Bermuda's Suspension of Commercial Aircraft Registration....

[cHabu]

Bermuda's Suspension of Commercial Aircraft Registration Spells Trouble for Russia.

On October 22 2008 Bermuda's Department of Civil Aviation issued a letter
announcing the indefinite suspension of registration of commercial air
transport aircraft. The letter has been issued in light of growing concerns
about the safety implications of a registration authority with limited
resources creating a rapidly expanding register of aircraft operating
exclusively in a foreign country.

The Bermuda register has been widely used to facilitate the operation of
commercial aircraft in Russia, as Russia permits its airlines to operate
aircraft registered in countries that are willing to enter into a so-called
'83 bis agreement' (derived from Article 83(2) of the 1944 Chicago
Convention). Bermuda's willingness - seemingly unlimited, until now - to add
more Russian-based aircraft to its register has enabled Russian airlines to
establish large fleets of Western aircraft. Financiers and lessors were more
at ease with the reduced country risk and could avoid the shortcomings of
the Russian aircraft register while building portfolios of aircraft for
Russian airlines.

Most Western aircraft in Russia are registered in Bermuda. Now that Bermuda
has indicated its concerns, it remains to be seen which registers will be
willing to take up the registration and oversight of the 600 or more
aircraft that Russian airlines plan to put into operation between 2009 and
2015.

If no new register becomes available or the available registers do not
accept sufficient numbers of aircraft, the Russian register may have to be
used. Alternatively, deals will stop and Russia will be left short of
aircraft. Russia may be galvanized to overhaul its register and related
laws, but this would be a difficult and multi-faceted task. Perhaps Russia
will now consider signing and ratifying the Cape Town Convention, a move
that would ease the concerns of international financiers and lessors.

Russian airlines face many difficulties, not least the global financial
problems which have added to the enormous financial pressure created by the
penalty of high import duties on foreign aircraft. Russian airlines must now
restructure financing and leasing arrangements agreed on the assumption that
Bermuda would be the state of registration and find a register which accepts
Russian airlines, but which is also acceptable to their financiers and
lessors.

Contributed by DLA Piper Rus Limited

November 05 2008