Negotiating Troublesome Provisions in General Aviation Financing Documents

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Negotiating Troublesome Provisions in General
Aviation Financing Documents

• J.C. Ferrer Rob C. Zeitinger KL Gates
  LLP Pivotal Group PC

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Introduction
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Agenda

• Operations.
• Maintenance and Modifications.
• Possession.
• Lender/Lessor Inspections.
• Identification.
• Loss or Damage.
• Permitted Liens.

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Agenda (contd)

• Subordination and Waiver of Third Party Liens.
• Management Company and Charter Operator
  Obligations.
• Supplemental Amortization.
• Powers of Attorney.

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Operations

• Geographic restrictions.
• Scope
• Favorable or full diplomatic relations.
• No relations Bhutan, Cuba, North Korea and
  Taiwan.
• Relations but no embassy Antigua and Barbuda
  Dominica Grenada St. Kitts and Nevis St.
  Lucia and St. Vincent and the Grenadines
  Guinea-Bissau.

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Operations

• Geneva Convention in force.
• Austria, Bahamas, Canada, Finland, Hong Kong,
  India, Indonesia, Israel, Japan, New Zealand,
  Mexico
• KILN Geographic Areas Exclusion.
• Algeria, Burundi, Cabinda, Central African
  Republic, Congo, Democratic Republic of Congo,
  Eritrea, Ethiopia, Ivory Coast, Liberia,
  Mauritania, Nigeria, Somalia, The Republic of
  Sudan, South Sudan.
• Columbia, Ecuador, Peru.
• Georgia, Nagorno-Karabakh, North Caucasian
  Federal District.
• Iran, Iraq, Libya, Syria, Yemen.

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Operations

• EAR and ITAR
• ITAR Afghanistan, Belarus, Burma, China, Cote
  dIvoire, Cuba, Cyprus, Democratic Republic of
  the Congo, Eritrea, Fiji, Republic of Guinea,
  Haiti, Iran, Iraq, Kyrgyzstan, Liberia, Libya,
  North Korea, Somalia, Sri Lanka, Venezuela,
  Vietnam, Zimbabwe
• No FAA or State Department Travel Restrictions.
• Overflights.
• Cap on time outside of US.

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Operations

• Purpose of use.
• Pilot training.
• Charter.
• Compliance with laws.
• Applicability
• Materiality.

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Maintenance and Modification

• No alteration without consent.
• ADs and SBs
• No removal of equipment without consent.
• Repairs
• All installed parts subject to lender lien.
• Loaners.
• Maintain in first-class condition.

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Possession

• No leasing without consent.
• Affiliates.
• Time sharing.
• Maintain possession.
• Repair station.
• Common carrier.
• No interchange or time sharing.

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Lender/Lessor Inspections

• Notice?
• Who bears cost?
• Location?
• Cap on number of inspections per year?

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Identification

• Intend to notify third parties of interest of
  Lender/Lessor.
• Effect may be to render aircraft unairworthy
  absent SB.
• Aesthetics.

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Loss or Damage

• Generally.
• Lender/lessor as sole loss payee with no
  obligation to fund repairs, even if no default.
• Replacement or repair not subject to Permitted
  Liens.
• Total loss.
• Determination lender/lessor vs. insurer.
• Timing of lender/lessor pay-off vs. insurers
  payment of claim.

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Permitted Liens

• Scope.
• Other liens in favor of lender.
• Arising from lender/lessor acts or negligent
  omissions.
• Taxes, navigation charges or airport charges not
  yet due or being contested.
• Statutory liens (mechanics, hangar-keeper, etc.)
• Liens in favor of head lessor.

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Permitted Liens

• Limitation.
• No likelihood of sale, forfeiture or loss.

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Third Party Lien Subordination and Waiver

• Management companies.
• Other vendors.

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Management Company and Charter Operator
Obligations

• Following borrower/lessee default
• Management company/charter operator must return
  aircraft to lender/lessor at its expense.
• Management company must manage aircraft for
  benefit of lender/lessor, but look solely to
  borrower/lessee for payment.
• Charter operator may continue to charter
  aircraft, but must pay all receipts to
  lender/lessor and look solely to borrower/lessee
  for payment of expenses...

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Supplemental Amortization

• Event of loss.
• No tolling while pursuing claim against third
  party.
• Difficulty of establishing diminished value
  absent third-party claim or insurance coverage.
• Effect of insurance coverage.
• Market depreciation.
• Who should bear risk?

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Powers of Attorney

• Re-registration.
• Legitimate need for re-registration POA becomes
  Trojan horse to obtain effectively unlimited
  authority.
• IDERA.
• Justification for US-registered aircraft?

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Thank you