Almost everywhere in the world, aircrafts are traditionally required to be registered in the home country of it’s owner or corporation. However, some owners or corporations register their aircrafts in different countries for a variety of reasons. This paper reviews and analyzes the importance of international aircraft registries along with the political and economic factors that affect it. We also aim to recognize the financial impact effect of Flags on Convenience effects on a country with International aircraft registries.
Introduction
According to Article 17 (ICAO, 1944)of the Chicago Convention, every civilian aircraft has to be registered by the National Aviation Authority. This also applies to the countries who are not signatories to The Chicago Convention. Article 17 states that the National Aviation Authority (NAA) should provide an alphanumeric code for each aircraft which should be prominently displayed on the aircraft fuselage and also signifies nationality along with the Certificate of Registration. It also requires it to be registered only once in a jurisdiction (One aircraft cannot have more than one registration at the same time.).
However, an aircraft’s unique registration can be changed when ever required (Example: Sale, Retirement, etc.). Even though it is not usual practice but unique aircraft identifications can be recycled.
Usually, the NAA requires all aircrafts to be registered in the country of the person or company that owns or operates it. This is aimed to promote better safety practices and prevent airlines from exploiting lax labor or regulatory environment. However; modern day companies are in the practice of registering aircrafts in companies with no connection to the current owner for various purposes. Justification for this ranges from lower ownership costs, taxes to confidentiality. In almost all countries, international regulations require the aircrafts to be flagged in the home country. Some airlines have switched to Flags of Convenience(FOC) model in order to decrease their aircraft ownership related costs. FOC model is extremely crafty as it was designed to circumvent western tax and labor regulations. Tax havens like Cayman Islands, Bermuda and Aruba have become hotspots for registering aircrafts.
Currently, major airlines register their aircrafts in the home country as required by the NAA. However, there are some exceptions like Aeroflot whose entire A320 fleet is registered in Bermuda and partial Alitalia fleet is registered in Ireland (Airline Fleet, 2016). The FOC model can be more widely noticed for corporate aircrafts. The aircraft registry for Aruba has 400 aircrafts since it’s inception in 1995.
Justification
For a company of a private person, there might be various reasons for registering their aircrafts in a another country (FOC). They are as follows:
Citizenship requirements:
To register an aircraft in the US, the owner must be a citizen of United States as per constitution. Similar regulations apply to citizens of other countries as well. There are multinational corporations which do not fall in this category and hence for them FOC is a better option unless they can convince the authorities of the usage of the aircraft in the said country.
Confidentiality:
Aircraft registries in western countries are visible to public and can its information can be easily accessed. However, Offshore aircraft registrations are usually confidential and not visible to public. High value private people prefer to register their aircrafts to keep a low profile.
Security:
This is a major motivation for selecting a country for registering an aircraft. Sometimes, a less known flag is selected in order to address the security concerns. This decision can also be politically motivated. Example: VP-BAT is a VIP B-747SP was used by the then deposed Ruler of Qatar.
Tax:
Aircraft transactions are heavily taxed around the world. For example: One might have to pay as much as 20.5% VAT on a Boeing Business Jet which is significant ownership cost head (Cooling). However, countries like Cayman Islands have No Income, Sales, Profit or Use tax of any sort. This makes flagging aircrafts in such tax havens very lucrative.
Certification Regulations:
Aircrafts that cannot be registered in their owner’s country due to various regulations can be certified in an offshore country. Hence be certified by the home country aviation regulator for a Certificate of Airworthiness. For example, if a DC-10 cannot be certified airworthy in USA as FAA deems it unsafe but by registering it in an offshore country, FAA Certificate of Airworthiness can be achieved.
Liability:
The aircraft owners can examine the liability exposure before offshore registration. Some states offer limited liability to aircraft owners while some countries offer no liability protection for the aircraft owners in case of incidents.
Easy Access:
This is a definite advantage when compared to western countries which can be a bureaucratic nightmare for aircraft owners.
Noise Restrictions:
Modern environmental concerns have triggered noise restriction concerns being raised and addressed by Aviation Regulatory authorities in many countries. As a result, some countries do not allow registration of Stage 1 and 2 aircrafts with 75,000 kg MGW. Some European countries are mulling ban on re-engined aircrafts. Aruba which is an independent country under the Kingdom of Netherlands does not have same regulations and hence one can easily register such aircrafts when the same cannot be registered in say US or European countries.
Disadvantages
Safety:
While corporate aviation practices safe practices in spite of offshore registration, Civil Aviation with FOC is closely linked to unsafe practices. This is mostly because the aircrafts are used to fly in regions which do not have any air connectivity which established airlines have given up or third world nations. A lot of reasons contribute to unsafe operation but FOC is mostly used to keep costs low for these “fly-by-night” airlines.
Loss in Tax revenue for Countries:
By registering aircrafts in tax havens, owners and operators are causing potential loss in Tax for the country which can be used for betterment for Civil Aviation facilities in the country.
Conclusion
Flags of convenience as a practice has been widely applied to multiple modes of transportation. There are various financial and political advantages for same. Due to bureaucratic vacuum that exists between Aviation regulators of different countries, the safety issue persists.
Several claims by different labor organizations have been unfounded.
In order to confirm safety of passenger in civil aviation and protection from aircraft abuse by owners using FOC, civil aviation authorities need to work together and come up with stricter aircrafts maintenance guidelines for aircrafts flagged in convenient countries.
Works Cited
- (n.d.).
- Airline Fleet. (2016, Sept 09). Retrieved from FlightRadar24: https://www.flightradar24.com/data/aircraft
- Cooling, J. (n.d.). Offshore Registration-Bermuda, Bahamas, Cayman Islands, Aruba Picking a nationality for your aircraft.
- ICAO. (1944). CONVENTION ON INTERNATIONAL CIVIL AVIATION. ICAO.