Apr 2024
Despite mounting environmental concerns and political pressure around the use of private jets, the private aviation sector continues to experience strong growth, particularly in the Middle East and Asia. With increasing numbers of aircraft joining the fleet and growth in the sector predicted to continue, considerations around ownership structures and registration options have never been more important. In this article, Barnabas Finnigan, Robert Lindley and Julie McLean and Davina Hargun explore some of the key issues that owners need to consider when purchasing and registering a private aircraft, and some of the benefits that offshore structuring can offer.
Private aviation has experienced a significant boom since the start of the pandemic. 2022 was the busiest year for private flights since 2007, with approximately 5.3 million flights recorded globally.1 There has also been a steady growth in sales of private jets and in the size of the private jet fleet. By June 2022 there were 23,1332 private aircraft in service, up from just under 10,000 aircraft at the start of the millennium. The value of private jet sales has shown a similar growth – projections indicate that by the end of 2023 the total value of private jet sales will be US$34.6 billion, more than 120% higher than 2019 when total sales were US$28.3 billion.3 As The Guardian pointed out in a recent article, the value of private jet sales is now at the highest level ever.4
This growth has been driven by a number of factors. Private aviation has historically been the preserve of two particular groups: high net worth individuals (“HNWIs”) who enjoy the flexibility of flying safely and securely and using smaller airports which offer a more streamlined and discrete service; and busy executives who appreciate the efficiency of managing their flight schedule and continuing their work on board the aircraft seamlessly and without distraction. While these two groups continue to play an important role in shaping the private aviation landscape, the rise of fractional ownership schemes and pay-by-the-hour or pay-as-you-go jet cards have made private aviation much more widely accessible over the past few years. Longstanding jet card operators such as NetJets have been joined by other operators such as Flexjet, Vistajet and WheelsUp, offering the flexibility of private jet use without the additional expense or hassle of full ownership, opening the sector up to a wider range of users.
The charter/fractional ownership model received a significant boost during the pandemic. With scheduled flights no longer operating, those who could afford to do so and needed to travel turned to private charter flights or fractional ownership schemes. After experiencing the benefits of private aviation in this way, many users have continued to utilise these fractional ownership or charter schemes or have even taken the next step and purchased their own aircraft. This has had a knock-on effect on airlines who would traditionally have seen many of these individuals travelling in their premium cabins. In order to counter the drift towards private aviation from their wealthiest clients, some airlines are introducing their own private or semi-private fleets. This model was pioneered by Qatar Airways, who launched their Qatar Executive subsidiary in 2009, but a number of airlines now offer a similar service, including Emirates, who announced the launch of Emirates Executive in 2023. Other airlines have taken a slightly different approach, investing in existing private jet operators rather than establishing their own private fleets, such as Delta which took a 20% stake in fractional operator Wheels Up.
Regional factors have been important in the growth of private aviation as well. While the US remains the largest market for private jets with well over half of the world’s fleet based there, regional growth, in particular in the Middle East and Asia, has contributed to the rapid expansion of the fleet. Growth in business aviation in the Middle East is outpacing growth in other regions, with demand for business aviation in the Middle East region up 47% between 2019 and 20225, fuelled in part by strong regional economic growth and high oil prices, and significant investment in regional infrastructure.
According to a report by Modor intelligence, the private jet market in the Middle East region is worth US$790 million and is estimated to grow to US$1.71 billion by 2028. In total there are around 600 private aircraft based in the Middle East, with over half in Saudi Arabia and the UAE. The Middle East has a particularly high concentration of large jets, which make up approximately half of all private jets in the region.
Saudi Arabia is seen as a likely driver of significant future development and expansion of private aviation in the region. The development of Saudi Arabia as a global hub is one of the three main pillars of the Vision 2030 initiative, and Saudi Arabia is already putting infrastructure in place to support this initiative, including the development of four dedicated business aviation airports and 11 private jet terminals. The General Authority of Civil Aviation of Saudi Arabia has announced their intention to grow the number of business flights in Saudi Arabian airspace from 17,000 to 93,000 per year by 2030.6 In many ways this strategy makes sense – the Middle East is well positioned to act as a crossroads between East and West, with around 2/3 of the world’s population living within a 7-8 hour flight of the UAE/Saudi Arabia.
China is also seeing a strong recovery in the private aviation sector. Although the levels of private aircraft ownership have dropped, demand for flights has recovered to pre-pandemic levels, driven in part by the rise of flight card and fractional ownership services such as Vistajet (which reported a 269% year on year growth in flights for Greater China for Q1 2023)7.
Choice of jurisdiction
Whether you are an owner or an operator, a private aircraft is going to be a significant investment. Even the smallest light jets such as the Cirrus Vision Jet have a list price starting at around US$3 million, with new midsize jets costing somewhere in the region of US$25-40 million and the largest jets such as Gulfstream’s G650 carrying a price tag of US$73 million. For the wealthiest owners it is even possible to acquire a private version of a passenger aircraft such as a Boeing Business Jet (based on the 737) or an Airbus Corporate Jet (based on the A320 family of aircraft). It is therefore important to ensure that appropriate structuring is put in place to properly protect both the asset itself and the owner’s investment. Careful consideration should therefore be given to the jurisdiction of registration of the aircraft and of the jurisdiction of incorporation of the owner/operator.
In some cases, the ownership structure and jurisdiction of registration will be driven by operational considerations. For example, where aircraft that are going to be primarily or exclusively operated in US airspace, it may make good sense for these to be registered on the FAA register and held through a US Owner Trust structure. For owners who have greater flexibility, there are a number of other options available, and offshore jurisdictions offer several advantages for structuring the ownership and/or registration of an aircraft. Bermuda and the Cayman Islands in particular have well-established track records as user friendly jurisdictions for private jet owners and operators, and are able to offer both flexible ownership structures and experienced and responsive aircraft registries as part of a “one stop shop” solution.
Registration requirements
As British Overseas Territories, the aircraft registries in the Cayman Islands and Bermuda operate under broadly the same legislative framework, based on the UK Air Navigation (Overseas Territories) Order 2013 (the “ANOTO”), and therefore the registration and operational requirements in both jurisdictions are very similar.
In the Cayman Islands, the Cayman Islands Aircraft Registry (the “Cayman Registry”) is administered by the Civil Aviation Authority of the Cayman Islands (the “CAACI”), while in Bermuda it is the Bermuda Civil Aviation Authority (BCAA) who administer the Bermuda Aircraft Registry (the “Bermuda Registry”). Both the Cayman Registry and the Bermuda Registryer are private use registries, meaning that in order to be eligible for registration with either the CAACI or the BCAA, the aircraft is operated for private use only, and must not be used for commercial operations (i.e. for hire or reward). Where the aircraft is intended to be operated commercially, the owner would need to hold a valid air operator certificate (AOC) issued by the CAACI, in the case of aircraft to be registered on the Cayman Registry, or the BCAA, in the case of aircraft to be registered on the Bermuda Registry, before that registration could proceed.
Both the CAACI and the BCAA have developed reputations as being flexible, responsive and user friendly, offering high levels of customer service and providing user friendly platforms and streamlined processes to make the registration of aircraft with them as easy and efficient as possible. Applications are processed electronically using the registries’ own online platforms (in the case of the CAACI, VP-C Online, and in the case of the BCAA, AIRS), and documents can be submitted and processed electronically.
Neither the Cayman Registry nor the Bermuda Registry have a fixed age limit restriction on aircraft to be registered with them, but each registry will consider whether to permit registration on a case by case basis taking into account factors such as the type and age of the aircraft, its previous operating history and its existing state of registration.
Both the Cayman (VP-C) and the Bermuda (VP-B and VQ-B) registration marks are seen as a neutral, “low-profile” mark of high standard which is internationally accepted and its registered aircraft are accepted for operations worldwide. In a world where security considerations are becoming more and more important, the “low-profile” registration mark can be valuable when operating in areas of the world subject to security risks or political instability.
In addition, following the UK’s ratification of and accession to the Cape Town Convention8 in November 2015, and its subsequent extension to both the Cayman Islands and Bermuda, each of the Cayman Islands and Bermuda are territorial units of a contracting state and therefore the rights and protections afforded under the Cape Town Convention will apply to qualifying aircraft registered in either jurisdiction. This is of particular importance to financiers, and makes both the Cayman Islands and Bermuda attractive jurisdictions for registration where an aircraft is subject to financing, as registration of security interests on the international registry and the filing of an IDERA with the CAACI/BCAA will be possible.
In order to register an aircraft on either the Cayman Registry or the Bermuda Registry, it must be owned by a person meeting the eligibility requirements under the ANOTO.
This includes:
- the Crown in right of His Majesty’s Government in the United Kingdom or in right of the Government of the Territory (i.e. the Cayman Islands or Bermuda, as relevant);
- United Kingdom nationals;
- Commonwealth citizens (which includes citizens of the Cayman Islands and/or Bermuda, as well as citizens of the BVI);
- nationals of any European Economic Area State;
- bodies incorporated in any part of the Commonwealth and which have their registered office or principal place of business in any part of the Commonwealth (which would include companies incorporated in the Cayman Islands, Bermuda or the BVI); or
- undertakings formed in accordance with the law of a European Economic Area State and which have their registered office, central administration or principal place of business within the European Economic Area.
If the current/proposed owner is not currently an eligible person, then there are a number of ownership structures available in both the Cayman Islands and Bermuda which may be suitable, and these are explored in more detail below.
Benefits of offshore structuring
The Cayman Islands and Bermuda are ideally placed to provide a solution to owners and operators looking to structure the ownership and registration of their private jet. As established international financial centers with strong track records as jurisdictions of choice for the establishment and operation of aircraft owning SPVs, they can offer a number of benefits, including:
- Sound legislative and judicial systems based on English common law principles
- Stable, commercially-minded industry regulators
- Solid regulatory and compliance regimes, meeting international standards
- Established financial services industries, with specific experience of aviation and private client structures
- Tax-neutral platforms
- A range of flexible corporate and trust structures to meet clients’ varying needs
- Experienced and responsive local professional advisory and support services
Ownership and trust structures
There are a number of possible structuring options available in both Bermuda and the Cayman Islands, as well as other offshore jurisdictions such as the BVI in order to facilitate the ownership of an aircraft registered with either the BCAA or the CAACI.
Corporate Structures
The simplest form of ownership structure for an aircraft would be a corporate structure, with some form of company with limited liability being established to take title to the aircraft, the shares of which will be held by the ultimate beneficial owner (either directly or as part of a wider corporate structure).
A number of different corporate structures are available, including:
a) Exempted companies
An exempted company is a form of company limited by shares established in either the Cayman Islands or Bermuda in furtherance of business carried on outside that jurisdiction. It is a body corporate with separate legal personality and the liability of the members will be limited by reference to their shares.
b) Limited Liability Companies
LLCs are a body corporate with legal personality separate from its members and offer limited liability to their members in a similar way to an exempted company. They do, however, offer greater operational flexibility than exempted companies and combine aspects and characteristics of both a company limited by shares and a partnership.
Trust Structures
In an aviation context, the SPV is typically incorporated to act as a borrower and owner/lessor of an aircraft and its shares will be held on trust by a professional trust company such as Conyers Client Services. Establishing a trust shareholding structure separates the legal and beneficial ownership of the SPV and creates the ‘orphan’ structure taking the SPV off the balance sheet of the relevant parties and isolating the underlying assets. The trust will generally be a charitable or purpose trust.
Bermuda Purpose Trusts
Bermuda have a long established history of being used in private aircraft ownership and financing structures. Bermuda was the first offshore jurisdiction to provide for these trusts by statute.
In the typical ownership structure, a Bermuda exempted company is incorporated to act as owner of the aircraft. It is often the case that it is not possible or desirable for any of the parties to the transaction or private individuals to own the company outright. A Bermuda purpose trust provides a convenient way of structuring the ownership of the company. Where private aircraft are owned by high-profile high net worth individuals or families the use of a Bermuda purpose trust provides the added benefit of protecting confidentiality of ownership. A Bermuda purpose trust is not required to have named beneficiaries and there is no public register of beneficial owners of a Bermuda purpose trust. There are also no public registration requirements concerning the establishment of a Bermuda trust.
Cayman Charitable Trusts
A charitable trust may be established under Cayman Islands law to create a charitable fund or to make provision for existing charitable institutions or purposes. A trust under Cayman Islands law is charitable if all of its purposes are exclusively charitable. A charitable trust may continue indefinitely.
A Cayman SPV is incorporated to own the aircraft and the shares of which are held by trustee on trust for a charitable beneficiary. The SPV is therefore ‘orphaned’ given that its shares form part of the trust assets of the charitable trust, owned by the trustee and not by the airline/operating lessor.
Cayman Purpose Trusts
Although Cayman purpose trusts (known as STAR trusts) would be a suitable ‘orphan’ trust structure, they are not commonly used for aviation purposes. Similar to a charitable trust, the assets are owned by the trustee and held for defined purposes to hold the SPV shares. STAR trusts must have an appointed ‘enforcer’ who is the only person that has standing to enforce the trust and ensure that the trustee administers the trust properly. STAR trusts may be unlimited in duration.
Cayman foundation companies, established without any shares or members, could also be used to own aircraft, and have some of the same key benefits as a trust. However, the Cayman charitable trust has been utilised for a significant time and has become the industry standard so alternative trust and corporate ownership arrangements are not often required.
This article is not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and give general information.
For further information please contact: [email protected]
[1] US Institute for Policy Studies High Flyers 2023 report, May 2023
[2] Based on data included in Corporate Jet Investor “JetNet iQ Market Report: Business Aviation Market Intelligence” and re-quoted in US Institute for Policy Studies High Flyers 2023 report of May 2023
[3] Global Jet Capital Market Brief Q4 2022 https://www.globaljetcapital.com/q4mb-2022
[4] Guardian article “Private jet sales likely to reach highest ever level this year, report says” 1 May 2023 https://www.theguardian.com/world/2023/may/01/private-jet-sales-likely-to-reach-highest-ever-level-this-year-report-says
[5] MEBAA article “MEBAA Show 2022 set to showcase the significant growth in business aviation, private jet and the charter flight market” 23 June 2022 https://www.mebaa.com/mebaa-show-2022-set-to-showcase-the-significant-growth-in-business-aviation-private-jet-and-charter-flight-market
[6] Corporate Jet Investor article “New line in optimism – Middle East poised for a boom”, published 26 September 2022 https://www.corporatejetinvestor.com/opinion/new-line-in-optimism-one-minute-week/
[7] Vista Global website https://www.vistajet.cn/en/vista-experiences-strong-first-quarter-signalling-full-recovery-of-business-aviation-in-asia-pacific/
[8] The Convention on International Interests in Mobile Equipment and the related Protocol on Matters Specific to Aircraft Equipment signed in Cape Town in 2001