Using special purpose vehicles in aviation finance—subsidiary companies, orphan trusts and limited partnerships
Produced in partnership with Norton Rose Fulbright
Using special purpose vehicles in aviation finance—subsidiary companies, orphan trusts and limited partnerships

The following Banking & Finance practice note produced in partnership with Norton Rose Fulbright provides comprehensive and up to date legal information covering:

  • Using special purpose vehicles in aviation finance—subsidiary companies, orphan trusts and limited partnerships
  • Types of special purpose vehicle and orphan trust
  • Subsidiary companies
  • Orphan trusts
  • Limited partnerships
  • Advantages of using special purpose vehicles and orphan trusts
  • Bankruptcy remote
  • Choice of jurisdiction
  • Share pledges
  • Revenue streams
  • More...

The use of special purpose vehicle structures is very common in aviation finance. They provide various advantages for lenders such as tax benefits and providing a bankruptcy remote vehicle for the financing.

Types of special purpose vehicle and orphan trust

A special purpose vehicle (SPV) (also known as a single purpose company (SPC)) is a legal entity set up for a limited purpose; in the case of aviation finance this is usually to own an aircraft for a specific transaction. There are many types of SPVs used in aviation finance, the main ones being:

  1. subsidiary companies

  2. orphan trusts, and

  3. limited partnerships

Each of these types is considered below. The type of special purpose vehicle which is used will vary on a transaction by transaction basis.

Subsidiary companies

Subsidiary companies are usually limited liability companies incorporated in a tax-friendly jurisdiction. Depending on the structure, they can be:

  1. owned by one of the banks financing the transaction (and in a syndicated facility, this is usually the Agent)

  2. owned by the airline

  3. owned by the operating lessor, or

  4. owned by providers of equity

A lender owned SPV is mostly used when the lender wants to take advantage of the tax benefits of a particular financing structure, without the legal and contractual implications of directly owning the aircraft. If the lender is to be the shareholder of the SPV, it will need to consider:

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