Aviation Finance Comparative Guide

1 Legal framework

1.1 Which laws typically govern aviation finance transactions in your jurisdiction?

In Nigeria, there is a lack of specific legislation that directly addresses aviation finance transactions. However, the broader aviation laws, regulations and ratified treaties – including the Civil Aviation Act 2022, the Civil Aviation Regulations 2023 and the Cape Town Convention 2011 (of which Nigeria is a party) – are all relevant in this context.

Additionally, there are other legal frameworks that govern general financial transactions in Nigeria. These include the Central Bank of Nigeria Act 2007 and the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 1995. These laws may also have implications for certain aspects of aviation finance transactions, such as rental payments, particularly when conducted in currencies other than the Nigerian naira.

1.2 If aviation finance documents are governed by laws other than your local law, what local law requirements (documentary and procedural) are required to ensure that foreign law documents are recognised and enforceable locally?

Aviation finance documents subject to foreign laws are acknowledged and enforced by the Nigerian courts. Nigerian legal principles rooted in Latin maxims are respected in this regard, including:

• pacta sunt servanda, which means "contracts must be upheld"; and
• pacta convent quae neque contro leges neque dolo malo inita sunt omni modo observando sunt, which translates to "agreements that are neither contrary to the law nor entered into fraudulently should be strictly adhered to in every aspect".

In cases where documents are issued in a foreign language other than English, they must undergo translation into English and subsequently be presented to the Nigerian embassy for the purposes of legalisation and authentication.

2 Finance structures

2.1 What aviation finance structures are most commonly used in your jurisdiction?

In Nigeria, akin to other common law jurisdictions, the selection of aviation finance structures hinges on several pivotal factors, encompassing:

• the nature of the aircraft in question;
• its intended utilisation;
• the identity of the owner or operator;
• the financier or lessor involved; and
• the potential tax advantages associated with the chosen structure.

The most commonly employed structures include:

• secured direct lending;
• operating leases; and
• finance leases.

In instances involving substantial orders of commercial aircraft, export credit agencies are frequently enlisted to provide loan guarantees.

2.2 What are the advantages and disadvantages of these different types of structures?

Secured lending: This is the prevailing choice for procuring business jets and a limited number of sizeable commercial aircraft by operators or owners. It can be acquired through local banks, which in substantial transactions often form lending syndicates. The financier may stipulate the equity contribution required from the borrower, lessee or operator and subsequently fund the remaining amount, securing a vested interest in the aircraft. An inherent advantage for the lender is the right to reclaim the aircraft in the event of default.

One notable advantage of this structure for owners is the ability to annually deduct depreciation costs from their financial accounts. Nonetheless, alternative structures may offer more favourable interest rates and increased flexibility.

Operating leases: These present more adaptable financing frameworks for owners and operators. A notable example is Nigeria's voluntary participation in the pilot phase of the International Civil Aviation Organization's Carbon Offsetting and Reduction Scheme for International Aviation, which commenced in 2021. Operators engaged in operating leases possess the flexibility to adjust their fleet to incorporate aircraft that meet new environmental requirements. Consequently, operating leases – available as either dry leases or wet leases – are commonplace in Nigeria.

Dry leases constitute longer-term arrangements, typically spanning three years or more. The lessee benefits from the opportunity to evaluate the aircraft during the specified period without an immediate commitment to purchase. However, the advantages and drawbacks are contingent upon the legal and tax classification and recognition of the lease.

With the introduction of the International Financial Reporting Standard (IFRS) 16 on leases, effective as of 1 January 2019, global reporting requirements for tax purposes underwent significant changes for the majority of airlines, owners and operators. In Nigeria, Federal Inland Revenue Service (FIRS) Information Circular 2010/01 previously guided the tax implications of leases, categorising them as either operating leases or finance leases.

Under an operating lease, the lessee cannot recognise the aircraft as its own asset. No subsequent laws or circulars have been issued by the federal government or the FIRS concerning the implementation of IFRS 16, which altered this stance for lessees. Lease rentals may still be recognised as expenses for lessees until guidelines are provided for reporting the 'right of use' rather than expenses.

The advantage for the lessor lies in retaining ownership of the aircraft and receiving consistent rental income throughout the contract duration. However, the disadvantages for lessors are contingent upon various factors, including:

• the aircraft's classification;
• its age;
• the anticipated residual value; and
• the aircraft's condition upon redelivery.

These factors predominantly hinge on the lessee chosen by the lessor, following a thorough due diligence process. They significantly influence the aircraft's condition upon return or potential repossession in the event of default.

Conversely, wet leases are typically shorter in duration, sometimes as brief as three months. This arrangement is commonly employed when the lessee lacks an air operating certificate or requires the aircraft for only a limited period – for example, contract operations for events such as Hajj. A wet lease provides the lessee with the advantages of the aircraft, crew, maintenance and insurance. While this assures the lessor that the aircraft remains under the control of its crew, operating costs within the region may be higher for the lessee.

Finance lease: Finance leases in Nigeria closely resemble those in other common law jurisdictions. They encompass longer-term arrangements in which the lessee assumes the responsibilities of aircraft ownership. These leases may be structured:

• through a combination of operating leases with an option to purchase at the lease's conclusion; or
• via a hire purchase mechanism where the buyer contributes equity and the seller amortises the remaining payments and interest over time.

Irrespective of the method employed, the overarching aim is the transfer of aircraft ownership from the financier or lessor to the borrower or lessee upon full payment of the loan amount.

In certain finance lease structures, a special purpose vehicle may be employed in a tax-favourable jurisdiction with which Nigeria has established a double tax treaty. This arrangement benefits both the lessor and lessee. Notably, finance leases remain unaffected by the implementation of IFRS 16. They are also highly advantageous for the lessee, as it is legally permitted to claim capital allowances on the leased aircraft while simultaneously deducting interest payments as expenses.

2.3 What other factors should operators bear in mind when deciding on a financing structure?

Operators must consider not only their financial capabilities but also a spectrum of macro-environmental factors – including political, economic, social, technological, environmental and legal considerations – that may exert influence on regional operations in the foreseeable future. Among these, paramount considerations include:

• potential alterations to regulatory frameworks within the aviation sector; and
• shifts in economic and monetary policies.

These multifaceted factors should be pivotal in shaping the selection of an appropriate financial structure. It is essential that this choice aligns with the following parameters:

• the specific type of aircraft under consideration;
• the age of the aircraft;
• the preferred tax framework; and
• the operator's ability to fulfil contractual and financial commitments.

In essence, a well-considered financing structure should be crafted to harmonise with these variables.

2.4 Who are the most common providers of aircraft finance in your jurisdiction? Do any restrictions apply in this regard?

In Nigeria, the prevailing sources of aircraft finance are typically commercial banks and leasing companies. While there are no direct restrictions in place, exchange controls – governed by the Central Bank of Nigeria – come into play when dealing with the repatriation of payments in currencies other than the Nigerian naira.

3 Title transfer

3.1 How is title to an aircraft legally transferred in your jurisdiction?

Title to an aircraft can be legally transferred through a formal written agreement or contract between the parties involved. The Nigeria Civil Aviation Authority (NCAA) recognises a bill of sale as a valid legal method for effecting the transfer of title.

3.2 What are the formal and documentary requirements for transferring title?

For the transfer of title to an aircraft, a written document is a fundamental requirement. Subsequently, this document may be filed with the NCAA for official recognition. In cases where the transfer is directed to an entity or individual residing outside Nigeria and the aircraft is intended for export, a deregistration request should accompany the title transfer document.

In instances where the transfer is made to an entity or individual within Nigeria, the NCAA will issue a new certificate of registration to the new owner. To ensure the acceptance of the transfer document by the NCAA, it must be duly stamped, with the requisite payment of stamp duty. Notarisation of the transfer document is not mandatory; however, if the document is in a foreign language other than English, professional translation into English is obligatory. Moreover, the translated document must be submitted to the Nigerian embassy for the purposes of legalisation and authentication.

3.3 What is the process for transferring title?

In instances where title is transferred to a lessee within Nigeria, the aircraft can be registered provided that the lessee meets the stipulated requirements outlined in Part 4.2.1.2 of the Nigeria Civil Aviation Regulations. Upon fulfilment of these conditions, the NCAA will issue a certificate of registration.

When title to an aircraft registered in Nigeria is transferred through written documentation, a bill of sale or a contract, the existing certificate of registration for the aircraft becomes void. To effect this transfer, the appropriate section of the certificate of registration must be endorsed and returned to the NCAA, along with all pertinent transfer documents.

The process of transferring title hinges on whether the transferee intends to maintain the aircraft's registration in Nigeria or export it to another country. If the transfer is to a Nigerian citizen or a company registered in Nigeria with the intention of retaining the aircraft's Nigerian registration, the certificate holder must endorse the relevant sections on the reverse side of the certificate, notifying the NCAA of the change in ownership or operator. Subsequently, a new certificate of registration will be issued following completion of the registration process by the new owner.

However, if the transfer involves a foreign individual or company that wishes to keep the aircraft registered in Nigeria, the transferee must adhere to the regulations stipulated in Part 4.2.1.2 of the Nigeria Civil Aviation Regulations. These regulations specify that if the foreign party has leased the aircraft to a Nigerian citizen:

• The aircraft may remain on the Nigerian register only for the duration of the lease agreement; and
• The certificate of registration must include:
• • details such as the names and addresses of the lessee and, if different, the operator of the aircraft;
  • confirmation of non-registration under the laws of any other state; and
  • confirmation that the aircraft is not more than 22 years old, unless it is exclusively used for general aviation purposes.

Should the transferor opt to export the aircraft to another country, the certificate holder, owner or lessor, or their duly authorised representative, may submit a written application for the deregistration of the aircraft from the Nigerian registry for the purpose of export to the state of registration.

3.4 Are any charges, fees or taxes levied on the transfer of title?

In the context of transferring title to an aircraft registered in Nigeria, fees are due to the NCAA. These fees are outlined in the NCAA Schedule of Fees and Charges, as provided in Chapter 22 of the Nigeria Civil Aviation Regulations 2023. Fees vary based on the maximum certified take-off mass (MTOW) of the aircraft in question.

For fixed-wing aircraft, the registration fees are as follows:

• Up to 1000kg MTOW: NGN 45,000.
• Exceeding 1,000 kilograms (kg) but not above 2,500kg MTOW: NGN 135,000.
• Exceeding 2,500kg but not above 5,700kg MTOW: NGN 225,000.
• Exceeding 5,700kg but not above 10,000kg MTOW: NGN 450,000.
• Exceeding 10,000kg but not above 25,000kg MTOW: NGN 1,125,000.
• Exceeding 25,000kg but not above 40,000kg MTOW: NGN 1,800,000.
• Exceeding 40,000kg but not above 140,000kg MTOW: NGN 2,700,000.
• Exceeding 140,000kg but not above 240,000kg MTOW: NGN 3,375,000.
• Exceeding 240,000kg MTOW: NGN 4,500,000.

For rotary aircraft, the registration fees are as follows:

• Helicopters up to 3,175kg MTOW: NGN 2,700,000.
• Helicopters above 3,175kg MTOW: NGN 3,825,000.
• Special registration number for aircraft in any weight category: NGN 1,350,000.
• Reservation of aircraft registration mark (all weight categories): NGN 20,000.

Regarding de-registration of fixed-wing aircraft, the fees are as follows:

• Up to 1000kg MTOW: NGN 45,000.
• Exceeding 1,000kg but not above 2,500kg MTOW: NGN 90,000.
• Exceeding 2,500kg but not above 5,700kg MTOW: NGN 135,000.
• Exceeding 5,700kg but not above 10,000kg MTOW: NGN 180,000.
• Exceeding 10,000kg but not above 25,000kg MTOW: NGN 225,000.
• Exceeding 25,000kg but not above 40,000kg MTOW: NGN 270,000.
• Exceeding 40,000kg but not above 140,000kg MTOW: NGN 315,000.
• Exceeding 140,000kg but not above 240,000kg MTOW: NGN 360,000.
• Exceeding 240,000kg MTOW: NGN 450,000.

For de-registration of rotary aircraft, the fees are as follows:

• Helicopters up to 3,175kg MTOW: NGN 135,000.
• Helicopters above 3,175kg MTOW: NGN 180,000.

In addition to these fees, the NCAA imposes charges for the registration of aircraft mortgages, which are specified in the NCAA Schedule of Fees and Charges as follows:

• On the first NGN 100,000 of sum secured by the mortgage and for each complete NGN 10,000: NGN 1,000.
• On the next NGN 900,000 for each NGN 100,000 or part there of: NGN 1,000.
• Thereafter, each NGN 1 million or part thereof, provided that:
• • the minimum charge under this is NGN 50,000; and
  • the maximum charge under this is NGN 250,000.
• Where the mortgage to be registered does not specify the amount, the fee to be paid is NGN 250,000.
• Where an application is made for a mortgage for more than one aircraft, the applicant must pay the following charges:
• • For the first aircraft, as calculated in the paragraphs above: NGN 15,000.
  • For each additional aircraft: NGN 30,000.

Taxation on the transfer of title depends on various factors, including:

• the residence of the parties involved; and
• the structure of the transaction.

Non-resident foreign companies, such as transferors without a fixed base in Nigeria, may not be subject to income tax in Nigeria. However, specific circumstances, as defined under the Companies Income Tax Act, may determine whether income derived from Nigerian operations is subject to taxation. These circumstances encompass situations involving:

• a fixed base in Nigeria;
• a dependable agent in Nigeria, trade or business via a single contract (turnkey projects); or
• trade or business with a related entity in Nigeria.

3.5 Other than in case of insolvency, are there any laws under which the registered title holder may be forced to relinquish ownership of the aircraft (eg, expropriation, confiscation)?

Under Nigerian law, apart from situations related to insolvency, there are no specific laws that would force the registered title holder to relinquish ownership of an aircraft. The Constitution of the Federal Republic of Nigeria 1999 (as amended), specifically Section 44, stipulates that movable property or any interest in immovable property cannot be compulsorily taken possession of compulsorily, and no right over or interest in such property can be acquired compulsorily anywhere in Nigeria except through a prescribed legal process. This process includes prompt payment of compensation and affords any person claiming such compensation the right to access a legal mechanism for the determination of their interest in the property. Furthermore, the amount of compensation must be determined by a court of law, tribunal or body with jurisdiction in that part of Nigeria.

However, this constitutional provision does not impede the payment of obligations under:

• general laws related to taxes, rates and duties;
• agreements such as leases, tenancies, mortgages, charges, bills of sale or any other contractual rights or obligations; or
• obligations governed by bankruptcy laws.

In certain circumstances involving companies that have received bailouts or funding from the federal government which subsequently become non-performing loans, the federal government has the authority to convert these non-performing loans into shares in the company. This process is governed by the Asset Management Corporation of Nigeria Act. If the owner of an aircraft operates a company that has benefited from government loans or bailouts, there is the potential for the aircraft to be subject to confiscation under specific circumstances.

4 Registration

4.1 What body administers the aircraft register in your jurisdiction?

The administration and maintenance of the aircraft register in Nigeria are carried out by the Nigeria Civil Aviation Authority (NCAA), in accordance with the Civil Aviation Act 2022.

4.2 What information is included in the aircraft register? Is this publicly accessible?

The aircraft register in Nigeria, as stipulated under Part 4.2.1.5(a) of the Nigeria Civil Aviation Regulations contains detailed information on each aircraft registered in the country. This information is recorded on the certificate of registration, along with any other details required by the NCAA. Specifically, the certificate of registration includes the names and addresses of both the registered operator and owner of the aircraft.

Furthermore, under Part 4.2.1.6(a) of the regulations, the NCAA establishes and maintains a comprehensive record of all legal interests pertaining to each registered aircraft. This record encompasses proprietary rights, interests, liens and other relevant transactions.

Regarding accessibility, the regulations, as outlined in Parts 4.2.1.5(b) and (c) of the regulations, allow the NCAA to furnish information on the registration and ownership of a particular aircraft registered in Nigeria upon request. Such requests can be made by another International Civil Aviation Organization (ICAO) contracting state or the ICAO itself. Individuals or entities seeking access to the aircraft register for informational purposes are required to submit a written application to the NCAA and pay any prescribed search fees as determined by the NCAA.

4.3 What are the formal and documentary requirements for registration of an aircraft? What is the process for registration? What is the effect of registration? What is the effect of deregistration?

Requirements for registration: Aircraft registration in Nigeria entails compliance with specific eligibility and technical prerequisites as stipulated in NCAA Advisory Circular NCAA-AC-AWS001A. These criteria mandate that the aircraft:

• must not be registered in any other jurisdiction;
• must adhere to an age limit not exceeding 22 years (unless designated exclusively for general aviation); and
• must be owned by specific entities. Eligible owners include:
• • Nigerian citizens;
  • individuals lawfully admitted for permanent residence in Nigeria;
  • Nigerian corporate entities operating the aircraft primarily in Nigeria;
  • government entities or their subdivisions; and
  • foreign entities leasing the aircraft to eligible parties.

Technical requirements: An aircraft seeking registration must furnish a set of essential documents, the aircraft must demonstrate compliance with the technical requirements for registration by providing the following documents:

• the aircraft's technical specification;
• a certificate or notice of deregistration from the previous state of registration, or a letter from the state of manufacture if the aircraft is new and has never been registered in another state, confirming non-registration. The deregistration certificate must be received by the NCAA directly from the state of registration and must not be presented by the applicant (ie, it should be state to state);
• a certified copy of a current insurance certificate for the aircraft;
• a copy of the air transport licence, air operating permit, permit for non-commercial flight or permit for aerial aviation services;
• proof of payment of the prescribed fees, as set out in the NCAA Fee Schedule;
• a certified copy of the certificate of incorporation, if the aircraft is owned by a company;
• a copy of a government-issued identity card or passport, or any other identification card approved by the NCAA, if the aircraft is owned by an individual; and
• a copy of the permit to import and operate the aircraft issued by the minister of aviation.

Legal requirements: In order to meet the legal requirements, the following documents must also be submitted:

• document(s) to prove the aircraft ownership, as set out in Part 4.2.1.4(a)(2) of the Nigeria Civil Aviation Regulations (eg, the purchase agreement), with stamp duty paid;
• the names of the directors of the company that owns or leases the aircraft and their specimen signatures giving authority to register and/or operate the aircraft in Nigeria, and an indication of who among them has the mandate to transact on their behalf on matters relating to the aircraft registration and/or operation (see Nigerian Regulations NCAA-AC-AWS001A, July 2014);
• a certified copy of the lease agreement, if the aircraft is on lease, with stamp duty paid;
• a certified copy of power of attorney from both the owner/lessor and the lessee;
• an indemnity in accordance with Parts 4.2.1.7(a) and (b) of the Nigeria Civil Aviation Regulations; and
• an irrevocable deregistration and export request authorisation (IDERA), where applicable.

Registration process: A person that wishes to register an aircraft in Nigeria must:

• submit a duly completed Form AC-AWS 001A to the NCAA;
• pay the prescribed fees in accordance with the NCAA Fee Schedule; and
• meet the above aircraft eligibility requirements, as well as the technical and legal requirements.

This is in line with Part 4.2.1.4(a) of the Nigeria Civil Aviation Regulations. Each application must:

• comply with Part 4.2.1.2 on the eligibility of aircraft;
• include evidence of ownership; and
• be signed in ink.

If an applicant meets all requirements for registration, a certificate of registration will be issued by the NCAA.

Effect of registration: The effect of registration is that the aircraft may be operated in Nigeria under the laws of Nigeria. Part 4.2.1.1(a) of the Nigeria Civil Aviation Regulations stipulates that no one may operate a civil aircraft that is eligible for registration under the laws of Nigeria unless:

• the aircraft has been registered by its owner or operator under the laws of Nigeria; and
• the NCAA has issued a certificate of registration for that aircraft, which must be carried onboard the aircraft for all operations.

In order to operate the aircraft within Nigeria, a certificate of airworthiness must be issued in line with Part 5 of the Nigeria Civil Aviation Regulations.

Effect of deregistration: Where the NCAA deregisters an aircraft, the certificate of registration will be cancelled and the entry in the aircraft register will be deleted. This is stipulated in Part 4.2.1.3(a) of the Nigeria Civil Aviation Regulations, which also provides that the NCAA will deregister an aircraft in any of the following circumstances:

• The owner of the aircraft does not meet the eligibility standards set out in Part 4.2.1.2 of the Nigeria Civil Aviation Regulations;
• The holder of a valid deregistration power of attorney applies to the NCAA for deregistration;
• The holder of a certificate of registration, the owner or lessor or its duly authorised attorney applies in writing for deregistration of the aircraft from the Nigerian Register;
• The NCAA is satisfied that:
• • the aircraft has been destroyed, lost or stolen and cannot be found;
  • the aircraft has been permanently withdrawn from use;
  • the aircraft is registered in a country other than Nigeria or;
  • the aircraft's certificate of airworthiness has lapsed for five years or more; or
• The lease agreement upon which the aircraft was registered has expired or has been terminated, and a duly executed IDERA has been presented, except where the owner indicates in writing its desire for the aircraft to remain registered in Nigeria.

4.4 If your jurisdiction has ratified the Cape Town Convention, can a local law deregistration power of attorney be acquired by a lessor/financier, and if so, does it provide any additional protection for such parties?

Nigeria has ratified the Cape Town Convention. The NCAA has made it mandatory for an IDERA and a deregistration power of attorney to be filed simultaneously during the registration of the aircraft where the lessor or owner of the aircraft is a foreign entity. This provides the lessor/financier with additional protection, as the NCAA will honour the enforcement of a deregistration power of attorney under Part 4.2.1.2(a) of the Nigeria Civil Aviation Regulations. This provides that the NCAA shall remove an aircraft from the Nigerian registry if the holder of a valid deregistration power of attorney applies to it for deregistration.

4.5 What are the formal and documentary requirements for registration of an aircraft lease? What is the process for registration? What is the effect of registration? What is the effect of deregistration?

The requirements for registration of an aircraft lease are similar to those for registration of an aircraft. This is because the owner and operator must:

• be identified when applying for the certificate of registration of the aircraft; and
• meet the requirements under the Nigeria Civil Aviation Regulations.

Where the aircraft to be registered is under lease, the aircraft must:

• be eligible for registration through the issuance of a certificate of registration; and
• meet all technical and legal requirements set out under NCAA Advisory Circular NCAA-AC-AWS001A (see question 4.3).

To register aircraft documents such as lease agreements in the aircraft register, stamp duty must be paid on the documents for acceptance by the registry. Under Section 4 of the Stamp Duties Act 1939, the federal government – through the Federal Inland Revenue Service – is mandated to collect duties on instruments relating to matters executed between a company (including a bank or other financial institution) and any individual, group or body of individuals. This also applies to aircraft lease agreements.

4.6 What are the formal and documentary requirements for registration of an aircraft mortgage? What is the process for registration? What is the effect of registration? What is the effect of deregistration?

In order to register a mortgage on an aircraft, the mortgage must be executed by deed, duly stamped and registered with the NCAA after payment of the prescribed fees. From the date of registration, the registered mortgage will take priority over all other mortgages on the aircraft as filed with the NCAA.

In addition, the NCAA imposes charges for the registration of aircraft mortgages, which are specified in the NCAA Schedule of Fees and Charges as follows:

• On the first NGN 100,000 of the sum secured by the mortgage and for each complete NGN 10,000 thereafter: NGN 1,000.
• On the next NGN 900,000, for each NGN 100,000 or part thereof: NGN 1,000.
• Thereafter, on each NGN 1 million or part thereof, provided that:
• • the minimum charge under this is NGN 50,000; and
  • the maximum charge under this is NGN 250,000.
• Where the mortgage to be registered does not specify the amount, the fee to be paid is NGN 250,000.
• Where an application is made for a mortgage for more than one aircraft, the applicant must pay the following charges:
• • For the first aircraft, as calculated in the paragraphs above: NGN 15,000.
  • For each additional aircraft: NGN 30,000.

The Companies and Allied Matters Act 2020 also provides that where a security interest is established by a company creating a mortgage or a charge, it must be registered with the Corporate Affairs Commission within 90 days of creation of the mortgage. Failure to register the mortgage or charge will render it void against any creditor.

4.7 Can aircraft be registered in your jurisdiction even if the operator is not from your jurisdiction?

This will depend on whether the aircraft is for private use or commercial use.

For commercial aircraft, an aircraft cannot be registered if the operator is not from Nigeria. The technical requirements for registration of an aircraft under NCAA Advisory Circular NCAA-AC-AWS001A require the submission of a copy of the applicant's air transport licence or air operating permit. These are licences issued by the NCAA to Nigerian entities after meeting the requirements under the Civil Aviation Act 2022 and the Nigeria Civil Aviation Regulations. Under Section 96(1) of the Civil Aviation Act 2022, these licences may be granted only to:

• a citizen of Nigeria; or
• a company or a body corporate that:
• • is registered in Nigeria;
  • has its principal place of business within Nigeria; and
  • is controlled by Nigerian nationals.

The only exception to this is where an Article 83Bis is in place between the foreign jurisdiction and Nigeria. At present, however, none are in place.

Although Section 96(2) of the Civil Aviation Act 2022 provides that the above requirements shall not apply if aircraft is for private use, an aircraft may be registered in Nigeria only if:

• it is owned by:
• • a citizen of Nigeria;
  • an individual citizen of another state who is lawfully admitted for permanent residence in Nigeria;
  • a corporation that is lawfully organised and doing business under the laws of Nigeria; or
  • a foreign person that has leased the aircraft to a citizen of Nigeria; and
• it is based and primarily used in Nigeria, or by a government entity of Nigeria.

5 Operating leases

5.1 Are there any mandatory or advisable terms that should be included in an operating lease from a local law perspective?

There are no mandatory terms specified by local law allowing parties to negotiate and include terms that suit their specific arrangements. However, there are common clauses typically found in operating leases. These include provisions related to:

• interpretation;
• representations and warranties;
• conditions precedent;
• commencement of lease;
• payments;
• taxation;
• quiet enjoyment and other lessor covenants;
• lessee's covenants;
• insurance and total loss;
• manufacturer's warranties;
• indemnity;
• return of aircraft;
• default;
• assignment and transfer;
• illegality;
• notices;
• disclaimers and waivers;
• law and jurisdiction;
• third parties; and
• confidentiality.

5.2 What charges, fees or taxes arise from the execution of an operating lease?

After execution of an operating lease, the leased aircraft which is to be registered in Nigeria will attract fees payable to the Nigerian Civil Aviation Authority (NCAA), which are charged upon submission of an application to register the aircraft.

In order to register the operating lease with the aircraft registry, stamp duties must be paid on the operating lease document for acceptance at the registry.

With regard to taxes levied on operating leases, these will depend on whether the lessor is a resident company in Nigeria. Where the lessor is a foreign entity, it may be taxed on income derived from Nigeria where such income is derived from its Nigerian operations under the Companies Income Tax Act (see question 3.4).

The lessee is mandated by law to deduct withholding tax at a rate of 10% on rental payments on the operating lease. This rate is reduced to 7.5% where there is a double tax treaty between the lessor state and Nigeria.

5.3 Can either the lessor or the lessee assign or novate its rights in an operating lease in your jurisdiction?

Yes, as long as:

• the terms of the operating lease permit such novation; and
• the operating lease is subject to the necessary notification of the NCAA or other regulatory bodies.

5.4 What are the respective obligations and liabilities of the lessor and lessee under an aircraft lease?

Under an aircraft lease, the lessor's and lessee's obligations are as negotiated and agreed by the parties of the specific lease agreement. Under standard aircraft leases, the following obligations and liabilities are common.

Lessor's obligations:

• Delivery of the aircraft: The lessor is obliged to deliver the aircraft in the delivery condition specified under the aircraft lease. The lessee may reject the aircraft where the lessor fails to meet the aircraft delivery condition.
• Quiet enjoyment: The lessor must not interfere with the quiet use, possession and enjoyment of the aircraft by the lessee during the lease period.

Lessee's obligations:

• Acceptance: The lessee, upon executing the acceptance certificate, takes full responsibility for the aircraft, its condition, maintenance, insurance and all obligations stipulated under the aircraft lease.
• Payment of rent: The lessee is obliged to pay rents and supplementary rents on the aircraft as and when due throughout the lease period.
• Redelivery: The lessee is obliged to redeliver the aircraft at the end of the lease period in the manner set out in the aircraft lease.

5.5 In the event of default, what options are typically available to enforce the operating lease? Do all or some enforcement actions require court applications? If so what are the associated costs and timescales involved?

In the event of default, the lessor may notify the lessee of the event of default and give the lessee a period to remedy the default. Where that is unsuccessful, the lessor may terminate the lease and repossess the aircraft. Where the lease has been registered with the NCAA, the lessor may simply enforce the irrevocable deregistration and export request authorisation (IDERA) filed with the NCAA. Nigeria has ratified and implemented Article 54(2) of the Cape Town Convention and the associated Protocol through the Civil Aviation Act 2022, which allows the lessor to deregister and export the aircraft without an order of court. However, if the lessor is a Nigerian entity and no IDERA was filed, the lessor may approach the court to obtain an order.

It is typical for recalcitrant lessees that have defaulted to approach the court to seek an injunction to restrain the lessors from repossessing the aircraft, even where an IDERA and a deregistration power of attorney have been signed and filed. All of these cases have ended up with the NCAA and the court upholding the IDERA filed in full compliance with the Cape Town Convention.

The enforcement process should normally take no more than a week where notice is sent to the NCAA and there are no hindrances from the lessee seeking court intervention. Where the lessee approaches the court, the obvious strategy is to delay repossession. The timescale of this is hard to predict – it could range from a couple of months to over a year. The cost of litigation will also depend on the law firm briefed to defend the lessor.

5.6 Upon termination of the operating lease, how is repossession of the aircraft effected? Can airports assert a lien over all of the lessee's aircraft until unpaid charges have been discharged?

As provided in Parts 4.2.1.3(a)(2) and (5) of the Nigeria Civil Aviation Regulations respectively, the lessor – as the holder of a valid deregistration power of attorney – may apply to the NCAA for deregistration of the aircraft. Alternatively, where the lease agreement upon which the aircraft was registered is terminated, the owner may present a duly executed IDERA to the NCAA for deregistration of the aircraft. The NCAA is mandated by law to deregister the aircraft when either the deregistration power of attorney or a duly executed IDERA is presented for execution.

It is possible for regulatory agencies such as the NCAA, the Federal Airports Authority of Nigeria and the Nigeria Airspace Management Agency to restrict an aircraft from movement in Nigeria where charges are due on the account of the aircraft, until those charges have been discharged.

5.7 What disputes typically arise over operating leases in your jurisdiction and how are these typically resolved?

The most common disputes that may occur post-delivery mainly concern:

• the operations and condition of the aircraft during the lease period; and
• the payment obligations of the parties, especially on liens and insurance.

The resolution of these disputes will depend on the nature of the relationship between the lessor and the lessee. If the lessee has generally been creditworthy, it is easier to reach a settlement. However, where the dispute escalates beyond amicable settlement, it will be referred to the method of dispute resolution set out in the lease agreement under the agreed governing law.

5.8 What other considerations should be borne in mind when concluding an aircraft lease in your jurisdiction?

Lessors should do their due diligence on prospective lessees in order to ascertain their creditworthiness and reputation. Lessors may also take the pre-emptive measure of having a local representative investigate the condition of the aircraft, any debts owed to the regulatory authorities and other issues that might give an early indication of a tentative breach of the lease agreement.

6 Security

6.1 What types of security interests in aircraft are available in your jurisdiction? Which are most commonly used and which would you recommend (if different)?

In Nigeria, various types of security interests can be established in aircraft, including the following:

• Mortgages (legal or equitable): Mortgages are commonly used to secure aircraft financing. They grant the lender a legal interest in the aircraft, allowing for repossession and sale in case of default.
• Charges: Charges are another common form of security interest, where the aircraft remains with the debtor, but the creditor has a charge over it. Charges can secure various obligations, including loans and lease payments.
• Liens: Liens can arise due to unpaid charges, such as maintenance or repair costs. While not a proactive form of security interest, they can lead to the sale of the aircraft to satisfy the lien.
• Pledge and hypothecation: These are less common forms of security interests in aircraft. Pledge involves delivering possession of the aircraft to the creditor, while hypothecation allows the creditor to claim ownership if the debtor defaults.

The most commonly used security interests in Nigeria are mortgages and charges. Mortgages, whether legal or equitable, are recommended when financing aircraft acquisitions due to their registrability and enforceability.

6.2 What are the formal, documentary and procedural requirements for perfecting a security interest in an aircraft?

To perfect a security interest in an aircraft in Nigeria, the following steps must be taken:

Registration with the Nigeria Civil Aviation Authority (NCAA): It is common for the security interest to be registered at the initial stage when the aircraft is registered with the Nigerian Civil Aviation Authority (NCAA). If a security interest is created over the aircraft once the aircraft has already been registered, this must be filed with the NCAA; and where necessary, the holder of the certificate of registration must endorse the relevant sections on the reverse side of the certificate of registration, notifying the NCAA that there has been a change in ownership or change of operator. A new certificate of registration will be issued upon completion of the registration process. All technical and legal requirements set out under NCAA Advisory Circular NCAA-AC-AWS001A must also be met (see question 4.3).

Stamp duty and Corporate Affairs Commission registration: All documents creating a security interest must be duly stamped. The security interest may subsequently be registered with the Corporate Affairs Commission.

6.3 Can security be taken over engines and/or any other aircraft parts in your jurisdiction? If so, how?

In Nigeria, security interests can encompass aircraft engines and parts, but these are considered part of the overall aircraft security. There is no separate register for engines or aircraft parts. Security interests in engines and parts can be established as part of the security interest in the entire aircraft. These interests should be registered with the NCAA and, if necessary, endorsed on the certificate of registration.

6.4 What charges, fees or taxes arise from the perfection of a security interest in an aircraft?

The following charges and fees may arise from the perfection of a security with the respective regulatory agencies.

Stamp duty: Stamp duty must be paid on the documents creating a security interest in an aircraft; otherwise, it will not be accepted for filing with the various regulatory bodies. The stamp duty payable on legal mortgages is 0.375% of the secured amount.

NCAA charges: Under the NCAA Schedule of fees and Charges 2023, the following charges are payable upon the application for registration of a mortgage on an aircraft:

• On the first NGN 100,000 of sum secured by the mortgage and for each complete NGN 10,000: NGN 1,000.
• On the next NGN 900,000 for each NGN 100,000 or part there of: NGN 1,000.
• Thereafter, each NGN 1 million or part thereof, provided that:
• • the minimum charge under this is NGN 50,000; and
  • the maximum charge under this is NGN 250,000.
• Where the mortgage to be registered does not specify the amount, the fee to be paid is NGN 250,000.
• Where an application is made for a mortgage for more than one aircraft, the applicant must pay the following charges:
• • For the first aircraft, as calculated in the paragraphs above: NGN 15,000.
  • For each additional aircraft: NGN 30,000.

Corporate Affairs Commission Fees: Under the Companies and Allied Matters Act 2020, the registration of a security interest created by a company must be registered with the Corporate Affairs Commission within 60 days of creation of the mortgage. Failure to register the mortgage or charge will render it void against any creditor. The total fees payable to the Corporate Affairs Commission in connection with the filing, registration or release of a charge shall not exceed 0.35% of the value of the charge or such other amount as the minister of Aviation and Aerospace Development of Nigeria may specify in the Federal Government Gazette.

6.5 What are the respective obligations and liabilities of the owner and the secured party under the security interest?

The obligations and liabilities of the owner or secured party are as stipulated within the contractual agreement between the involved parties. It is imperative for the owner or secured party to ensure that the security interests concerning the aircraft are properly registered in the relevant registers. Any lapse in fulfilling this registration requirement could potentially impact the prioritisation and validation of these security interests. This, in turn, may complicate the enforcement process in case of breach or default.

6.6 In the event of default, what options are available to enforce the security interest? Is self-help available in your jurisdiction or does enforcement action have to go through the courts?

In the event of default, the secured party may notify the defaulter of the event of default and give it a period in which to remedy the default. If that is unsuccessful, the secured party may terminate the agreement and repossess the aircraft.

Self-help is available in Nigeria. Where the security interest has been registered with the NCAA, the secured party may simply enforce the irrevocable deregistration and export request authorisation (IDERA) filed with the NCAA without going to court. Nigeria has ratified and implemented the Cape Town Convention and the associated Protocol, which allow the secured party to deregister and export the aircraft without an order of court. However, if the secured party is a Nigerian entity and no IDERA was filed, the secured party may approach the court to obtain an order.

6.7 Will local courts recognise a foreign court judgement in favour of a lessor/financier?

In Nigeria, the recognition of foreign court judgments hinges on two key federal laws:

• the Reciprocal Enforcement of Judgments Act, 1958; and
• the Foreign Judgments (Reciprocal Enforcement) Act, 1961 (Cap F35, Laws of the Federation 2004).

Under Section 3 of the 1961 act, the minister of justice is granted the authority to extend the application of Part 1 of this act, specifically concerning the recognition and enforcement of foreign judgments from superior courts in any foreign country. This extension is contingent on the satisfaction that judgments from Nigerian superior courts receive analogous or substantial reciprocity in that foreign jurisdiction. Additionally, Section 10(a) of the 1961 act allows for the registration of a foreign judgment within 12 months of its issuance, or a longer duration as permitted by a Nigerian superior court if an order under Section 3 of the 1961 act has not yet been issued.

The 1958 act, on the other hand, primarily addresses the recognition of judgments obtained in the United Kingdom, as well as other UK dominions and territories. The 1961 act did not explicitly repeal the 1958 act. Consequently, the 1958 act continues to apply to the United Kingdom and the parts of UK dominions to which it was extended under Section 5 of the 1958 act before the implementation of the 1961 act.

Moreover, Nigeria is a signatory to the New York Convention, which has been incorporated into Nigerian law through the Arbitration and Mediation Act 2023. Parties seeking to enforce an arbitral award can make an application to the high court in the jurisdiction where they intend to enforce the award for its recognition and enforcement.

6.8 What other considerations should be borne in mind when perfecting a security interest in an aircraft in your jurisdiction?

It is imperative to ensure that the related documents are duly stamped. The assessment for stamp duty is typically carried out by the stamp duties commissioner. Notably, in aircraft transactions, these assessments can be substantial. To alleviate this financial burden, it is common practice for the secured party or financier to allow the operator or lessee to pay stamp duty on a portion of the secured amount rather than the entire sum. This arrangement is often made with the understanding that the full stamp duty on the entire secured amount will be settled at a later date or upon the occurrence of specific events. It is essential to be aware that the secured party or financier is safeguarded only up to the amount that is secured. Until the full stamp duty is paid, the secured party or financier may risk losing its priority status before completion of the stamp duty payment. As a precautionary measure, it is advisable to include negative pledge and pari passu covenants within the document containing the security interest.

6.9 Has your jurisdiction ratified the Cape Town Convention? If yes, are there any notable exceptions to the ratification? If yes, in your opinion, could any conflicts arise between the Cape Town Convention and local law in an enforcement scenario? If yes, have any enforcement issues arisen in relation with regard to conflicts between the Cape Town Convention and local law?

Nigeria has indeed ratified the Cape Town Convention, and there are no notable exceptions to this ratification that might potentially lead to conflicts between the Cape Town Convention and Nigerian law in an enforcement scenario.

The declarations submitted by Nigeria under the Cape Town Convention outline specific provisions. Under Article 39(1)(a), Nigeria declared that:

• certain non-consensual rights or interests, such as liens for unpaid wages by workers or repairers of an aircraft, have priority under Nigerian law over an interest equivalent to that of a registered international interest; and
• these liens take precedence over registered international interests, whether within or outside insolvency proceedings.

Furthermore, under Article 40, Nigeria declared that various categories of non-consensual rights or interests – including rights arising from court orders, liens related to taxes or unpaid charges and liens of salvors or bailees – will be registrable under the convention and regulated as international interests.

Additionally, Nigeria has made a mandatory declaration under Article 54(2), specifying that any remedies available to the creditor under the convention which do not expressly require court action may be exercised without the need for court intervention.

Based on these declarations, the NCAA has made it mandatory for an IDERA and a deregistration power of attorney to be filed simultaneously during the registration of the aircraft where the lessor or owner is a foreign entity. This provides the lessor/financier with additional protection, as the NCAA will honour the enforcement of a deregistration power of attorney under Part 4.2.1.2(a) of the Nigeria Civil Aviation Regulations. This provides that the NCAA will remove an aircraft from the Nigerian registry if the holder of a valid deregistration power of attorney applies to the NCAA for deregistration.

7 Aircraft sale and purchase

7.1 How are aircraft sale and purchases typically effected in your jurisdiction? Are there any differences in the sale of airframe versus engines?

An aircraft sale and purchase is commonly carried out through the execution of an aircraft sale and purchase agreement between the purchaser and the seller. Once the purchaser is satisfied with the aircraft, the seller issues a bill of sale which transfers title to the aircraft to the purchaser free and clear of any mortgage, charge, lien or other encumbrance whatsoever. Under the aircraft sale and purchase agreement, the 'aircraft' will normally constitute the airframe together with the engine(s), including the manuals and technical records, unless otherwise provided in the agreement between the parties.

7.2 What players are typically involved in an aircraft sale and purchase?

Typically, and depending on the mode of financing the sale, the transaction will involve the purchaser, the seller and the escrow agent. Where the aircraft is purchased through financing provided by banks or other financial institutions, the financiers (eg, commercial banks; export credit agencies) or their nominee, or a security trustee as appointed under the financing documents, may also be involved. The civil aviation authorities will also be involved in the registration of the aircraft. In order to ensure that there are no pending liens or bills outstanding on the aircraft, other players such as EUROCONTROL or maintenance, repair and overhaul facilities will also be involved, to provide the purchaser with written proof that no outstanding bills are due on the aircraft.

7.3 Is the manufacturer/seller bound by a duty to disclose? What representations and warranties will it typically make?

Most aircraft sale and purchase agreements are governed by foreign law. Under Nigerian law, the vendor of a property that knows its own title is obliged to disclose all that is necessary to protect itself, rather than requiring the purchaser to demand an inspection of the vendor's title deed before entering into a contract. However, this may differ in the case of an aircraft sale, where the purchaser contractually accepts the aircraft 'as is, where is' and the seller makes no representations and warranties in relation to the airworthiness, condition, design, merchantability or fitness for use or operation of the aircraft. This is why in such case the purchaser conducts an inspection of the aircraft before accepting the aircraft. The Nigerian courts uphold the Latin maxim of pacta convent quae neque contro leges neque dolo malo inita sunt omni modo observando sunt, which means that "agreements which are neither contrary to the law nor fraudulently entered into should be adhered to in every manner and in every detail". The agreement between the parties will therefore be upheld by the courts.

It is therefore common for the seller to make the following representations and warranties:

• It is the sole and absolute legal and beneficial owner of the aircraft;
• The aircraft is not (or on the delivery date will not be) the subject of any mortgage, charge, pledge, lien or other encumbrance whatsoever;
• The aircraft is not (or on the delivery date will not be) the subject of any financing by any third-party finance provider;
• Upon delivery, the seller will transfer the aircraft to the purchaser with full title guarantee; and
• The seller is duly incorporated and has full power and authority to enter into and perform its obligations under the aircraft sale and purchase agreement, and that entry and performance has been duly authorised by all necessary corporate action of the seller.

7.4 What due diligence is typically conducted in an aircraft sale and purchase?

In an aircraft sale and purchase, due diligence is typically conducted on the aircraft and the seller, to ensure that the aircraft meets the delivery condition as stipulated between the parties and the seller has the clear legal and beneficial title at the time of delivery.

Aircraft due diligence:

• Manuals and technical records;
• A certificate of registration issued by the Nigerian Civil Aviation Authority (NCAA);
• The most recent certificate of airworthiness issued by the NCAA (notwithstanding that such certificate of airworthiness may have expired);
• A valid flight permit issued by the NCAA which is in full force and effect at the delivery date;
• The export certificate of airworthiness issued by the NCAA;
• A certificate of deregistration issued by the NCAA;
• Evidence that the aircraft is free of any mortgage, charge, pledge, lien or other encumbrance, being:
• • confirmation from the NCAA that no mortgage, charge, pledge, lien or other encumbrance is registered with the NCAA (for the avoidance of doubt, such confirmation may be in the form of a clear NCAA mortgage register search); and
  • clear priority searches from the International Registry of Mobile Assets with respect to the airframe and each engine;
• Evidence that no navigation fees or duties are outstanding to EUROCONTROL, the Federal Airports Authority of Nigeria and the Nigerian Airspace Management Agency with respect to the aircraft;
• Evidence from the base of the aircraft confirming that all relevant airport charges have been paid as of the delivery date;
• Evidence that there are no fees, invoices, expenses or taxes payable to the inspection facility or any other provider of maintenance, repair, overhaul or hangarage or parking services with respect to the aircraft; and
• Where engines or auxiliary power units are on a programme, evidence that the contract is fully paid to date and confirmation from the original equipment manufacturer that the contract will be available for transfer to the purchaser following delivery.

Seller due diligence:

• A mortgage register search at the Corporate Affairs Commission showing that there are no mortgages, charges or other encumbrances registered against the seller with respect to the aircraft on the delivery date;
• A director's certificate of the seller:
• • confirming that the aircraft is not the subject of any mortgage, charge, pledge, lien or other encumbrance; and
  • attaching the constitutional documents of the seller; and
• Certified copies of the aircraft sale and purchase agreement and bill of sale pursuant to which title to the aircraft was transferred to the seller.

7.5 What are the formal, documentary and procedural requirements for conclusion of an aircraft sale and purchase?

The purchaser must:

• submit a duly completed Form AC-AWS 001A to the NCAA;
• pay the prescribed fees in accordance with the NCAA Schedule of Fee and Charges; and
• meet the aircraft eligibility requirements, and the technical and legal requirements.

The following documents must also be submitted:

• a duly executed aircraft sale and purchase agreement;
• an executed bill of sale;
• an export certificate of airworthiness issued by the NCAA where the aircraft was registered; and
• a certificate of deregistration issued by the NCAA where the aircraft was registered.

7.6 What are the respective obligations and liabilities of buyer and seller during the transaction, and what are the consequences of any breach?

Under an aircraft sale and purchase agreement, the seller's and purchaser's obligations are as negotiated and agreed by the parties of the specific aircraft sale and purchase agreement. However, under standard aircraft sale and purchase agreements, it is common for the seller to bear the obligation of delivering the aircraft in the delivery condition specified under the agreement. After inspecting the aircraft, the purchaser may reject it where it does not meet the delivery condition specified. The seller is also obliged to deliver the aircraft to the purchaser free from any mortgage, charge, pledge, lien or other encumbrance, in order to give the purchaser clear title.

The purchaser is obliged to accept the aircraft as long as it meets the delivery condition stipulated in the aircraft sale and purchase agreement. Where this is not done, the purchaser may forfeit any deposit paid into the escrow account.

7.7 What charges, fees or taxes arise from the conclusion of an aircraft sale and purchase? Are there sales tax exemptions – for example, if the aircraft is being sold to an operator that will continue to use the aircraft to generate revenue?

Where the seller/owner of the aircraft is a Nigerian company or individual, the seller is required by law to pay capital gains tax of 10% accruing to the company or individual. However, a rollover relief may be claimed where the proceeds of the disposal are used to purchase a new asset of the same class (ie, another aircraft).

The seller/owner must also remit value added tax (VAT) at the rate of 7.5% chargeable on the supply of goods and services. A taxable supply is deemed to have taken place where:

• goods are physically present in Nigeria;
• the beneficial owner is a taxable person in Nigeria, and the right over the goods is exercisable in Nigeria;
• services are rendered in Nigeria by a person physically present in Nigeria;
• services are provided to and consumed by a person in Nigeria;
• the services are connected with immovable property located in Nigeria;
• the exploitation of the right is made by a person in Nigeria;
• the right is registered in or acquired by a person in Nigeria; or
• the right is connected to an immovable asset in Nigeria.

Where the purchaser of the aircraft is a Nigerian company, by virtue of the Federal Government 2013 Fiscal Policy Measures, Ref BD.12237/S.1008/T/11 of 15 January 2013, which were extended in 2015, airlines registered in Nigeria and providing commercial air transport services are entitled to duty-free importation of their aircraft, engines, spare parts, and components, whether purchased or leased. Therefore, all commercial aircraft and spare parts imported for use in Nigeria will attract import duty and VAT at a rate of 0% respectively. However, this right is not exercisable by purchasers of aircraft for private use.

Operators of aircraft for commercial use must pay air ticket, charter and cargo sales charge of 5%, to be remitted to the NCAA. Under Section 23(5) of the Civil Aviation Act 2022, the 5% of airfare, contract and charter sales charge payable to the NCAA applies to all operators engaged in transportation of persons by air for hire and reward whether using rotary or fixed-wing aircraft. This is an important consideration where an aircraft is sold to another operator to generate revenue from the commercial operation of the aircraft.

Under Section 23(10) of the Civil Aviation Act 2022, an air operator which fails to remit or pay to the NCAA, within the time specified in the relevant regulations made under the act, the 5% of airfare, contract, charter, cargo, sales charge and management fee commits an offence; and its directors are each liable on conviction to a fine of NGN 5 million, imprisonment for a term of two years or both.

7.8 What other considerations should be borne in mind when conducting a sale and purchase of an aircraft in your jurisdiction?

Where the acquisition is from a Nigerian seller, it is critical to ensure that no outstanding charges are owed to any regulatory authorities either in Nigeria or outside Nigeria. These include:

• the NCAA;
• the Federal Airports Authority of Nigeria;
• the Nigeria Airspace Management Agency;
• the Federal Inland Revenue Service; and
• EUROCONTROL in Europe.

If the aircraft has flown though Europe in the preceding months or years and EUROCONTROL charges outstanding, the aircraft – even after the transfer to the new owner – may be grounded when it is within EUROCONTROL territory until the outstanding charges are paid.

7.9 Are the payments of deposits refundable under term sheets if a sale does not proceed and do the parties have a duty of good faith in the conduct of sale and purchase negotiations?

This will depend on the exact terms of the agreement. Where the purchaser has undertaken to forfeit the deposit if the aircraft is rejected for reasons other than issues touching on the airworthiness, it may be bound by this obligation. Under Nigerian law, the duty of good faith in negotiations is enforced by the courts where the parties have made this an obligation in the contract. Section 169 of the Evidence Act 2011 imposes the doctrine of estoppel by stating that:

All conditions precedent stipulated in a contract are therefore expected to be fulfilled by the parties and will be upheld by the Nigerian courts, including the duty of good faith in the conduct of sale and purchase negotiations.

8 Insurance

8.1 What insurance requirements apply to aircraft in your jurisdiction?

Under Section 104 of the Civil Aviation Act 2022, the following entities must maintain adequate insurance covering their liability under the act and their liability towards compensation for damages that may be sustained by third parties in an amount to be specified in regulations set by the NCAA:

• carriers operating air transport services to, from or within Nigeria;
• aerodrome operators;
• aviation fuel suppliers;
• provider of ground-handling services, meteorological services, air traffic control services or aircraft maintenance services; and
• providers of such other allied service as the Nigerian Civil Aviation Authority (NCAA) may from time to time determine in writing.

8.2 If local insurance is required, can local insurers assign reinsurance contracts in your jurisdiction?

There is no prohibition under the Insurance Act against insurers reinsuring or spreading the risk with other insurers outside Nigeria. This is commonly done in the Nigerian aviation industry, with insurers reinsuring the risk with foreign insurance companies.

8.3 What other forms of insurance feature in the aircraft finance market in your jurisdiction?

See question 8.2.

9 Trends and predictions

9.1 How would you describe the current aircraft financing landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

Six bills were recently enacted into law by the National Assembly, as follows:

• the Civil Aviation Act 2022;
• the Federal Airports Authority of Nigeria Act, 2022;
• the Nigerian College of Airspace Management Agency (Establishment) Act, 2022;
• the Nigerian College of Aviation Technology (Establishment) Act, 2022;
• the Nigerian Meteorological Agency (Establishment) Act 2022; and
• the Nigerian Safety Investigation Bureau (Establishment) Act, 2022.

Under Part 9.1.1.6(b)(2)(i) of the Nigeria Civil Aviation Regulations 2023, commercial operators for scheduled operations must have at least six Nigerian-registered airworthy aircraft capable of serving their approved routes. The Director General of the Nigeria Civil Aviation Authority (NCAA) has given a deadline of January 2025 for airlines to comply with this requirement. This development will affect the aviation finance landscape in Nigeria as airlines seek to meet this requirement before the deadline. Carriers that cannot afford to purchase new aircraft will be looking for leasing opportunities. Some stakeholders suggest that airlines which cannot meet this requirement may merge with other airlines.

Litigation is ongoing concerning the launch of the national carrier of Nigeria. However, the new minister of aviation seems to be continuing with the Aviation Roadmap of the previous minister, including:

• the privatisation of Nigeria's three largest airports – Abuja, Lagos and Port Harcourt; and
• the establishment of a national carrier as well as a state leasing company.

However, as yet there is no clear indication of how these developments will play out.

10 Tips and traps

10.1 What are your top tips for the smooth conclusion of an aircraft financing transaction and what potential sticking points would you highlight?

The most critical point in any aircraft financing transaction is to conduct proper due diligence on the party to which the aircraft is to be leased or from which the aircraft is to be bought. It is crucial to:

• ascertain the creditworthiness and reputation of a lessee; and
• take pre-emptive measures of having a representative locally to monitor:

• the condition of the aircraft;
• debt owed to the regulatory authorities; and
• other issues that might give an early indication of a tentative breach of a lease agreement.

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.