Introduction

A Turkish airline does not necessarily need to purchase an aircraft outright in order to add a new Airbus A320neo, A321neo, A330, A350, Boeing 737 MAX, 787, or a similar aircraft to its fleet. In modern commercial aviation, a significant portion of airline fleets are operated through aircraft leasing structures, under which ownership of the aircraft remains with another party while the airline obtains the right to use and operate the aircraft for a defined period.

When a Turkish airline leases an aircraft from a leasing company established in Ireland, Singapore, the United Arab Emirates, the United States, or another jurisdiction, the transaction goes far beyond an ordinary lease agreement. It may involve the Turkish Civil Aviation Act, financial leasing legislation, regulations issued by the Turkish Directorate General of Civil Aviation, private international law, the Cape Town Convention, aircraft registration, insurance, airworthiness, maintenance obligations, importation procedures, and financing security arrangements.

From the perspective of Turkish law, two principal structures should be distinguished:

Operating Lease and Finance Lease.

The distinction is not merely an accounting issue. It may have substantial legal and commercial consequences in terms of who bears the economic risks associated with the aircraft, who retains legal ownership, what happens at the end of the lease term, how maintenance reserves are managed, how the aircraft may be repossessed following a default, and what protections are available to lessors and financiers.

1. Legal Framework for Aircraft Leasing in Turkey

One of the principal statutes governing aircraft leasing in Turkey is Law No. 2920, the Turkish Civil Aviation Act.

Article 118 of the Act provides that where an aircraft is leased without flight crew, the relevant provisions of Turkish obligations law apply. Where an aircraft is leased together with flight crew or operated under certain charter arrangements, the applicable commercial law provisions may also become relevant.

Article 119 further provides that aircraft lease and charter agreements must be concluded in writing in order to be valid. In addition, in order for a lease agreement to be enforceable against third parties, it must be annotated in the aircraft registry.

Accordingly, an international aircraft lease agreement not only governs the contractual relationship between the lessor and lessee but may also have an important function in relation to the Turkish Civil Aircraft Registry.

The fact that an aircraft is owned by a foreign company does not, by itself, prevent the aircraft from being registered in Turkey.

According to the current registration practice of the Turkish Directorate General of Civil Aviation, aircraft owned by foreign persons or entities may, subject to applicable conditions, be entered into the Turkish Civil Aircraft Registry where they are operated by a Turkish operator.

Article 55 of the Turkish Civil Aviation Act also contains an important provision.

An aircraft duly imported into Turkey may, where it is placed at the exclusive disposal of qualifying Turkish natural or legal persons for a period of at least six months and operated solely on their behalf, be temporarily registered in the Turkish Civil Aircraft Registry.

Consequently, execution of a lease agreement between a foreign lessor and a Turkish airline is not sufficient by itself. The relevant registration, fleet inclusion, airworthiness, insurance, and operational authorization procedures must also be completed.

2. What Is an Operating Lease?

An operating lease is a structure under which the principal economic ownership risks associated with the aircraft generally remain with the lessor, while the airline obtains the right to use the aircraft for a specified period.

For example, a foreign aircraft leasing company may own an Airbus A321neo. A Turkish airline may lease the aircraft for eight years. The airline pays monthly rent, operates the aircraft, performs or arranges the required maintenance, and returns the aircraft to the lessor at the end of the term in the technical condition required under the lease agreement.

The residual value risk, namely the risk relating to the market value of the aircraft at the end of the lease term, generally remains with the lessor.

This is one of the most common structures in the international commercial aircraft leasing market.

The key legal distinction between an operating lease and a finance lease is that the primary purpose of an operating lease is generally to provide the lessee with temporary possession and use of the aircraft rather than to finance the lessee’s acquisition of ownership.

Law No. 6361 on Financial Leasing, Factoring, Financing and Savings Finance Companies also recognizes the concept of operating leasing by defining operating leases, broadly speaking, as leasing transactions falling outside the statutory definition of financial leasing.

Accordingly, the mere fact that an agreement is titled an “Operating Lease Agreement” is not necessarily conclusive as to its legal characterization. The economic substance, contractual allocation of risk, duration, purchase options, and other characteristics of the transaction should be evaluated as a whole.

3. What Is a Finance Lease?

A finance lease differs from an operating lease in that its primary commercial purpose is generally not limited to providing temporary use of the aircraft. Instead, the transaction functions as a financing arrangement for the acquisition or long-term economic use of the aircraft.

Under Article 18 of Law No. 6361, a financial lease agreement is essentially an agreement under which the lessor acquires or otherwise obtains an asset selected and requested by the lessee and transfers possession of that asset to the lessee in exchange for lease payments.

The statutory definition of financial leasing also takes into account several economic criteria.

These may include:

• transfer of ownership to the lessee at the end of the lease term;
• granting the lessee an option to purchase the asset at a price substantially below its expected market value;
• a lease term covering more than 80% of the economic life of the leased asset; or
• the present value of lease payments exceeding 90% of the fair market value of the asset.

Aircraft transactions, however, are subject to an important sector-specific provision.

Under Article 2/5 of Law No. 6361, aircraft, aircraft engines, components, and parts leased from abroad by passenger or cargo airlines from foreign companies or institutions authorized under the laws of their jurisdiction to engage in leasing activities may, where leased under a financial lease arrangement for a period of at least two years, fall within the statutory financial leasing regime irrespective of certain general limitations applicable to other assets.

This provision is particularly significant in cross-border aircraft financing transactions involving Turkish airlines.

4. The Principal Difference Between Operating Lease and Finance Lease

The distinction between an operating lease and a finance lease should not be made simply by asking who operates the aircraft.

The more important question is who bears the economic risks and benefits associated with the aircraft and whether the transaction primarily serves a financing function.

Under an operating lease, legal ownership remains with the lessor and the aircraft generally returns to the lessor at the end of the lease term.

The lessor may subsequently lease the same aircraft to another airline or sell it in the secondary market.

Under a finance lease, by contrast, the transaction generally performs a long-term financing function. The lessee may operate the aircraft for a substantial part of its economic life and may have a purchase option or a contractual mechanism under which ownership can ultimately be transferred.

Article 23 of Law No. 6361 expressly provides that ownership of the asset subject to a financial lease remains with the lessor during the lease term, while the parties may agree that the lessee will have an option to purchase the asset at the end of the lease.

Accordingly, even under a finance lease, legal ownership may remain with the lessor during the lease term. Nevertheless, the commercial purpose, economic allocation of risk, and end-of-term structure may be fundamentally different from those of an operating lease.

5. Leasing an Airbus or Boeing from a Foreign Lessor

In practice, a Turkish airline entering into an aircraft lease transaction will not necessarily contract directly with Airbus or Boeing.

The legal owner of the aircraft may instead be an international aircraft leasing company, a bank, a financing institution, or a special purpose vehicle — SPV.

A typical transaction may be structured as follows:

An Irish leasing company owns an Airbus A320neo. A Turkish airline leases the aircraft for eight years under a dry operating lease. The aircraft is entered into the Turkish registry and added to the airline’s operating fleet. The airline pays rent in USD and assumes responsibility for operation, maintenance, insurance, and continuing airworthiness. At the end of the lease term, the aircraft is returned to the lessor in accordance with the agreed technical redelivery conditions.

Although this structure may appear relatively straightforward, the transaction will usually involve numerous contractual and closing documents in addition to the principal lease agreement.

These may include:

• Letter of Intent;
• Aircraft Lease Agreement;
• Acceptance Certificate;
• Delivery Receipt;
• deregistration documentation;
• insurance certificates;
• powers of attorney;
• IDERA;
• maintenance records;
• manufacturer warranty assignments;
• engine records; and
• redelivery documentation.

6. Turkish DGCA and the Turkish Civil Aircraft Registry

The Turkish Directorate General of Civil Aviation — DGCA / SHGM — plays a central role when an aircraft owned by a foreign lessor is added to the fleet of a Turkish airline.

Under the DGCA’s current registration practice, where an aircraft leased under an ordinary lease arrangement is to be entered into the Turkish Civil Aircraft Registry for the first time, documents including the original lease agreement and, where the agreement is drafted in a foreign language, its notarized Turkish translation may be required.

Airlines must also complete the applicable fleet addition procedure.

Under the DGCA’s published procedures applicable to airlines operating under SHY-6A, an application to add an aircraft to the operator’s fleet should generally be submitted at least 30 days before the planned registration date.

One of the principal secondary regulatory instruments currently governing ordinary lease agreements and aircraft operation agreements is Circular UOD-2021/1 on Ordinary Lease Agreements and/or Operation Agreements.

The Circular regulates the principles and procedures applicable to leased aircraft that will be registered in the Turkish Civil Aircraft Registry and incorporated into an operator’s fleet.

Among other matters, the lease agreement should clearly identify:

• aircraft type;
• registration;
• serial number;
• lease term;
• termination provisions;
• allocation of operational responsibilities;
• maintenance responsibilities; and
• insurance responsibilities.

The agreement is also expected to clearly establish that operational, maintenance, and insurance responsibilities relating to the aircraft are assumed by the air carrier where required by the applicable regulatory framework.

7. Lease Term

One of the most important provisions of any aircraft lease agreement is the Lease Term.

The provision generally does more than merely state that the aircraft is leased for “eight years.”

The agreement must also identify precisely when the lease term begins.

The commencement date may be connected to:

• completion of technical acceptance;
• execution of the Acceptance Certificate;
• physical delivery of the aircraft;
• registration;
• satisfaction of conditions precedent; or
• another agreed contractual event.

Before delivery, the parties may agree on numerous conditions precedent.

These may include:

• insurance becoming effective;
• completion of registration formalities;
• corporate authorizations;
• delivery of legal opinions;
• payment of the security deposit;
• execution of required security documents; and
• receipt of required DGCA approvals.

Under a typical operating lease, the aircraft is returned to the lessor at the end of the term.

Under a finance lease, however, the agreement may provide for a purchase option, nominal purchase price, transfer of ownership, or another end-of-term mechanism.

8. What Are Maintenance Reserves?

One of the most important financial and legal mechanisms in aircraft lease transactions is the maintenance reserve system.

A commercial aircraft may operate for thousands of flight hours, but expensive maintenance events occur periodically.

These may include:

• engine shop visits;
• landing gear overhaul;
• heavy airframe checks;
• APU overhaul; and
• replacement of life limited parts — LLPs.

Under many operating leases, the lessor requires the lessee to make payments in addition to monthly rent in order to protect the technical and economic value of the aircraft as its maintenance condition is consumed during the lease term.

These payments are generally known as maintenance reserves.

Maintenance reserves may be calculated by reference to:

• flight hours;
• flight cycles;
• calendar time; or
• a combination of these variables.

Separate reserve accounts may exist for:

• engine maintenance;
• airframe maintenance;
• landing gear;
• APU; and
• LLPs.

The legal issue is not merely whether the money is paid.

The lease agreement should carefully regulate:

• who legally owns the maintenance reserve funds;
• whether the funds accrue interest;
• whether they are refundable;
• what maintenance event triggers reimbursement;
• what invoices and technical records must be provided;
• whether reimbursement is subject to caps; and
• what happens to unused reserves at the end of the lease.

Failure to clearly regulate these issues may result in disputes involving millions of dollars.

In the context of finance leases, Article 24 of Law No. 6361 also provides that, unless otherwise agreed, the lessee is responsible for the care and preservation of the leased asset and bears maintenance and repair expenses.

Accordingly, maintenance covenants and maintenance reserve arrangements in an aircraft lease should be evaluated together with the relevant mandatory and supplementary rules of Turkish law.

9. Security Deposit

Aircraft lessors commonly require a Security Deposit.

A security deposit is not itself a rental payment.

It serves as security for the lessee’s contractual obligations.

If the lessee fails to pay rent, damages the aircraft, fails to comply with redelivery requirements, or commits another Event of Default, the lessor may be entitled, subject to the agreement, to apply the security deposit against amounts owed by the lessee.

From the lessee’s perspective, one of the most important contractual issues is therefore the precise definition of the circumstances in which the lessor may draw upon or set off the security deposit.

The agreement should address matters including:

• the circumstances in which the deposit may be applied;
• whether any amount used must subsequently be replenished;
• whether the deposit accrues interest;
• the deadline for returning the deposit after termination;
• whether the lessor may retain amounts pending resolution of disputed claims; and
• whether deposits relating to multiple aircraft are cross-collateralized.

In fleet transactions involving several aircraft leased from the same lessor, security deposits may result in substantial amounts of airline liquidity being tied up.

10. Maintenance and Operational Responsibility

Under a typical operating lease, the lessor remains the legal owner of the aircraft but does not conduct the day-to-day flight operation.

The aircraft is operated by the lessee airline.

The current Turkish regulatory framework also generally requires aircraft lease arrangements to identify the allocation of responsibility for operation, maintenance, and insurance.

As a result, after execution of the lease agreement, the Turkish airline will generally be responsible for matters such as:

• operation of the aircraft;
• implementation of the maintenance program;
• continuing airworthiness;
• technical records;
• compliance with Airworthiness Directives;
• maintenance organization arrangements; and
• operational regulatory compliance.

The lessor, however, may retain extensive inspection rights.

These may include rights to:

• inspect the aircraft;
• review technical records;
• inspect maintenance facilities;
• obtain technical status reports;
• review utilization data; and
• monitor compliance with maintenance obligations.

These rights should be drafted in a manner that protects the lessor’s asset without unnecessarily interfering with the airline’s day-to-day operations.

11. Insurance

Insurance is an indispensable component of any aircraft lease transaction.

An airline may be required to maintain, among others:

• hull all risks insurance;
• hull war risks insurance;
• third-party liability insurance;
• passenger liability insurance;
• baggage liability insurance;
• cargo liability insurance; and
• other aviation-specific policies.

The lessor, financiers, security trustees, and other transaction parties may be named as additional insureds or loss payees.

Turkish aviation regulations also impose mandatory insurance requirements relating to passengers, baggage, cargo, mail, and third-party liability.

In the context of finance leases, Article 24 of Law No. 6361 further requires the leased asset to be insured. The agreement may determine which party arranges the insurance, although the cost of the insurance is generally borne by the lessee.

Accordingly, in aircraft finance lease structures, insurance obligations may arise both as contractual covenants and as statutory requirements.

12. Redelivery Conditions

One of the most significant areas of dispute in aircraft operating leases is redelivery.

At the end of an eight-year or ten-year lease, the lessor will not merely request that the lessee “return the aircraft.”

The aircraft must normally be returned in a contractually specified technical and documentary condition.

The lease may require the aircraft to:

• be airworthy;
• have all mandatory maintenance completed;
• have complete technical records;
• satisfy minimum remaining life requirements for components;
• meet specified engine performance standards;
• be free from liens and encumbrances;
• comply with agreed configuration requirements;
• be painted or de-branded as required; and
• be delivered at a specified redelivery location.

Remaining life is particularly important in relation to aircraft engines and Life Limited Parts — LLPs.

For example, if an engine had substantial remaining life at delivery but is close to a major shop visit at redelivery, the aircraft may have suffered a material reduction in economic value from the lessor’s perspective.

The parties may therefore agree on:

• redelivery compensation;
• maintenance adjustment;
• end-of-lease cash adjustment; or
• other financial equalization mechanisms.

For this reason, it is a serious mistake to assess an aircraft lease solely by reference to monthly rent.

In some transactions, the most significant economic exposure arises not from rent but from the redelivery conditions.

13. Events of Default

One of the principal protections afforded to the lessor in an international aircraft lease agreement is the Events of Default clause.

The most obvious Event of Default is failure to pay rent.

However, default provisions typically extend far beyond payment default.

Depending on the agreement, Events of Default may include:

• failure to maintain required insurance;
• operation of the aircraft in an unauthorized jurisdiction;
• failure to comply with maintenance obligations;
• loss of registration;
• loss or suspension of operating licenses;
• expiry or loss of an airworthiness certificate;
• unauthorized subleasing;
• creation of prohibited liens;
• material misrepresentation;
• breach of financial covenants;
• insolvency;
• bankruptcy;
• restructuring; and
• failure to return the aircraft when required.

Cross-default provisions require particularly careful consideration.

If an airline leases ten aircraft from the same lessor group, a payment default under one aircraft lease could potentially trigger default under all ten leases.

This may create substantial fleet-wide exposure.

From the lessee’s perspective, Event of Default provisions should therefore be drafted with appropriate materiality thresholds and cure periods for breaches that are capable of remedy.

14. Default and Termination Under a Finance Lease

In a finance lease, contractual freedom must be considered together with the mandatory provisions of Law No. 6361.

Article 31 provides that where the lessee defaults in payment of financial lease installments, the lessor must generally grant the lessee a period to cure the default.

As a general rule, this period is thirty days.

Where the agreement provides that ownership will transfer to the lessee at the end of the lease, the cure period may not be less than sixty days.

The law also provides for termination consequences where the lessee repeatedly fails to make lease payments and receives the required notices.

Article 31/2 further permits termination where one party breaches the agreement in circumstances making it unreasonable to expect the other party to continue the contractual relationship.

Where the finance lease terminates and the lessee either has no purchase right or does not exercise such right, the lessee must return the leased asset to the lessor.

These provisions demonstrate why termination analysis in a finance lease differs from the termination analysis applicable to a conventional operating lease.

15. Termination of an Operating Lease

Termination of an operating lease is primarily governed by:

• the aircraft lease agreement;
• the governing law selected by the parties;
• applicable mandatory Turkish law; and
• Turkish aviation regulations.

Circular UOD-2021/1 contains specific requirements concerning termination or expiry of aircraft lease and operation agreements.

Where an ordinary lease or operation agreement is terminated or cancelled, the relevant termination documentation must be submitted to the DGCA.

Where the agreement expires naturally at the end of its contractual term, the operator is also responsible for notifying the DGCA.

Following the relevant notification, the aircraft may be removed from the operator’s fleet and the applicable operational approvals may be updated.

Where appropriate, the aircraft owner must also apply to the DGCA for the necessary changes to the Turkish Civil Aircraft Registry within the applicable regulatory period.

Accordingly, termination of an aircraft lease is not merely a bilateral contractual event between the lessor and lessee.

The regulatory and registry consequences of termination must also be managed.

16. Importance of the Cape Town Convention

One of the most important legal frameworks governing international aircraft finance and leasing is the Convention on International Interests in Mobile Equipment — the Cape Town Convention — together with the Aircraft Protocol.

The Cape Town system is designed to facilitate the creation, registration, priority, and enforcement of international interests in high-value mobile assets such as:

• aircraft;
• aircraft engines; and
• helicopters.

Turkey is a Contracting State to the Cape Town Convention and the Aircraft Protocol, and the system has been incorporated into Turkish law through the relevant implementing legislation.

The regime is highly important for lessors and financiers.

An International Interest may be registered with the International Registry in order to protect certain rights against third parties and establish priority.

Turkey has also made a declaration adopting Alternative A under the insolvency provisions of the Aircraft Protocol, with a waiting period of 60 calendar days.

This is particularly significant in the event of insolvency or restructuring of a Turkish airline.

The Cape Town system therefore plays a central role in assessing creditor remedies, aircraft repossession, deregistration, and enforcement risk in Turkish aircraft leasing transactions.

17. IDERA and Aircraft Repossession

One of the most important documents used in international aircraft leasing and financing transactions is an IDERA — Irrevocable Deregistration and Export Request Authorisation.

An IDERA essentially provides an authorized party with the ability, subject to the requirements of the Cape Town Convention and applicable domestic procedures, to request deregistration and export of the aircraft upon the occurrence of the relevant circumstances.

The Turkish DGCA operates a specific procedure for recording IDERAs in the Turkish Civil Aircraft Registry.

This mechanism is strategically important for lessors and financiers in the event of default.

A commercial aircraft may be worth tens or hundreds of millions of dollars.

The ability to preserve its economic value often depends on whether the aircraft can be repossessed, deregistered, exported, re-registered in another jurisdiction, and leased to a new airline within a commercially reasonable period.

For this reason, the following mechanisms should be evaluated as part of an integrated creditor protection package:

• security deposit;
• letters of credit;
• maintenance reserves;
• International Registry registrations;
• IDERA; and
• contractual repossession remedies.

However, an IDERA does not necessarily mean that the lessor can ignore Turkish aviation, customs, public law, airworthiness, and procedural requirements.

18. Governing Law and Dispute Resolution

Where a Turkish airline enters into an aircraft lease agreement with a foreign lessor, the transaction contains a foreign element.

The governing law must therefore be considered under Turkish private international law.

Article 24 of Law No. 5718 on Private International Law and International Civil Procedure generally permits parties to choose the law applicable to their contractual obligations.

The parties may select a foreign law to govern all or part of the lease agreement.

Consequently, an aircraft lease entered into between a Turkish airline and a foreign leasing company may, in principle, be governed by foreign law.

However, selecting foreign law does not completely exclude Turkish law.

Under Article 6 of Law No. 5718, Turkish rules that are regarded as directly applicable mandatory rules may continue to apply regardless of the law otherwise governing the agreement.

In particular, foreign governing law will not eliminate requirements relating to:

• Turkish Civil Aircraft Registry;
• DGCA approvals;
• aviation safety;
• airworthiness;
• mandatory insurance;
• importation and customs;
• public law restrictions; and
• other regulatory matters governed by Turkish law.

The parties may also agree on foreign courts, subject to the requirements of Article 47 of Law No. 5718.

International arbitration is another frequently used dispute resolution method in large aircraft leasing transactions.

Aircraft lease agreements should therefore carefully coordinate provisions concerning:

• governing law;
• jurisdiction;
• arbitration;
• service of process;
• interim relief;
• enforcement; and
• recognition of foreign judgments or arbitral awards.

19. Principal Risks for the Lessor

From the lessor’s perspective, the objective is not simply to collect monthly rent.

The lessor must also preserve the residual and secondary-market value of the aircraft.

For that reason, aircraft lease agreements generally provide extensive protections concerning:

• maintenance;
• insurance;
• aircraft records;
• permitted jurisdictions of operation;
• engine replacement;
• parts pooling;
• subleasing;
• liens;
• inspection rights;
• modifications; and
• redelivery.

The lessor must also be able to react effectively if the lessee’s financial position deteriorates.

Accordingly, mechanisms such as:

• security deposits;
• letters of credit;
• maintenance reserves;
• Cape Town registrations; and
• IDERA

form part of a broader asset-protection and credit-risk management structure.

20. Principal Risks for the Turkish Airline

The risks facing the lessee are different.

One of the first risks is evaluating the aircraft lease solely on the basis of the headline rental rate.

A monthly rental amount may appear commercially attractive while the total economic burden of the transaction becomes substantially higher because of:

• maintenance reserves;
• security deposits;
• default interest;
• late payment charges;
• indemnity obligations;
• redelivery compensation; and
• end-of-lease maintenance requirements.

A second major risk concerns technical delivery conditions.

If the lessee fails to properly document the condition of the aircraft at delivery, it may later be held responsible for technical deterioration that did not arise during its own period of operation.

Accordingly, delivery conditions and redelivery conditions should be drafted and negotiated as an integrated package.

A third major risk is cross-default and cross-collateralization.

Where an airline leases multiple aircraft from the same lessor or lessor group, a problem affecting a single lease may potentially create default exposure across the entire portfolio.

A fourth risk concerns termination mechanics.

The agreement should clearly define:

• where the aircraft will be redelivered;
• who will conduct the redelivery inspection;
• when redelivery will legally occur;
• when rent will cease;
• which defects permit the lessor to reject redelivery; and
• which conditions are objective and measurable.

These issues should be drafted as precisely as possible.

21. Key Clauses to Review in an Aircraft Lease Agreement

When reviewing an Airbus or Boeing aircraft lease agreement, counsel should not focus solely on rent and term.

The following provisions should be evaluated as part of the transaction as a whole:

• transaction structure;
• aircraft description;
• Manufacturer Serial Number — MSN;
• engine serial numbers;
• delivery conditions;
• acceptance procedures;
• lease term;
• rent;
• security deposit;
• maintenance reserves;
• maintenance obligations;
• insurance;
• operational restrictions;
• technical records;
• inspections;
• taxes;
• indemnities;
• representations and warranties;
• permitted liens;
• subleasing;
• events of default;
• cross-default;
• creditor remedies;
• repossession;
• Cape Town Convention protections;
• IDERA;
• termination;
• redelivery conditions;
• governing law; and
• dispute resolution.

Correct identification of the Manufacturer Serial Number — MSN and individual engine serial numbers is particularly important.

In modern aircraft financing, ownership and security interests relating to the airframe and aircraft engines may be structured separately.

Accordingly, legal due diligence must extend beyond the aircraft itself to the individual engines and relevant transaction security.

Conclusion

The lease of an Airbus or Boeing aircraft by a Turkish airline from a foreign leasing company is considerably more complex than an ordinary commercial lease.

An Operating Lease generally provides the airline with the right to use the aircraft for a defined period, while ownership remains with the lessor and the aircraft is normally returned at the end of the term. Residual value and remarketing risk therefore generally remain with the lessor.

A Finance Lease, by contrast, primarily functions as a financing structure for the acquisition or long-term economic use of the aircraft. Turkish Law No. 6361 contains specific provisions applicable to aircraft and aircraft engines leased from foreign lessors by Turkish passenger and cargo airlines.

Regardless of whether the transaction is characterized as an operating lease or finance lease, Turkish aviation law must also be taken into account.

The legal analysis may therefore require simultaneous consideration of:

• the Turkish Civil Aviation Act;
• the Turkish Civil Aircraft Registry;
• DGCA regulations;
• Circular UOD-2021/1;
• mandatory aviation insurance;
• Law No. 6361;
• Turkish private international law;
• the Cape Town Convention;
• the Aircraft Protocol; and
• IDERA arrangements.

In high-value aircraft leasing transactions, the most significant legal and financial risks often arise not from the apparent monthly rental amount but from provisions relating to maintenance reserves, security deposits, Events of Default, cross-default, termination rights, repossession, and redelivery conditions.

For this reason, before executing an international aircraft lease agreement, the parties should conduct legal and technical due diligence not only on the contractual provisions but also on:

• the aircraft’s chain of title;
• registry status;
• International Registry filings;
• technical condition;
• maintenance history;
• insurance;
• engine status;
• financing structure; and
• mechanisms available for repossession, deregistration, and export of the aircraft following a default.

A properly drafted aircraft lease agreement is therefore not merely a contract granting temporary use of an aircraft.

It is a comprehensive asset management, financing, operational risk allocation, maintenance, security, and redelivery agreement governing an aviation asset that may be worth tens or hundreds of millions of dollars.