Partner Perspectives: Kerwin Tan

Kerwin – please briefly tell us about your practice and firm.

I started my professional career by working at one of the top-tier law offices in Manila, that is also incidentally ranked by the Legal500.

After years of practice, I and some current partners, decided to form our own practice with more focus on certain practice areas. Our core belief of focusing on, specializing, and providing the best service to select areas of practice has greatly benefited our growing client base who found in us a highly focused, highly responsive, and highly knowledgeable legal professionals in those areas we do practice in. One of this focused practice area is project finance and aviation finance.

How did you end up involved in the aviation sector and aviation finance?

During my early years as a new lawyer, I had the opportunity to be very hands on in being the assigned lawyer to assist the senior lawyer in handling aircraft financing. And those were not ordinary one-off aircraft financing deals. These were, on average, about 3-4 aircraft financing deals every year for almost 8 years.

So the quantity of the deals definitely contributed to the learning curve during those early years and I had the chance to also regularly coordinate and work with the aviation regulator. Because of this, I increased my knowledge in those regulatory aspects related to financing.

In addition, the types of aircrafts varied so it was never boring. From as small as Cessna caravans to Cessna citation jets and Gulfstreams, and including helicopters as well. The different personalities of the high net worth customers buying these private aircrafts added to the mix and so I was trained to handle different personality types.

Who are the most common providers of aircraft finance in the Philippines? Do any restrictions apply in this regard?

Mostly, these are foreign lessors providing finance lease options. While local banks can also finance, it depends on a lot of factors. A significant factor would be the type of security that the aircraft operator – the Philippine company – that can put up. I imagine it would be hard for a local bank to repossess aircrafts in case of dispute – they neither have the expertise nor the facility to maintain an aircraft.

Based on our experience as well, we have been representing foreign finance lessors for years.

In aviation practice, what else do you do?

We are retained counsel for several licensed air operators and this has contributed immensely to our aviation practice.

From a practical perspective, we are able to see the different operational issues of managing and operating an aircraft. Because of this additional insight, we are able to bring that to the table when we advise on aircraft finance lease deals, and be on the lookout for issues affecting the aircraft lessor.

We also advised one of the biggest helicopter operators in the world in its helicopter lease in the Philippines with an offshore oil and gas platform.

How would you describe the current aircraft financing landscape and prevailing trends in the Philippines?

Now is quite exciting because a Philippine carrier recently made history in the Philippines by placing the largest ever order with Airbus for 152 aircraft worth
$24-billion. According to that carrier, the acquisition would be funded by a mix of debt and equity. So definitely aircraft finance would be needed.

What aviation finance structures are most commonly used in your jurisdiction?

The most common I would say are either the usual finance lease between a foreign aircraft lessor and a Philippine aircraft lessee, or a loan with a security or mortgage over the aircraft of the Philippine aircraft purchaser.
Based on my experience though, foreign aircraft financing companies would go for the usual finance lease.

What factors should an aircraft finance lessor bear in mind?

It is important to have a broader grasp of Philippine law rather than just focus on the clauses in the financing agreement.

There are certain fundamental issues that need to be addressed that should be taken into consideration even before drawing up the transaction documents.

First is the actual structuring of the deal itself. It should not be a simple lessor-lessee type of deal. This is because in Philippine law, a foreign company such as a foreign finance lessor that is seen doing business without a license with a Philippine counterparty can affect its remedies in case of dispute.

Second is that the Philippine is not a party to the Cape Town convention. So De-registration Power of Attorney must be crafted carefully and more importantly, with the proper corporate authority and lodgment at the Civil Aviation Authority of the Philippines

Lastly, beneficial ownership issue. On the deals we handle, we ensure that there are additional documents so that the lessee will not be able to claim beneficial ownership. We were actually consulted on a very contentious case that involved a foreign financing company with its dispute with a Philippine lessee. We learned a lot from that case which we adopted and reflected in the way we prepare the transaction documents to give added protection to the aircraft owner. Thankfully, the foreign lessor won that case.

As mentioned, because we work so closely with several air operators that operate the aircraft for the lessees, we are in a unique situation to provide more protection to the aircraft owner.

Can an aircraft be registered in the Philippines even if the operator is not from the jurisdiction?

No, the operator to which the aircraft is registered must be a Philippine company. Although recently there was a law which now allows 100% foreign owned Philippine company to be an air operator, we are still waiting for the implementing rules to see.

This is the reason why in an aircraft financing deal, it is important to have that practical knowledge and experience which we have in our practice, having done aircraft financing for more than a decade. I can confidently say that we not only have the quality of work but also the quantity of work which enables us to delivery highly dependable service. When we review and advise on aircraft financing deals, we bring our real world experience into that lens.

Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

We are anticipating that the implementing rules and regulations which will finally allow 100% foreign ownership of an airline or air operator will be issued.

What are your key recommendations for the smooth conclusion of an aircraft financing transaction and what potential obstacles would you highlight?

I have 4 key recommendations:
1. Fundamentally, review and agree on the structure of the deal. Do not dive head first into reviewing the transaction documents. The transaction documents and its clauses should instead follow the structure. Having a proper structure protects the interest of the aircraft lessor. It should not be as simple as a lessor-lessee arrangement.

2. As to the transaction documents itself for a finance lease, ensure to have the right clauses to ensure that that lessee cannot claim some sort of incidental ownership and use that as basis later on to hold on to the aircraft in case of breach.

3. As to closing the deal, if possible, still close the deal through traditional methods. While the Philippines does recognize electronic signatures, in case of dispute, it would still be better with a traditional wet signature. Therefore, having the lessor’s own counsel supervise the signing still has some value to it.

4. As to post-closing matters, a knowledgeable counsel on the procedures at the Civil Aviation Authority of the Philippines to ensure the interest of the aircraft lessor is well protected.