Turkish Law Blog
An Easy Remedy in the Aviation World: IDERA and its Implementation in Turkey
Following a long history in accomplishing the signing and the ratification process, on December 1, 2011 the Convention on International Interests in Mobile Equipment (“Convention”) and the Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Aircraft Equipment (“Protocol”) (“CTC”) came into force in Turkey.
The CTC and the qualifying declarations made by Turkey already have the force of law and prevail any conflicting legislation in Turkey on the matters falling under the scope of CTC, without a need for any further act or implementing additional legislations.
Turkey spent extensive efforts to harmonize and standardize its local laws in order to honor its compliance obligation under the CTC and expedite their full implementation in Turkey. Consequently, the number of amendments have been made in the Turkish legislation to achieve such purpose. One of the said legislations made was the introduction of a Directive on the implementation and enforcement of the Irrevocable Deregistration and Export Request Authorization (“IDERA”) (“Directive”) by the General Directorate of Civil Aviation Authority of the Ministry of Transportation, Maritime Affairs and Communication of the Republic of Turkey (“CAD”).
The directive has been introduced on April 1, 2013, by the Flight Operation Directorate of the CAD and empowers the authorized party named in the IDERA (or its certified designee) to de-register and export the aircraft without obtaining a court order, in accordance with Article IX(1) of the Protocol.
The initial Directive was updated on July 7, 2014, and Directive on Implementation and Enforcement of the IDERA (SHT-IDERA rev 02) (“Directive rev02”) entered into force to bring in further comprehensive information for the CAD officers and sector players on how to honor the duly issued IDERA forms and to resolve practical problems, which were being encountered during the course of implementation of the previous IDERA Directive.
Finally, the latest version of the IDERA Directive (“Directive rev03”) entered into force on July 25, 2017. With the Directive rev03, the following aspects of the implementation process have been clarified: (i) How to apply to the CAD for an IDERA registration when the authorized party for IDERA and the party that will be registered at the CAD as the owner of the aircraft are two different entities; (ii) Whether the IDERA would still be valid if and when the legal title of the authorized party for IDERA changes or such party merges with another one; and (iii) What would the consequences be and which procedures should be followed in terms of airworthiness when an aircraft with an IDERA is desired to be de-registered from the records of the CAD.
Issues Faced in Practice throughout the Implementation Process
Between the years 2011 and 2013, and even in the early days of 2013, from the ratification to the enactment of the first legislation regarding the IDERA in Turkey, there was no guideline for the implementation of the provisions of the IDERA in the Protocol and its application in Turkey. Even though the legislative gap has been filled, there are still certain conflicting views in practice on how to submit, register and enforce the IDERA both by the authorities, namely the CAD, and the creditors and the debtors, on the following issues in particular.
Issue 1: Issuance of IDERA both by the Lessee and the Operator
Article 1(j) of the Convention defines the debtor as “a chargor under a security agreement, a conditional buyer under a title reservation agreement, a lessee under a leasing agreement or a person whose interest in an object is burdened by a registrable non-consensual right or interest”. Obviously, in order for at least one of the parties to qualify as a “debtor” under the Convention, the legal relationship between the parties must be one of those transaction structures described thereunder, such as security, reservation, lease agreement, etc..
In certain transactions, there can be more than one debtor, which means that both the lessee and the operator can fall under the definition of “debtor” in accordance with the CTC at the same time in the same transaction. In such cases, due to the non-existence of legislative guidelines in Turkey for the issuance and registrations of the IDERAs, it was possible for two debtor parties to issue IDERAs and submit them to the CAD. Although the CAD accepted the submitted IDERAs issued by both of the debtors, only one IDERA record for an aircraft existed in the registry system and it was not clear which one of the debtors was registered namely to the registry system. The foregoing practice of the CAD would likely to constitute a problem in terms of the validity of the IDERA if and when a creditor attempts to enforce his/her right provided under the registered IDERA in case of an event of default.
Eventually, the CAD ceased accepting multiple IDERAs in 2014, and started the practice of accepting and registering the IDERAs issued only by one debtor in one transaction, provided that (i) the debtor bears the conditions set forth in the Protocol and (ii) the IDERA documents are issued in accordance with the IDERA Directive. Today, there still exists a possibility for some IDERAs to be registered as outlined above, which, should be re-registered in due form in order to eliminate any future conflicts.
Issue 2: Non-existence of a legal basis for IDERA
An IDERA can only be issued by a debtor and the debtor must qualify as a debtor as defined under the Convention. The conditions applying to the debtors also apply to IDERAs and their issuance specifications. Therefore, for instance, in order to issue and register an IDERA with the CAD, a lease relationship (or security, reservation), constituting the legal basis for the IDERA must duly be entered into and registered with the CAD at the outset.
1. What if the operator issues an IDERA?
There can be complex financing structures, where the lessor is the only foreign party of the transaction, and there are separate legal relationships between the lessee and the operator, lessee and the lessor. Turkish Civil Aviation has an operator based registry system and therefore the IDERAs are generally issued by the operators in Turkey. In order for the CAD to register an IDERA as issued by that operator, the operator must certainly be involved as a party to one of the agreements stated in Article 1(j) of the Convention.
2. What if the lessee issues an IDERA?
The parties of a transaction sometimes decide for the lessee to issue the IDERA, and in this case, the lessee must enter into an agreement specified in the Convention with the lessor.
3. What happens when there is a loan financing?
In the case of loan financings, the financing (foreign) institution needs to be the beneficiary party of an IDERA. In a loan agreement, the parties are the lender and the borrower; and the operator is normally not included in the financing documentation. In that case even if the lending agreement provides for the operator to issue the IDERA, the CAD refuses to register it with the reasoning that (i) no legal link exists between the operator and the creditor and therefore (ii) it is not possible to name the operator as the debtor under the CTC and, (iii) because the debtor and the operator are two Turkish parties, the CAD considers the transaction to be an “internal transaction”, which means that IDERA cannot be registered by the CAD.
Issue 3: Disqualification of a legal basis for IDERA
Even if there exists a written legal link between the creditor and the debtor, the CAD may sometimes refuse to register an IDERA with the justification that the operating agreement between the borrower, who is registered as the owner of the aircraft and the operator does not qualify as interest as described under the Convention. There have been some concrete cases that the CAD required the operating agreement, to (i) be a finance lease or (ii) bear the conditions to be considered as a lease provided under the Turkish law, in order to comply with Article 1(j) of the Convention as a lease agreement.
Still, Turkey Catches-up!
Not all the aviation systems are based on the operators and not all the states have these similar implementation issues. Even so, the foregoing issues arise not only in Turkey but also in other states having operator based systems.
Despite the long history of Turkey to sign the CTC in 2001 and finally ratify the same a decade later, Turkey still manages to catch-up with all the requirements of the CTC together with all other member states.
Having an aggressive growth and improvement in the aviation sector, Turkey has already become one of the leaders in the sector both by its global player air-operators and the adoption processes of the international provisions. On top of the efforts in the enactment of local laws, the Turkish CAD, spends tremendous efforts in solving any problem arising in the practice and keeps us in the loop by arranging meetings, work-shops or one-to-one meetings.