Clyde & Co

Introduction

The recent economic boom in the Arabian Gulf and in particular, the United Arab Emirates (“UAE”) has lead to a vast increase in civil aviation activity. Aside the introduction of new airline carriers into the Gulf over the last few years, such as Qatar Airways, Air Arabia and Jazerra Airways, the UAE has led the way with new orders for commercial aircraft from Boeing and Airbus by its leading airlines, Emirates and Etihad Airways.

In addition to the above increase in the number of commercial passenger aircraft being added to the UAE aircraft Register, there has also been a sharp increase in ownership of private business jets – in particular, Gulfstream, Bombardier Global Express, Learjet and Dassault corporate aircraft. Operators and leasing/mortgage lenders have consequently entered the market to provide secondary services.

What is the effect of all this on the civil aviation regulatory framework and how is this framework coping?

Registration, licensing and operational issues

The registration and nationality doctrine as applied to aircraft is as old as flying itself. The “nationality” principle was introduced in order to address the practical needs of aviation. In the first definite statement that aircraft should have nationality, in 1901, P. Fauchille, a French lawyer, linked the idea of aircraft nationality to the rights of a state to control flights in their airspace and in the exercise of their right of self-preservation.[1] 

Today the nationality of an aircraft is determined by the state in which the aircraft is registered. This principle was recognised by many states and was incorporated into the Convention on International Civil Aviation of December 7, 1944 (the “Chicago Convention”). The Chicago Convention (to which the UAE is a signatory) provides the basis for a state to maintain jurisdiction over an aircraft while it is flying through international airspace and establishes the power of the state to regulate what occurs on board the aircraft regardless of its location. Under the Chicago Convention, contracting states register aircraft according to their domestic laws – in the case of the UAE, this is carried out by the General Civil Aviation Authority (“GCAA”). When the GCAA registers an aircraft, the state must also certify that the aircraft is airworthy and has appropriate markings identifying its nationality and registration.

The Chicago Convention did not provide states with specific rules linking the national registration of aircraft to ownership by nationals of the state registration. These are matters that are dealt with by the national laws and regulations of the particular government concerned, in this case, the UAE Government. 

Are these regulations and doctrines concerning airline nationality and licensing relevant any more or are they an impediment to economic growth of airline industry? Whether it is desirable to abandon the notion of nationality was answered with a resounding ‘yes’ by the 1991 “Free Trade in the Air” Report prepared by a think tank organised by Global Aviation Associates.[2] The Report stated nationals of any participating state should be able to own and control aircraft and airlines without discrimination. Those airlines should be should be able to set-up and operate freely from any participating State.[3] The Report further stated that the abolition of substantial ownership and effective control by nationals of each state is also needed to ease the ownership of aircraft by people who may not be nationals of the countries where they live and operate aircraft. This it is thought would stimulate commercial activity.

In 2001, the Multilateral Agreement on the Liberalisation of International Air transportation was signed, which contained provisions abolishing the requirement for airlines to be substantially owned by either the state or nationals of the designating country.[4] The signatories to it are Brunei Darussalam, Chile, Cook Islands, Mongolia, New Zealand, Samoa, Singapore, Tonga and the United States of America. Notwithstanding this Agreement, the concept has failed to attract widespread approval. Many countries which are its signatories are not major players in the aviation market. Other states have taken the view that there is no economic benefit in entering into a multilateral agreement with small players, who have little or no market share in the aviation industry.  

The UAE has established and developed its registry in line with the United Kingdom Civil Aviation Authority. Similar rules and regulations regarding registration and licensing of aircraft and operators are in operation but there are significant differences.

In UAE the GCAA sets out the guidelines for registration and ownership of aircraft. These guidelines are set out under the Civil Aviation Regulations (Issue 2007-1, “the Regulations”) which state that no foreign air transport aircraft shall operate any aircraft within the UAE unless that aircraft carries its certificate of registration that is in conformity with the conditions prescribed in the Chicago Convention.[5] It adds that no foreign air transport operator shall operate any aircraft within the UAE unless that aircraft carries current registration and airworthiness certificates issued or validated by the country of registry and displays the nationality and registration markings of that country.[6]

Under Part V of the Regulations, the following persons or entities, and no other, shall be qualified to hold legal or beneficial interest by way of ownership in an aircraft registered in United Arab Emirates or a share therein:[7]

(a)        Nationals of the United Arab Emirates;

(b)        Corporate bodies having their principal place of business in the United Arab Emirates; and

(c)        Government departments of the United Arab Emirates.

For other persons residing or having a place of business in the United Arab Emirates and holding a legal or beneficial interest by way of ownership in an aircraft, or a share, the GCAA, upon being satisfied that the aircraft meets all GCAA requirements, may then register the aircraft in the United Arab Emirates.[8]

Consequently, though many countries have exceptions to the strict nationality rule, the UAE does have a unique position with respect to ownership though it seems in practice to apply only to corporate and privately owned aircraft. There is scope for overseas ownership of a UAE registered aircraft. Of course, there is a requirement for the operator to have a local presence which is another matter that must be considered. The structure, in turn, requires GCAA approval and identification of the beneficial owner of the aircraft. It should be made clear that the right to add an aircraft to the UAE Registry is at the discretion of the GCAA.

Section 1.2.7 of the Regulations further adds that subject to paragraph 1.2.2 and 1.2.3[9] of this Section, if at any time after an aircraft has been registered in the United Arab Emirates an unqualified person becomes entitled to a legal or beneficial interest by way of ownership in an aircraft or a share, the registration of the aircraft shall become void and the Certificate of Registration shall be returned by the registered owner to the GCAA.

Also the GCAA is particularly safety conscious and ensures that only those aircraft that have been certified by the FAA and EASA/JAR are allowed on to the UAE Registry. 

The future

The UAE is entering a new age of civil aviation and the regulatory infrastructure is catching up. The UAE has also been careful to regulate the certification of new types of aircraft – to ensure the highest standards of safety and operation. In addition, it also provides a unique opportunity to maintain offshore status to UAE registered aircraft.

The UAE does provide protection for registration of ownership (including fractional), and for security interests. The Cape Town Convention (“Convention”) will no doubt assist lenders and third party interests when the UAE becomes a party to the Convention.

The next ten years will be fascinating time in the UAE for aviation and no doubt will be watched eagerly by many.

Published on 28 April 2008 | Jurisdiction: Middle East Areas of expertise: Aviation and aerospace