Business aircraft operators today enjoy a wide array of options when choosing the registry nationality of their aircraft, notes Dave Higdon. Regardless of whether you operate domestically or internationally, there are benefits in making the right choice…
Many nations offer registry services to non-resident operators. Conversely, many operators conducting international operations select the US as their nation of registration, even though the aircraft may never enter US airspace. The reason is simple: because of the benefits available to the operator by choosing the US option.
Selecting a nation of registry ultimately will affect airmen and maintenance regulation, may impact the taxes for which the operator is liable and will likely influence resale value. Opting to register with one of the many foreign domains may also deliver benefits that are unavailable from a home nation registration – or it could complicate international operations because of other-country hostility toward the nation of registration.
In a nutshell, your choice of registry for your aircraft is no small matter and in many ways parallels choice of citizenship.
In return for joining an aircraft registry, the nation of registration agrees to take responsibility for ensuring that your aircraft complies with ICAO Standards – as well as operating standards, licensing and recommended airworthiness practices.
So while operators enjoy numerous options, nobody should consider registering an aircraft in a nation not in compliance with the precepts of the International Civil Aviation Organization. Nations that adhere to the International Standard for Business Aircraft Operations (IS-BAO) should be a minimum requirement.
Beyond this non-negotiable consideration, how can you decide the best choice for your aircraft? Answer the following five questions, since they may point you in the right direction for your operation…
Access: What will be the impact of a foreign registration on your international operations?
In our 2016 series on flying internationally, AvBuyer noted the limitations that some nations place on access to their airspace, depending on both the departure point of a flight and the nation of registration. The impact of some foreign registries may also affect an operator’s ability to fly within a country during a visit involving more than the arrival/departure airport.
Furthermore, there may be times when an operator needs to speak directly with the aviation authorities of country of registry.
Thus access also includes connectivity with registration officials.
If those conditions are likely to present a problem to your anticipated operations, then a privately operated registry (such as Miami-based Registry of Aruba) may be helpful.
Highlighting one of its key advantages, Alexandria Colindres, director of business development, Registry of Aruba told AvBuyer, “Owners and operators have the flexibility to pick up the phone and speak with us directly; they are even able to speak with the Director of the Civil Aviation without hesitation.
“The same cannot be said for traditional regulatory jurisdictions like the FAA, EASA, or Transport Canada. We have many operators that have chosen to leave these jurisdictions due to lack of access.”
Conversely, the US does operate consular and embassy offices throughout the world, although the FAA does not have inspectors in every country that allows access by US-registered aircraft. Many international operators opt to register in the US because of the broad acceptance of US “N-Registered” aircraft.
Security: How might your choice of a registry impact your international operations' security demands?
Some nations may impose added security requirements on an aircraft before allowing it into its airspace – for landing and even for overflights. Those requirements may include using local crew for flights inside the nation. And the destination may also impact your ability to fly directly to your next stop by requiring an interim stop.
“One of the primary reasons that high profile clients choose a registry such as Aruba is for reasons of privacy and confidentiality,” remarks Colindres.
"Amore neutral flag allows for there to be an added level of security as any visible trail for ownership is erased.”
Undeniably, N-Registering aircraft can attract unwanted, even dangerous attention – and it can complicate access to some international destinations, even requiring detours around airspace not open to US operators. Obviously, such concerns can tilt many decisions. Nevertheless, no single registration (save for Switzerland) gets universal treatment that is politically neutral.
Taxes: What are the implications of registering in the country you're considering?
Tax implications stand among the more frequent reasons for an operator deciding to use a given nation for registration rather than registering with the home nation. Favorable tax treatment is also a frequently-used point promoted by active overseas registries.
Aruba is one such haven location that attracts operators to its registry for the financial benefits. According to Colindres, “Aircraft buyers and owners, when registering the aircraft in a foreign state, do not need to worry about European Value Added Tax (VAT). Aruba offers 0% VAT, 0% corporate tax, 0% income tax, and more.”
In the US, however, business operators can deduct the costs of owning and operating their aircraft for business purposes - and some individual operators choose to put their aircraft on a FAR Part 135 charter certificate, in part for the tax benefits, with leaseback options as a potential source of revenue. But tax deductibility is a limited option compared to some Registries such as Aruba, Cayman Islands and others.
Insurance: What implications does your choice have on your needs and ability to insure the aircraft and secure liability protections?
Selecting a nation of registry will likely impact how much insurance an operator needs to satisfy nation-of-registry requirements – just as nations visited during international operations may require added insurance.
“Aircraft owners with liability concerns should consider all aspects of the jurisdiction in which they choose to register,” advises Colindres.
“One thing that should always be considered is if the jurisdiction has joined the Cape Town Convention and its Aircraft Protocol.”
The Cape Town Convention took effect March 1, 2006 and established the International Registry (IR) of Mobile Assets (applying to both aircraft and aircraft engines) if nations meet certain thresholds.
“The Cape Town Convention offers important default remedies, which can be applied by the creditor in so far as they have been agreed with the debtor in the event of a security interest, repossession, sale and grant of lease or application for the profits/incomes arising from the management or use of the object,” Colindres elaborates.
“In the case of a lease or title reservation agreement, the remedies applicable are termination of the agreement and repossession of the aircraft object. The Aircraft Protocol provides additional remedies of de-registration and export of the aircraft object for the creditor in the case of a default from the debtor.
“Parties can register their interest on the International Registry created under the Cape Town Convention in order to give notice to third parties and preserve their conventional priority.”
Colindres highlights other universal considerations to examine.
“It’s important that the legal environment of a jurisdiction is considered for aircraft repossessions when choosing to register your aircraft.
“Pillsbury Law Firm published a world aircraft repossession index measuring the legal environment for aircraft repossessions in each country or jurisdiction using seven factors: repossession, insolvency, deregistration, export judgments, arbitral awards, preferential liens and political stability. Each factor is assigned a weighting in accordance with its relative importance, with each factor’s score and its weighting being used to calculate the overall score for the country or jurisdiction.
“In the second edition of the world aircraft repossession index, Aruba was given an overall score of 100%. Making it a safe and reliable jurisdiction for the safety of your assets.”
The US also belongs to the Cape Town Convention and its Aircraft Protocol. As Colindres outlines, it's an important factor to consider for any country an operator may consider for registration.
Aircraft Valuation: Will the country of registration impact the resale value of your business aircraft?
“Yes, very much so,” Colindres stressed. “You should always consider prior to registering your aircraft in a jurisdiction what implications it may have on your resale value. A Cat-2 country known to have poor regulatory standards might not be your first choice if you intended to resell your aircraft.” The US, like Aruba, is Cat-1 and up to contemporary standards.
“Several of our foreign operators have chosen to register their aircraft in Aruba due to the simple fact that their own civil aviation authority does not meet ICAO standards,” Colindres adds.
Because of varying maintenance and insurance rules, your choice of registry may impact the value of the aircraft.
But rules variations aren't the only influence on aircraft valuation. Climate at the aircraft's operating base may also come to bear, as well as how the operator stores the aircraft.
The beauty of registering with the US, Aruba or other ICAO signatory is the relative security of the aircraft’s value – and the overall benefits afforded to operators by the country of registry.