisdiction. However, the scope of the exception has now been expanded and clarified as discussed above.
  • A foreign air carrier/lessor could now seek a BIS license to sell or lease a U.S.-origin aircraft or aircraft parts to Cuban carriers.

Significantly, while persons subject to U.S. jurisdiction can support the carrier services between the United States and Cuba, such persons cannot generally facilitate flights by foreign air carriers between third countries and Cuba. Hence, in general U.S. banks could not process transactions related to flights between Mexico and Cuba, and a U.S. insurer could not insure such risk.

What Are the Legal Implications for the Aircraft Finance Community?

Aircraft financers will likely be receiving more requests from their borrowers/lessees to fly to Cuba and/or wet lease aircraft to Cubana or other Cuban airlines. And as Cuba travel becomes more regular, we expect allowing such flights to become more routine.

Air Carriers Flying Between the United States and Cuba.

In the case of air carriers flying authorized travelers between the United States and Cuba, this poses limited, if any, sanctions risk for U.S. or non-U.S. financers. There are practical considerations, however. For example, before affirmatively consenting to flights to Cuba, a lessor or lender should:

  • conduct diligence or obtain assurances that the air carrier will be operating in accordance with applicable restrictions (for example, having processes to vet passengers to ensure they are "authorized" travelers)
  • verify insurance is valid for Cuba operations (in particular war-risk (expropriation) and breach of warranty provisions)
  • check other finance parties' or trustee agreements to ensure there are no prohibitions in those documents

In addition, while Cuba is a signatory to the Cape Town Convention, and the MOU reiterates the commitment of both countries to act in conformity with the Convention, a repossession in Cuba likely would require a license from OFAC for a U.S. lessor, in addition to presenting practical challenges if, for example, the Cuban government had liens against the airline.

Foreign Carriers Flying Between Third Countries and Cuba

For foreign air carriers seeking to fly to Cuba, or wet-lease, sublease to a Cuban operator, the analysis becomes more complex and fact-specific, particularly for financers that are persons subject to U.S. jurisdiction. For example:

  • A non U.S. lessor, owned by a U.S. parent company likely could not affirmatively assent to a Mexican air carrier flying temporary sojourns from Mexico to Cuba, because a U.S. person could not operate those flights itself.
  • A non-U.S. lessor (not owned or controlled by a U.S. person) could consent to such flights. However, payment under the lease in USD specifically related to such flights would be prohibited as it would involve the U.S. banking system.

The latter example highlights an often misunderstood distinction between the U.S. export restrictions (which except the temporary sojourn of U.S.-origin aircraft flying to Cuba) and the economic sanctions which prohibit persons subject to U.S. jurisdiction from facilitating transactions with Cuba that they could not engage in directly. Given the easing of sanctions with respect to air transportation and sale, lease of civil aircraft, there is now additional pressure on the U.S. government to further clarify the restrictions on U.S. lessors relating to flights by foreign lessees to embargoed countries like Cuba and Iran.

Leasing to Cuba Carriers

As a policy matter, the U.S. would favorably consider a license to dry lease a commercial aircraft to a Cuban carrier. However, there are practical considerations, including risk that U.S. plaintiffs would seek to arrest such aircraft to satisfy judgements against the Cuban government. The MOU signed on February 16, 2016, tangentially addresses this issue implying the U.S. government would likely intervene in any private proceeding against a Cuba airline. We expect the more likely scenarios that aircraft lessors will face will be foreign airlines seeking to wet lease (ACMI) aircraft to Cuban airlines.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions