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GATS seeks to digitise the aviation finance industry

30 April 2020

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It’s a turbulent time for airlines as the industry grapples to adapt to the future post COVID-19, however, there are developments in the industry which may help it get back on its feet. Anne Flood, Vassilena Ouzounova and Paul Griffith share more on what these developments are.

In June 2020, the Aviation Working Group (AWG) will launch the Global Aircraft Trading System (GATS), a fully electronic platform for the buying and selling of aircraft engines on lease. The system intends to streamline the trading and financing of leased aircraft equipment, reducing the burden on lessees, lessors and financiers by using advanced technology, a sophisticated e-platform and digitally executed standardised form documents.

The principal purpose of the GATS platform is to facilitate aircraft trading by bypassing the currently inefficient novation process through beneficial owner trusts. The trust structure enables a corporate services provider, such as Intertrust, to hold in trust the legal title to the aircraft for the benefit of a nominated beneficiary, which could be a lessor or a special purpose company.

When that aircraft is sold, the trustee remains but the beneficial interest in the trust property is transferred to new owner. This streamlines the novation process utilising a live and searchable electronically distributed ledger system, which has the additional benefit of enhancing ownership transparency. The scheme’s integrity is furthermore protected by appointing a regulated trustee in the jurisdictions where the scheme is operating.

It’s a natural progression of our investment in our aviation business that we should be the first trustee service provider to be authorised by the AWG as the only GATS trustee to be approved in Ireland and Singapore and also the first company outside the US to be authorised to do so.

The process to be appointed as a GATS trustee is challenging, again solidifying the system’s integrity, as the AWG has been very thorough in who they accept to offer these types of services. The GATS initiative is voluntary so to ensure that there’s broad acceptance within the market, AWG is seeking to control the quality of the service providers appointed to the GATS trustee initiative. As a result, we’ve gone through an extensive audit by a third party, which has looked through our entire due diligence and Know Your Customer (KYC) processes to ensure that we meet the AWG’s high standards. That approval was received in late January this year and subsequently we applied to be recognised as a GATS trustee provider in Ireland and Singapore.

Wells Fargo exits the Trustee Business

Just as the GATS details were being fine-tuned, the market was shaken by Wells Fargo’s announcement to withdraw from the UK and Irish corporate trust business. With aviation firmly on the company’s future business plans, we acquired the US bank’s UK trust company in December 2019 gaining the trustee roles on 49 aircraft deals, mostly comprising Japanese, Middle Eastern and South American airlines.

This deal has significantly broadened our aviation finance offering and the intention now is to gain as many more trustee roles on aircraft deals as we can. We bring experience, knowledge and capability to the trustee role and we can also leverage the overlap between Wells Fargo’s deals with our existing businesses.

With the GATS trustee approval and the acquisition of the Wells Fargo Trust portfolio, we’re in a good position to partner with the aviation finance and leasing market through the coming recovery and will be actively seeking more business for existing and new clients going into a more challenging market environment.