Christine Kranich March 27 2019 GATS impact on sale and purchase of German-registered aircraft under lease Arnecke Sibeth Dabelstein | Aviation - Germany Christine Kranich Aviation IntroductionHow will GATS work?Aircraft registry procedureIntroductionThe Aviation Working Group (AWG) comprises leading aviation manufacturers, financiers and lessors. It contributes to the development and acceptance of policies, laws, regulations and rules that facilitate advanced international aviation financing and leasing.In May 2018 the AWG announced plans for a global aircraft trading system (GATS) to modernise the selling, buying and financing of leased aircraft and engines by making such transactions simpler and faster. To this end, the GATS will be fully electronic and use e-signatures, e-delivery of documents and a secure e-ledger to record transactions.Under the existing system, if a lessor wishes to sell an aircraft with a lease attached, it often must enter into a lease novation agreement with the buyer and the lessee. Closing such a transaction can take longer than expected and be costly for the lessor as:the lessee may have little interest in the transaction being completed quickly and may not review and comment on the draft lease novation agreement as quickly as expected;the lessee may want to use that situation to find a compromise with the lessor with regard to an existing difference of opinion on the responsibilities under the lease (eg, reimbursements from maintenance reserves);the lessor must reimburse the lessee's external counsel expenses incurred in connection with the review of and comment on the lease novation documentation; andthe lessor must bear the cost for changing the aircraft registry, if necessary.How will GATS work?Under the GATS, each aircraft will be owned by a trust that can be created (or migrated into the GATS) online in a branch located in the United States, Ireland or Singapore. The sale and purchase of an aircraft would simply require a transfer of the beneficial interest in that trust. Thus, the parties to the lease (and the lease agreement itself), as well as the legal owner, will remain the same after the sale.The GATS will use electronic standard form documents and the latest secure blockchain and e-commerce technology. Each trust, ownership transfer and related security interest will be recorded on an e-ledger. However, no commercial terms will be recorded in this way.'Blockchain' is best defined as a data structure that has the ability to establish a digital archive or record blocks of data or transactions that can be shared and easily accessed by users across networks of different computers.Through this method, a simple, consistent and streamlined trading process is created, which provides owners of beneficial interests, as well as financiers in an electronic ledger, with a clear record of their ownership of or security interest over the beneficial interest and avoids the need for lease novation documentation, thereby reducing the time, money spent and burden incurred by airlines, lessors and financiers.The GATS is expected to launch in March 2019; however, paper-based documentation may still be used until the transition to the new system is complete. By the end of 2019, the GATS e-ledger should be operational and the electronic form documentation finalised.Aircraft registry procedureThe national aircraft registry is a so-called 'owner registry' and is maintained by the Luftfahrt-Bundesamt (LBA). The name and registered address of an aircraft owner is recorded and shown on the front side of the certificate of registration. If a trust is the aircraft's sole owner, they are recorded as the owner in the German aircraft registry and shown on the front side of the certificate of registration. The LBA must be notified if a German-registered aircraft's title is transferred by:the seller (as the current owner) and the buyer (as the new owner) signing and submitting a completed LBA form to the LBA; orjust the buyer (as the new owner) submitting the completed and signed LBA form together with the original bill of sale or a notarised (and apostilled) copy of the original.The new owner must also provide the LBA with:proof of its corporate existence and registered address;a declaration pursuant to Section 3 of the Aviation Act, confirming in summary that it is either an EU entity or has a lease or similar agreement in place with an EU entity which has a term of at least six months;if it is a foreign entity, a declaration signed by the new owner and a German person who agrees to act as a process agent for the new owner in regard to all correspondence between the new owner and the LBA; anda copy of the executed and dated lease novation agreement.Under the GATS, none of the above will apply as only the beneficial owner changes; the legal owner (ie, the owner trustee) – which is registered as the owner in the German aircraft registry – remains the same. Thus, the time and costs involved with changing the German aircraft registration through the LBA will be avoided if a German-registered aircraft (with a lease attached) is sold pursuant to the GATS.Moreover, under the German conflict of law rules, aircraft rights in rem are determined by the law of the state of registration. Therefore, German law will be decisive in relation to (for example) the transfer of title of a German-registered aircraft. Further, dispositions in trust interests need not be in writing and signed by the disposer to be effective. Thus, transfers of beneficial interest in a trust through GATS's electronic processes will be straightforward under German law.For further information on this topic, please contact Christine Kranich at Arnecke Sibeth Dabelstein by telephone (+49 403 177 9756) or email ([email protected]). The Arnecke Sibeth Dabelstein website can be accessed at www.asd-law.com.