NAFA member, Wright Brothers Aircraft Title, discusses the Global Aircraft Trading System (GATS).
The Global Aircraft Trading System, or GATS, is an initiative stemming from one of the most successful multi-country treaties. The Cape Town Treaty, signed in 2001, set up uniform rules and regulations to help facilitate asset-based financing and leasing of aviation equipment worldwide.
As discussed in our previous blog, The History behind the International Registry (another initiative of Cape Town), the treaty established a set of laws more favorable to lenders that would expand international financing opportunities and open doors for new market entrants around the globe.
The Aviation Working Group (AWG) was a central participant in this process as a not-for-profit legal entity contributing to the development of policies, laws and regulations that advance international aviation financing and leasing.
Their latest project, coming soon to a country near you, is GATS, which specifically aims to “increase the transparency of and confidence in aircraft trading, and further protect rights, by introducing a secure, live and searchable electronic ledger displaying details of ownership and security interests.”
Both the International Registry and the Global Aircraft Trading System are designed to modernize and facilitate, via electronic registries, the efficient and secure trading and financing of aircraft equipment, while protecting the rights of all parties. GATS, however, focuses on “reducing the burdens on lessees, lessors and financiers” and even more so, protecting the lessee’s rights.
Out of necessity, the trading and financing of aircraft equipment subject to leases continues to grow in the aviation industry. Likewise, the need for trusts. You can read more about this in the blog Why an Aircraft Should be Registered in Trust, by our sister company, Aircraft Guaranty Corporation.
Subsequently, the need for more efficient lease and trust transactions has become increasingly important, especially in commercial aviation where ownership interests in leased collateral changes hands on a frequent basis. Every time the ownership changes, the lease between lessor and lessee must also change, creating a heavy burden on the lessees.
An airline employee once complained that they had to alter a lease agreement 11 times in 2 years. Placing aircraft in trust transfers the burden of these ownership changes to an owner trustee, allowing lessees to focus on operating their airlines. While the benefits of GATS can clearly be seen in the commercial airline realm, the benefits to the business and general aviation sector remain to be seen.
The fully electronic system will be voluntary and open to all industry participants. With e-signatures, e-delivery of documents and use of a secure e-ledger to record transactions, the platform will detail the trust history of aircraft that are registered on GATS.
The new registry could be another tool for aviation escrow services to use in Clearing Clouded Aircraft Titles, similar to an FAA title search. While this could increase safety and transparency in international aircraft transactions, it will also increase costs. It may also increase the time it takes to close, depending on how quickly and efficiently the new GATS registry system can be searched.
At first, any GATS trust will be formed in Ireland, Singapore or the U.S., and subject to the applicable jurisdiction for the creation and transfer of security interests. Available jurisdictions may expand in the future.
The rights of lessees will be specifically protected by prohibiting transfers unless agreed upon conditions in favor of the lessee have been met. GATS will also further “reinforce ‘no increased obligations’ lease provisions in favor of lessees”.
The GATS platform for electronic trading is practically here. The static URL was activated on December 10, 2019, and from March 1st to 31st a ‘simulated transaction period’ will be open. The full launch is targeted for April 1, 2020.
With the FAA issuing an opinion on January 22nd concluding that “the GATS transitional trust documents comply with applicable federal law and will support aircraft registration in the name of a GATS trustee”, it appears that GATS is ready for takeoff.
Stay tuned for more GATS developments. For more information on GATS, visit awg.aero/project/gats/.
This article was originally published by Wright Brothers Aircraft Title on February 10, 2020.