Aircraft Finance in Turkey

Ketenci&Ketenci International Legal Practice provides compelling legal advise in aircraft
finance in Turkey and throghout Europe.

This article intends to shed light on the current developments in Turkish aircraft finance
practice.

Turkey has recently ratified the Convention on International Interests in Mobile
Equipment (the "Convention") and the Protocol to the Convention on Matters Specific to
Aircraft Equipment (the "Protocol" and, together with the Convention, the "Cape Town
Convention"). By ratifying such Convention, Turkey has become a country which is very
fit for aircraft finance in all respects.

Third parties providing the necessary finance of the purchase of the aircrafts are
preferred by the buyers. There are many financial instiutions and lenders in the aircraft
finance market that may finance the purchasing of aircrafts as third parties.

Aircraft leasing should also be considered as one of the main means of aircraft finance.
It should be noted that aircraft finance is very common and popular in Turkey. They are
preferred due to their nature and option to buy at the end of the termination of the term.


Aircraft Finance/Lending


Real and legal persons interested in financing the purchase of an aircraft should find a
lender who can satisfy his/her needs and aims.

On the other hand, as the characteristics of the aircraft and the financed amount
increases, the processes and procedures for financing aircrafts get more complicated.

In order to evaluate the whole transaction, the lender, first, requires some information
regarding the aircraft including model, year, registration and proposed purchase price
submitted by the borrower.

The lender would require financial information, corporate documents from the borrower
such as articles of association and resolutions regarding the approval and authorization of
the transaction.

It is quite likely that the lender would require an appraisal of the aircraft in order to
ensure that the value of the aircraft is consistent with the lenders expectations for the
particular transaction.

The lender will further carry out a title search on the aircraft to detect the current owner
of such and whether any security interests, liens or other encumbrances are recorded
against the aircraft.

If any liens, encumbrances or other title defects are revealed upon the search, then the
lender will require that any obstacles shall released or otherwise resolved prior to the
closing of the transaction. Searches on the judgments regarding the aircrafts will also be
performed to ensure that clear title of the aircraft gets conveyed to the borrower.


The lenders have security interests over the financed aircrafts, for insuring such
interests, lenders may purchase the title insurance of the aircrafts. By doing so,
accurateness of the registration documentation and that the transaction and security
documents' being filed in a timely manner will be ensured by the aircraft title insurer.
Then, if any title issues arise after the transaction closes, the title insurer will be

responsible for securing the lender's interest in the aircraft and resolving any title defects
covered in the insurance.

The loan documents typically associated with a basic aircraft finance transaction include
a loan agreement, aircraft security agreements, guaranty and authorization. Loan
Agreement contains the terms and conditions of the loan and the borrower's promise
to repayment of the loan pursuant to those terms and conditions. Loan Agreement also
provides the lender with remedies if the borrower does not perform its obligations under
such agreement.

The aircraft security agreement or mortgage agreement pledges the aircraft as security
for the loan agreement. In the event that the borrower fails to repay the loan, the lender
will have the right to collect the debt through aircraft. The lender would be able to sell or
dispose of the aircraft to recover as much of the outstanding loan balance as possible.


In the financing transactions in which the loan is being guaranteed by a third party,
that real or legal person third party will need to execute a guaranty that obligates the
guarantor to repay the loan in the event that the borrower defaults.

The lender will require that the appropriate parties execute the loan documentation and
also other transaction documentations such as mortgage agreement pursuant to their
terms and conditions.

The mortgage agreements should be duly registered to the Civil Aviation Registry under
Turkish Laws in order to protect the property against third-party claims, together with
the aircraft itself or after the registration of the aircraft to the Turkish Civil Aviation
Registry.

It should also be noted that related loan agreements are enjoying tax advantages in
Turkey. Only the mortgage agreement is subject to stamp tax under the laws of Turkey.
Thus, Turkish aviation practice enjoys a lot of that as well.

Aircraft Finance/Financial Leasing

 

Financial leasing is the most used type of aircraft finance in Turkey mostly because of
various tax advantages.

Financial leasing transactions are governed by the Financial Leasing Code numbered
("the Code").

The lessor should be a financial leasing institution established either in Turkey or abroad.
Upon the lessee's choice and request, the lessor purchases or provides the Leased
Property described in details under the Financial Leasing Agreement ("Agreement") from
a third party and transfers solely its possession to the lessee. The lessor does not cease
being the owner of the Leased Property during the Agreement's term.

However, the lessee may be granted with the option to acquire the ownership of the
Leased Property upon termination of the Agreement with a purchase price agreed
therein.

The lessee's main obligation is to pay the agreed lease amount to the lessor under the
Agreement.

As a formal requirement, financial leasing agreements are required to be in writing and
executed before a notary public in Turkey.

The Code does not set forth any specific registration procedure for aircrafts. However,

If the lessor is a foreign entity which does not have any branch in Turkey, the
financial leasing agreement is required to be registered by the Banking Regulation and
Supervision Agency ("BRSA")

The financial lease agreements whose subject matter is the leasing of the aircrafts are
also required to be registered with the Aviation Registry pursuant to Civil Avition Code
numbered 2920.

Protecting the lessor against any third party claim with respect to the leased aircrafts is
the main function and aim of these registrations.

Author:
Erman M. Yurdakul
Senior Associate