Ricardo Bernardi: The aviation industry improved significantly in Brazil, especially over the last 10 years. Statistics show a 73 per cent growth between 2008 and 2012 – 2.43 per cent in 2008, 13.13 per cent in 2009, 21.24 per cent in 2010, 15.82 per cent in 2011 and 7.31 per cent in 2012. However, economic and political crises have been impacting on this trend, so the country has been experiencing an economic drop – especially over the last year. The recession is expected to continue in 2016.
Apart from this recent recession, we have seen intensive investments in infrastructure to attend to traffic demand. Such investments were not limited to the airline industry, but were focused on airport capacity, air traffic control equipment, airport ground-handling capabilities and all infrastructure needed to respond to air traffic demands.
Our firm has been actively assisting companies of the aviation sector in various areas. Litigation is one of the busiest areas. I have been personally involved in regulatory and contractual matters as well, having actively assisted clients in compliance issues.
Wanda Ebanks: The aviation industry in the Cayman Islands has had another stellar year. From our firm’s perspective, we have seen growth in new financing structures within the sector. Examples of transactions in which Maples and Calder features include: completion of the first non-US originated enhanced equipment trust certificate (EETC) transaction, by LATAM Airlines Group SA (LATAM), and the resurgence of asset-backed securitisation (ABS) transactions.
Ricardo Bernardi: Among various new regulations being issued over the last year, we can quote rulings on: passengers with special needs; advance passenger information (API); environmental matters, including registration with environmental agencies (Brazilian Institute of Environment and Renewable Natural Resources (IBAMA)); and regulation on passengers rights, among others.
I was recently invited to participate as a member of a commission of jurists and experts with specialisation in aviation law, instituted by the Brazilian Senate to work on a proposal of a new aeronautic law, covering all aspects associated with air law and air carriage in Brazil. The draft, to be proposed early next year, will then be sent to the Congress for debates and approval.
Wanda Ebanks: While not unique to the Cayman Islands, and not specific to the aviation sector, the impact of FATCA and (more recently) the OECD’s Common Reporting Standard (CRS) have both been of considerable focus to our clients in the last 18–24 months. In relation to FATCA, the analysis and categorisation for the most commonly used asset finance structures have been completed. In the majority of instances, such entities have been classified as NFFEs, thus non-reporting for FATCA purposes.
In the case of CRS, the enabling domestic legislation was recently enacted thus the process of analysis and categorisation is still ongoing.
Enabling legislation to extend the Cape Town Convention was recently passed by Cayman Islands legislature and the Convention came into effect in the Islands on 1 November 2015.
Ricardo Bernardi: From a Brazilian perspective, access has been more difficult due to the economic recession and its consequences, such as devaluation of the Brazilian currency; increased interest rates; and barriers for obtaining financing from the Brazilian Development Bank.
Wanda Ebanks: I would say yes. As already mentioned, we have seen considerable demand for new and/or alternative means of financing over the past few years. Notable examples of this include LATAM Airlines accessing the capital markets via its first UK export finance-backed bond issuance, raising over US$729 million and financing over 20 aircraft; LATAM’s use of EETC structure utilising Cayman Islands SPVs, raising US$1,020,823,000 to finance its 2015 and 2016 deliveries; Avolon’s ABS transaction to finance a portfolio of 20 aircraft; DVB Bank SE’s ABS transaction to finance a portfolio of 20 aircraft; Element Financial Corporation’s ABS transaction to finance a portfolio of 49 aircraft; Bank of China Aviation’s ABS transaction to finance a portfolio of 24 aircraft; and AWAS’ ABS transaction to finance a portfolio of 30 aircraft.
Ricardo Bernardi: In terms of technology, I have to make reference to the relevance of investments in fuel and aircraft efficiency. This is important not only as a way of improving cost-efficient operations but also as part of the strategy of the aviation industry to deal with greenhouse gas emission goals discussed under the auspices of ICAO, together with operation and infrastructure improvements. Certainly, difficulties in having access to funds for financing new and more modern aircrafts will negatively affect compliance with these goals.
Wanda Ebanks: Demand for newer, more efficient aircraft is certainly noted in our practice. Many of our 2015 instructions were for newer aircraft that fit this criteria.
Ricardo Bernardi: In the long term, if one takes the last 10 or 15 years into consideration, the legal marketplace has significantly grown. Especially over the last year, we have seen a decrease in the aircraft financing area, but not necessarily in litigation or regulatory matters, although decreases on these areas are expected as well. More intensive growth is expected after 2017, when the economy is supposed to resume. Our firm has been improving the litigation area especially to attend our airline client’s demands. We developed mediation skills in order to settle cases in an efficient manner, thus avoiding long and costly litigation and reducing the number of cases filed against our clients. We have also improved our consultancy area, as a way of preventing litigation not only on civil matters, but also labour and regulatory. In short, we are have been deepening our specialisation on aviation law according to the needs of the industry, as a way of providing a more cost effective service for our clients.
Wanda Ebanks: The aviation legal marketplace in Cayman continues to grow as it matures. Because of the nature of instructions, firms typically identify and devote specific resources to this area of specialisation – with the result that the leading firms have developed specialised aviation practices led by practitioners who are highly regarded internationally, and recognised by publications such as Who’s Who Legal and Airfinance Journal’s “Rising Stars”, being clear examples of the calibre of expertise and specialisation available locally.
In addition, Maples and Calder was the first to develop a “one-stop shop” solution to its asset finance service offering. This allows us to provide legal, administrative and trust specialisations, and a host of supporting and ancillary services to our clients through a seamless network of offices and affiliates, strategically placed geographically to service our clients “around the clock” including in both Cayman and Ireland, the two leading jurisdictions for asset finance SPVs.
We continue to critically assess our services. The result has been a steady increase in offerings to meet the needs of our international clientele. Services to the aviation sector include: structuring of local custodian and banking services; liquidation advice; preparation of financial statements; audit sign-off; TUE registrations on the International Registry; and providing managing agent services to ABS transactions.