Nathan Leavitt is an Associate in our San Francisco office
As the United Kingdom moves closer to ratifying the Cape Town Convention and the Aircraft Protocol, it remains to be seen whether the United Kingdom will preserve the so called "fleet lien" for air navigation charges, including those issued by EUROCONTROL. A fleet lien permits a lienholder to seize and sell an aircraft in satisfaction of charges owed by the aircraft's operator, whether or not the seized aircraft is owned by the operator or is even the aircraft that actually incurred the charges.1 Under Article 39 of the Cape Town Convention, the United Kingdom could make an election to preserve the priority of these non-consensual national law interests over registered international interests. Indeed, the recommendation of the UK Government to Parliament is that they do just that.2 Either way, lessors and financiers of aircraft operated in European airspace will need to continue to monitor the payment by their operators of bills issued by EUROCONTROL.
Since 1971, the EUROCONTROL Central Route Charges Office (CRCO), located in Brussels, has administered the Route Charges System, which funds the air traffic management (ATM) services related to the administration of flight routes, terminal navigation and communication services for its member states in Europe. The Route Charges System operates on a "user pays" basis. It is intended to be a regional cost-recovery system. A charge is levied for each flight in EUROCONTROL airspace.
To monitor these statements of account, EUROCONTROL requires a letter, in a very specific format, from the operator, granting the operator's designee access to this information. Despite the specificity, there are several common leasing and financing scenarios that this letter format does not address, such as, (i) how to factor in headlease/sublease and other multi-layered structures, (ii) how to grant access to a servicer or financer rather than the actual aircraft owner/lessor, and (iii) how to remove old authorisation letters without the operator's cooperation. Time and experience with the CRCO's current practices have shown how to successfully address these and other issues in ways that satisfy the concerns of lessors, financiers, servicers and the CRCO.
In 2011, in the interests of efficiency and security, the CRCO introduced a new program for lessors and financiers that permits electronic access to route charges provided that the requesting party submits an authorisation letter from the operator in a format created by EUROCONTROL (an "Authorisation Letter"). Our experience since then has been that the CRCO is extremely strict about accepting submitted letters with even the slightest deviation from the prescribed format. The real problem for lessors and financiers is that there are some commonly used structures that the prescribed format does not contemplate and EUROCONTROL has only issued informal advice as to how to successfully handle those situations.
The prescribed form of Authorisation Letter contemplates a direct lease from lessor to operator and does not contain suggestions modifying the form to layered leasing structures such as headlease/sublease arrangements or interchange agreements. There is, however, an informal understanding with the CRCO that has developed since the 2011 policy was enacted as to how authorisation letters for such structures may be submitted.
Servicers and Managers
Often it is not the entity that owns the aircraft that will undertake the monitoring of the operator's accounts, but rather a servicer or manager that administers the leases for special purpose aircraft owning entities. Again, a deviation from the prescribed form of Authorisation Letter is necessary to ensure the servicer/manager has access to the operator's statements of account. However, those deviations must be within the CRCO's strict, albeit informal parameters.
Perhaps the most recent change implemented by the CRCO is the requirement that any Authorisation Letter lodged with the CRCO in respect of an aircraft must be dislodged before any new Authorisation Letter in respect of the same aircraft may be filed. A new Authorisation Letter may be required because (i) the operator has changed and a second Authorisation Letter is required from the follow-on operator, (ii) the aircraft has been traded and the lease novated thereby necessitating an Authorisation Letter in favor of the new owner, or (iii) the aircraft is back-leveraged or refinanced and the new financier requires an Authorisation Letter running in its favor. No formal advice from the CRCO as to the format of this letter is available, though the CRCO has informally issued several requirements on an ad hoc basis to regular users of the system.
The CRCO has a specific, prescribed way of processing and responding to EUROCONTROL Authorisation Letter requests based on the rules and regulations it has issued and ensuing customary practice. Deviations from this form or procedures are very likely to result in a rejected request for access.
1 S. 88 Civil Aviation Act 1982 (the Act) (permitting the UK Civil Aviation Authority United Kingdom Civil Aviation Authority to detain and sell aircraft for non-payment of airport charges and air navigation charges).
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