UK: Recent Developments In Aircraft Finance And Leasing – AFIC, Balthazar And GATS

Last Updated: 29 November 2018
Article by Sarah Dyke, Grace Stobbart and James Francis

Aircraft Finance Insurance Consortium (AFIC)

AFI launched in 2017 and supported more than US$1 billion of new aircraft deliveries in that year. AFIC grew out of the recent drying up of export credit support for Boeing and Airbus financings. Developed by Marsh LLC (as exclusive broker) in collaboration with Boeing, AFIC is a non-payment insurance product for aircraft financings, covering lenders for airline credit and jurisdictional risks. AFIC allows lenders to rely on the credit of the insurers who offer it (Allianz, Fidelis, AXIS Capital and Sompo International) – all of whom have a credit rating of at least "A" (Standard & Poor's).


Meanwhile, Marsh S.A.S – a different team from Marsh LLC with separate reporting lines and appropriate barriers in place – has been working as exclusive broker with Airbus, certain lenders and a pool of highly rated insurers to launch Balthazar.

Balthazar is a non-payment insurance product for lenders and investors funding new Airbus aircraft under which insurers will typically provide 100 per cent cover for up to 12 years. Balthazar is to be flexible:

  • allowing parties to use their own transaction documents; and
  • covering a range of structures, including tax leases. 

At the time of writing, Airbus is working on its first Balthazar deal.

What is non-payment insurance?

Non-payment insurance (NPI) is similar to export credit support for commercial lenders via insurance cover rather than a guarantee. The lenders finance an aircraft acquisition in reliance on the insurers covering the risk of non-payment by the airline. The insurance is several, with each insurer liable for its own share of the default risk only.

However, there are differences from export credit financing: commercial or intercreditor issues (given the use of multiple corporate insurers), a different bank capital regulatory analysis and a risk analysis based on a corporate insurer credit rating rather than sovereign risk. With NPI, the OECD restrictions on the percentage of national content in the aircraft and the invoice price applicable to an aircraft do not apply. Nor does the informal "home country" rule apply to NPI, allowing its use by US, UK, German and French airlines.

The end of export credit?

Despite the immediate popularity of NPI, export credit is likely to remain an important funding option. NPI insurers' focus will tend to be middle-tier airline credits. In contrast to export credit agencies, their appetite for covering default risk on lower-rated airlines may be limited – especially in downturns, when export credit agencies have traditionally proved invaluable in financing otherwise non-bankable transactions.


Novation frustration

Lease novations are frustrating for lessees and lessors alike, often involving protracted negotiations and a seemingly disproportionate amount of time and energy. As trading between lessors has increased, this has become a bigger issue for the market. But why the difficulty?

While the starting point on novations is to cause as little disruption to the lessee as possible, changes to the lease to reflect the change of ownership are inevitable. These changes must be documented and reviewed. Well-drafted leases should ensure there will be "no increased obligations" for the lessee on a transfer. In reality, buyers frequently require confirmations, representations and further changes to the lease.


Partly in response to these issues, in May 2018, the Aviation Working Group (AWG) announced plans for a global electronic aircraft trading system (GATS). 

Under GATS, aircraft will be owned by trusts in the US, Ireland or Singapore. Instead of using lease novations and selling legal title to aircraft, the beneficial interests in those aircraft trusts will be traded electronically. The legal owner of the aircraft and the parties to the lease stay the same. Only the beneficiaries of the trust change. In theory, this should reduce lessee involvement. 

GATS is intended to use standardised documents and blockchain technology, including an "e-ledger". Using blockchain technology should give beneficial owners a permanent record of their ownership that can be added to (e.g. on a sale), but not deleted or amended. 

Is GATS the solution?

If GATS can simplify transfers, "bake-in" the principle of "no increased obligations" for lessees and minimise lessee involvement, this should be a good thing for everyone. But until the AWG publishes more detail, it is difficult to assess GATS fully. Issues to be considered include:

  • Tax – there may be jurisdictions with withholding tax issues on lease rentals to lessor trusts based in the US, Ireland or Singapore. Parties may also want to consider tax consequences in jurisdictions that "look through" the trust to the beneficiary.
  • Recognition – aircraft trusts have been used for years and have proven to be effective, but they are not universally recognised, particularly in civil law jurisdictions.
  • Insolvency – will the AWG provide legal opinions on the insolvency treatment of these structures in the US, Ireland and Singapore?
  • Formalities – GATS will need to comply with all relevant trust law formalities arising under applicable laws despite using a purely electronic trading system.

What next?

Some lessors have attempted to make their leases GATS-compliant, with an upfront lessee consent for the lease to be put into the owner trust required for trading on GATS. With appropriate lessee protections, this seems a sensible step.

Watch this space. The market is moving towards a more efficient (and lessee-friendly) approach to aircraft transfers and GATS, or something like it, seems likely to be part of this.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions