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Negotiating Troublesome Provisions in General Aviation Financing Documents

Negotiating Troublesome Provisions in General Aviation Financing Documents. J.C. Ferrer Rob C. Zeitinger K&L Gates LLP Pivotal Group PC. Introduction. Agenda. Operations. Maintenance and Modifications. Possession. Lender/Lessor Inspections. Identification. Loss or Damage.

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Negotiating Troublesome Provisions in General Aviation Financing Documents

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  1. Negotiating Troublesome Provisions in General Aviation Financing Documents J.C. Ferrer Rob C. Zeitinger K&L Gates LLP Pivotal Group PC

  2. Introduction

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

  4. Agenda (con’td) • Subordination and Waiver of Third Party Liens. • Management Company and Charter Operator Obligations. • Supplemental Amortization. • Powers of Attorney.

  5. 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.

  6. 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.

  7. Operations • EAR and ITAR • ITAR: Afghanistan, Belarus, Burma, China, Cote d’Ivoire, 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.

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

  9. 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.

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

  11. Lender/Lessor Inspections • Notice? • Who bears cost? • Location? • Cap on number of inspections per year?

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

  13. 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. insurer’s payment of claim.

  14. 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.

  15. Permitted Liens • Limitation. • No likelihood of sale, forfeiture or loss.

  16. Third Party Lien Subordination and Waiver • Management companies. • Other vendors.

  17. 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...

  18. 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?

  19. 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?

  20. Thank you

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