1 Legal framework

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

Typically, aviation finance transactions are governed by the laws of England or of a US state, most commonly New York.

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?

The creation of a security interest, as well as execution, filing and performance requirements, are subject to Turkish law (ie, all payments must be made through local banks). Also, where an aircraft sale takes place in Turkey, Turkish laws have mandatory application. A choice of foreign law as governing law will be upheld as valid, on condition that the Turkish court finds that the applicable provisions under such governing law do not contradict Turkish public policy and/or compulsory provisions of Turkish law.

2 Finance structures

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

Debt in the form of loans or bonds and equity in the form of pure equity or capital shares are common. The sale and leaseback structure is the most common method of financing in the market.

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

Given that, in the case of a leaseback arrangement, the equity need not be paid back, but comes at the cost of ownership, this structure is preferred where an airline needs to use the cash invested in a particular aircraft for other investments, but the asset is still needed in order to operate.

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

Financial structures and strategies should be available to private investors. Therefore, the government should not impose restrictions on sources of financing for private investors (eg, by insisting on local banks), or on the instruments and structures that may be negotiated, other than specifying a maximum leverage or insisting on a lending competition (where appropriate).

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

Commercial banks and investment banks are the most common debt providers. Multilateral development banks, export credit agencies and national development banks are also a possibility.

3 Title transfer

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

If an aircraft is registered in the Turkish Aircraft Register kept by the Civil Aviation Authority, it constitutes prima facie evidence of ownership. Any transfer of title should be reflected in the Turkish Aircraft Register. A duly executed bill of sale and its delivery will be considered by the Turkish courts as evidence of the parties' intention to transfer title of an aircraft.

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

Depending on the statutory procedural requirements, which may differ depending on the nature of the lease for the aircraft, a transfer agreement in its duly executed form must be submitted to the Civil Aviation Authority, together with a Turkish version, the corporate authorities of the parties and approvals from the primary filing authorities, to the extent applicable.

3.3 What is the process for transferring title?

In the case of a leased aircraft, a transfer of title is possible only by way of sale and if permitted in the initial lease agreement. Such transfer requires the execution of a lease transfer agreement reflecting the change in parties.

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

Minor statutory registration fees apply pursuant to the Flight Standards Tariff of the Civil Aviation Authority, which is updated annually (http://web.shgm.gov.tr/en/s/4007-service-tariff).

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)?

An aircraft may be detained by the Turkish courts upon the application of third parties for an attachment order based on alleged private law claims, or subject to the detention rights of tax departments in the case of unpaid tax. Among other things, where airport charges are unpaid, the airport authorities may apply for the attachment of an aircraft or alternatively claim a possessory lien and invoke a right of retention over the aircraft. The Customs Law provides that any vehicle used in an act of smuggling, in contravention of the Customs Law, may be confiscated.

4 Registration

4.1 What body administers the aircraft register in your jurisdiction?

In Turkey, the registration of aircraft is the responsibility of the Ministry of Transport and Infrastructure, whose activities include the certification and regulation of aircraft, air crew and airports, together with the control of air traffic, which are performed through the Directorate General of the Civil Aviation Authority. The Civil Aviation Authority must maintain a register of aircraft, the Aircraft Register.

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

An applicant can access the records as long as it can evidence an interest in doing so.

According to the Law of Civil Aviation (2920/1983), the Aircraft Register includes the following particulars:

  • the name and address of the aircraft's manufacturer;
  • the date of manufacture and serial number of the aircraft;
  • the type, model and make of the aircraft;
  • if the owner is an individual, his or her name; or alternatively, the company's name and registration number, together with details of the registry of commerce in which it is registered;
  • if the owner is a commercial partnership, the type of partnership, its commercial name and registration number, and the Registry of Commerce in which it is registered;
  • if the owner is another kind of legal entity, its name and legal residence;
  • the means by which the owner acquired title to the aircraft (eg, through a sale agreement or pursuant to a forced sale); and
  • the call sign of the aircraft.

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?

The requirements on the registration of aircraft are set out in the Civil Aviation Law. Article 3 of the Civil Aviation Law defines an ‘aircraft' as any type of vehicle that derives support and cruises in the air.

The Civil Aviation Law provides that the acquisition of a right of ownership, a mortgage or any other real right over an aircraft by a person that relies in good faith on the information recorded in the Aircraft Register will be upheld as valid. This also applies in cases where any legal steps are taken for the benefit of the recorded owner of such a right or where the recorded owner enters into a contract with a third party disposing of such a right.

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?

As a power of attorney may be revoked by the grantor, it may not constitute reliable protection.

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 Ministry of Transport and Infrastructure will automatically deregister an aircraft if:

  • the prerequisites for an aircraft to be considered as a Turkish civil aircraft cease to exist or the ownership of the aircraft is transferred to a person that does not satisfy such prerequisites;
  • a Turkish civil aircraft is registered in a foreign register or, although registered in the Turkish Aircraft Register, has not been deregistered from the foreign register; or
  • the permitted period for registration has expired.

The Civil Aviation Law also provides that if the aircraft is a total or constructive loss, its owner may apply for deregistration.

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?

Mortgages and other rights acquired over aircraft are registered in the Aircraft Register. No separate mortgage register is maintained. The Civil Aviation Law requires that the mortgage agreement be in written form and be executed before a notary public.

The particulars recorded in the Aircraft Register are as follows:

  • the mortgagee's name and address;
  • the principal of the debt and the interest rate; and
  • if the debt is not conclusively fixed, the highest sum (including interest) which is secured by the mortgage.

Special provisions must be taken into consideration where a mortgage is secured with the aim of guaranteeing the issue of nominal or bearer bonds.

The mortgage will no longer be effective and therefore will be deregistered in any of the following circumstances:

  • The mortgagee forgoes its rights to repayment of the debt;
  • The mortgagee and the owner become one and the same person; or
  • The debt is repaid.

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

No answer submitted for this question.

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?

An operating lease may be entered into for a period of not less than six months. Cross-border aircraft leases for the operation of aircraft in Turkey may also be contemplated, in the form of cross-border ‘financial leases'.

That said, cross-border lease transactions based on financial lease agreements for a minimum term of two years and relating to aircraft (as well as their engines, parts and accessories), effected between airlines active in the carriage of passengers and cargo and companies, corporations and financial leasing companies authorised to lease such items according to the regulations of their home jurisdiction, will be considered to comprise a financial lease within the scope of the Financial Leasing, Factoring and Financing Companies Law (6361/2012). This law requires that a lease have a minimum term of two years and a mandatory cure period of 30 days (increasing to 60 days if a lease has a purchase option).

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

No answer submitted for this question.

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

In accordance with Article 26 of the Financial Leasing, Factoring and Financing Companies Law, the title to an aircraft subject to such a lease remains with the lessor and during the term the lessee cannot transfer possession to third parties. The lessor may sell the aircraft if such a title transfer is agreed by the parties in the lease and without creating a new agreement.

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

Under Article 23 of the Financial Leasing, Factoring and Financing Companies Law, the lessor and the owner must be the same entity where they have chosen to benefit from the law's provisions. A lessee is also required to have possession of the aircraft, including the airframe and engines, during the term of the 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?

According to the Civil Aviation Law, the registration of an aircraft in the Aircraft Register is possible only for the term of a lease. On the expiry of the lease, the aircraft must be deregistered. In case of an event of default, the lessor must comply with the mandatory cure period before terminating the lease agreement. If termination is contested by the lessee in bad faith, the Civil Aviation Authority will expect to see evidence of such termination, either from the relevant filing authority or from a Turkish court; and repossession and deregistration of the aircraft will not be secured unless a final and enforceable court order in this regard has been issued.

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?

Upon termination of the lease, the lessor is entitled to repossess the aircraft and export it from Turkey by completing the relevant procedure before the Civil Aviation Authority and Customs, and settling the necessary charges.

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

Neither the filing authority where the lease is registered, where applicable, nor the Civil Aviation Authority will verify whether the aircraft has been redelivered with all conditions fulfilled. Therefore, in order to determine whether the aircraft is ready to be deregistered, the Civil Aviation Authority will seek a letter of confirmation from the relevant filing authority or from the competent court that the lease has been terminated and the aircraft may thus be deregistered.

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

The Cape Town Convention on International Interests in Mobile Equipment and the Protocol to the Cape Town Convention on International Interests in Mobile Equipment on Matters specific to Aircraft Equipment are in force in Turkey, which has a stable legal system. Therefore, the prevailing laws should apply, unless a worst-case scenario arises causing temporary changes in the laws.

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)?

Turkish law differentiates between liens on moveable and immoveable property. Save as regards the exceptions established by law, liens on moveable property can be established only by retaining possession of the moveable property pending discharge of all outstanding obligations incurred in respect of services rendered in relation to the moveable property. Liens on immoveable property, on the other hand, may be established only by way of a mortgage, a mortgage with certificate or a certificate of annuity charge. Under the Civil Aviation Law, it is customary for any charge or encumbrance such as a lien or mortgage on an aircraft to be established by way of registration in the Aircraft Register.

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

As long as it is registered with the Aircraft Register, a security interest will be subject to the provisions applicable to immoveable property.

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

There is no provision under Turkish law for the registration or recordation of a mortgage against a moveable property, such as an aircraft engine or an aircraft part.

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

No answer submitted for this question.

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

In order for a foreign court judgment to be enforced by the Turkish courts, the requirements of Articles 50 to 59 of the Law on International Private Law and Procedure (5718) must be satisfied.

Under the Law on International Private Law and Procedure, a foreign court judgment cannot be directly enforced in Turkey. An application for enforcement must be made to the Turkish courts, which will enforce the foreign judgment only if:

  • there is a treaty of reciprocity between the two countries or, in the absence of such treaty, there is effective reciprocity for the enforcement of judgments between the two countries;
  • the foreign judgment is final and all possibilities of appeal have been exhausted;
  • the judgment does not concern a subject which falls under the exclusive jurisdiction of Turkish courts;
  • the judgment does not clearly contravene Turkish public policy; and
  • the party against which enforcement is sought does not raise an objection in the Turkish court, which the Turkish court considers justified, to the effect that:
    • it was not duly summoned to or represented at the foreign court proceedings; or
    • the judgment was rendered in its absence in violation of the laws of the foreign country.

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 order to enforce a lien under Turkish law, the lienholder must commence enforcement proceedings in accordance with the Enforcement and Bankruptcy Code 2004 and issue a writ before the bailiff. The bailiff will then inform any parties to which a lien has subsequently been granted of the existence of the writ and send a payment order to the debtor and the third-party owner of the moveable property to pay the debt, informing it that unless it lodges an opposition to the payment order or pays the debt, the moveable property will be sold. If an opposition is lodged against the payment order, the creditor may either apply to a specialised bailiff court for examination of the opposition or lodge a claim before the courts requesting cancellation of the opposition by proving the merits of the claim. Once the claim has been determined by the appropriate court, the bailiff, upon application by the creditor, will commence forced sale proceedings.

Where an aircraft is leased by way of a finance lease, subject to the Financial Leasing, Factoring and Financing Companies Law, the bailiff should keep the claims of third-party creditors separate from the lessee's estate. Consequently, creditors of the lessee cannot exercise a lien on an aircraft whose owner is the lessor. However, the creditor or the lessee may try to prove before a court that equity has built up in the leased asset.

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

In order for a foreign court judgment to be enforced by the Turkish courts, the requirements of Articles 50 to 59 of the Law on International Private Law and Procedure (5718) must be satisfied.

Under the Law on International Private Law and Procedure, a foreign court judgment cannot be directly enforced in Turkey. An application for enforcement must be made to the Turkish courts, which will enforce the foreign judgment only if:

  • there is a treaty of reciprocity between the two countries or, in the absence of such treaty, there is effective reciprocity for the enforcement of judgments between the two countries;
  • the foreign judgment is final and all possibilities of appeal have been exhausted;
  • the judgment does not concern a subject which falls under the exclusive jurisdiction of Turkish courts;
  • the judgment does not clearly contravene Turkish public policy; and
  • the party against which enforcement is sought does not raise an objection in the Turkish court, which the Turkish court considers justified, to the effect that:
    • it was not duly summoned to or represented at the foreign court proceedings; or
    • the judgment was rendered in its absence in violation of the laws of the foreign country.

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

Taxes, social security premiums and wages and other statutory liens take priority over any mortgages and other rights in rem. For liens, the general rule is that priority depends on the date of establishment. Possessors' liens based on the Civil Code will take priority over previously established rights in rem, provided that the lienholder acts in good faith. If the Cape Town Agreement and Protocol apply, the priority rules that are set out in Article 29 of the convention will apply, to the extent that the Cape Town Agreement and Protocol are enforced.

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?

Pursuant to Law 6192/2011 and a 24 May 2011 decision of the Cabinet of Ministers, in accordance with Article 3 of Law 244/1963, Turkey has duly ratified the Cape Town Agreement and Protocol. According to UNIDROIT's official website, Turkey deposited its instrument of ratification on 23 August 2011 and, in accordance with Article XXVIII of the protocol, the Cape Town Agreement and Protocol came into full force and effect on 1 December 2011. There is little jurisprudence and a lack of definitive administrative guidance on how the Cape Town Agreement and Protocol will be implemented, interpreted, applied and enforced in Turkey by the courts and bailiff offices.

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?

Under Turkish law, the transfer of title by way of delivery of a bill of sale will be recognised as evidence of a valid agreement between the parties to transfer the title. However, the transfer of title must be executed by way of registration with the relevant aircraft registry, which will constitute public notice towards bona fide third parties. On the other hand, title to equipment which is not subject to registration (eg, an engine) may be evidenced by way of possession. Until the contrary is proven, the possessor will be considered as the owner.

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

No answer submitted for this question.

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

As regards the representations and warranties of the manufacturer, the typical industry practices will apply.

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

No answer submitted for this question.

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

No answer submitted for this question.

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

The seller will agree that it is the sole and absolute legal and beneficial owner of the aircraft and, upon delivery, will transfer the aircraft to the buyer with a full title guarantee. Possible mortgages, charges, pledges, liens and other encumbrances created by seller, as well as the aircraft's damage history and the payment terms, will be handled commercially, and the buyer will be obliged to meet the agreed commercial requirements.

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?

Unless the parties can benefit from government incentives and exemptions, agreements signed in Turkey are subject to stamp duty imposed on the highest aggregate value arising from the agreement at a rate of 0.948% of such amount. For agreements signed outside Turkey, stamp duty becomes payable if and when the document is presented to a Turkish authority.

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

No answer submitted for this question.

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?

No answer submitted for this question.

8 Insurance

8.1 What insurance requirements apply to aircraft in your jurisdiction?

The Civil Aviation Authority will examine the liability insurance in place.

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

Except for certain third-party liability insurance, which must be purchased locally, there is no requirement under Turkish law for a leased aircraft to be fully insured in Turkey by Turkish insurance companies.

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

No answer submitted for this question.

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?

The Turkish aviation sector is growing rapidly and the country is investing in big projects to promote further development. As Turkey is ideally positioned for global connecting flights, it is expected that this growth will continue in the years to come. Istanbul's new international airport has been ranked by the International Civil Aviation Organization as one of the top two airports worldwide in terms of development, and it enjoyed the highest increase in passenger numbers in December 2019. Despite the many developments both regionally and globally that have negatively affected the aviation industry, most airlines have managed to increase their total turnover.

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?

No answer submitted for this question.

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.