Legal Aspects of Financial Leasing

The Civil Aviation Act No. 2920 which came into effect on October 19, 1983 (the ‘‘Civil Aviation Act’’) provides that an aircraft may only be registered if it is ‘‘a Turkish civil aircraft’’ which definition is stated to comprise aircraft owned by the Turkish Republic, public legal entities or Turkish citizens. It excludes, however, ‘‘state aircraft’’, that is, aircraft used by the State for military, security or customs purposes. 

Temporary registration may be affected for a civil aircraft imported in accordance with the relevant provisions of Turkish law and remain under lease for a period of six months to the Turkish Republic, public legal entities or Turkish citizens. It is also possible to obtain temporary registration for aircraft which have been leased for a minimum period of two years in accordance with the Financial Leasing, Factoring and Financing Companies Law no. 6361 which entered into force as of 13 December 2012 when published in the Official Gazette, with no. 28496 (“Financial Leasing Law”). At the completion of the lease term the aircraft may either be deregistered and sent back to its origin or if the agreement contains a purchase option the title may be transferred to the lessee.

In Turkey, the Civil Aviation Authority (“CAA”) acting under the Ministry of Transport and Infrastructure has the responsibility of registering aircraft, regulating their operation, air crews and airports together with the control of air traffic. The Aviation Authority is required to maintain a register of aircraft. Requirements in respect of registration are laid down in the Civil Aviation Act.

According to the Civil Aviation Act the Register will include the following particulars:

a.)       the name of the aircraft’s manufacturer, the date of manufacture, serial number, type and model of the aircraft;
b.)       the name of the title holder (owner);
c.)        the means by which the owner acquired title to the aircraft (e.g. by a sale agreement or pursuant to a forced sale etc); and
d.)       the call sign, Turkish Registration Mark of the aircraft. 

Aircraft Leasing:  An operating lease may be entered into by its parties meeting the requirements in accordance with the Financial Lease Law as a cross border finance lease thus enabling its parties to benefit from reduced taxes and stamp duty exemptions. Although such a financial lease agreement is generally referred to in Turkey as a ‘financial lease agreement’ it should not always be interpreted as finance lease which would grant its lessee the right to purchase the aircraft at the completion of the term, but constituting solely a cross border leasing.

Cross-border leasing transactions based on financial lease agreements, for a term of minimum two years, in relation to aircraft, their engines and their parts and accessories, to airlines active in the carriage of passengers and load, by companies, corporations and financial leasing companies authorized to lease these items according to the regulations of their home jurisdiction, shall be considered as financial leasing within the scope of the financial lease law. Hereunder all references to a financial lease agreement would cover leases registered in Turkey pursuant to Financial Lease Law.

A lease agreement having been entered into by virtue of Financial Lease Law will grant certain tax benefits and certain stamp duty exemptions to its parties, provided that the agreement is filed with the Association of Financial Leasing, Factoring and Financing Companies (locally known as the ‘’ Financial Leasing Association ‘’) entrusted with the duty of the filing authority in accordance with the Financial Lease Law.  The Financial Leasing Association examines whether the lease and the required corporate and financial documents of the lessee and lessor are in compliance with  Turkish laws and then informs this condition to the relevant sub division of  customs authorities before the Ministry of Trade  and to the CAA, enabling the temporary import of the aircraft during the lease term as well as its registration before the CAA.

Although such cross-border lease agreements are generally referred to in Turkey as a “financial lease agreement”, it should not be considered as a “finance lease” which would grant its lessee the right to purchase the aircraft at the completion of the lease term

The Aircraft will be imported to Turkey temporarily for the lease term. The airline will appear as the importer of the aircraft. Unless the import of the aircraft is not permitted and completed the CAA is not expected to register the aircraft with Turkish Aircraft registry.

 

This article was written by Mrs. Fulya Batur Dikici of Dikici Law Office, Istanbul, Turkey.