In this blog, Marc Cormack-Bissett explores the role of SPVs in the aviation sector.
The aviation industry is one of the most capital-intensive in the world. Commercial aircraft are multi-million-dollar assets that operate across borders, involve complex financing structures, and are subject to a host of international and domestic regulations.
In this environment, the Special Purpose Vehicle (SPV) has become a cornerstone of aviation finance. An SPV is a legally distinct entity, set up for a narrowly defined purpose—often to own or lease one or a small number of aircraft. These vehicles allow risks to be ring-fenced, financing to be structured efficiently, and legal compliance to be managed in a transparent way.
During my time in Dublin, the global hub of aviation leasing, I worked directly with lessor entities structured as SPVs, typically holding two to six aircraft. My role involved overseeing monthly or quarterly billing cycles, managing maintenance reserve covenants, and ensuring that all company secretarial requirements were met. This hands-on exposure provided me with insight into how these vehicles operate in practice, far beyond their textbook definitions.
In this blog, I explore the role of SPVs in the aviation sector, the mechanics of their setup, their financial and compliance frameworks, and the practical realities of managing them day to day.
At its core, an SPV is designed to isolate risk. In aviation, this typically means separating the ownership and financing of an aircraft from the broader balance sheet of a parent company. Each SPV is usually a thinly capitalised company that exists solely to own one or a small group of aircraft, lease them to an airline, and manage the associated cash flows.
Why use SPVs in aviation?
Asset protection: If the lessee defaults, creditors’ claims are confined to the SPV’s assets, not the parent group’s entire portfolio.
Financing flexibility: Lenders are more comfortable extending credit when their recourse is limited to a specific aircraft within an SPV.
Regulatory clarity: International treaties and registries, such as the Cape Town Convention, recognise interests held via SPVs.
Tax efficiency: Jurisdictions such as Ireland allow for double tax treaty benefits and efficient withholding tax arrangements.
Ireland, and particularly Dublin, has established itself as the global hub for aviation leasing. With over 60% of the world’s leased aircraft managed out of Ireland, the SPV is not just a legal tool but a core feature of the country’s financial and professional services ecosystem.
The setup of an SPV in Ireland follows a structured path. Typically, the entity is incorporated as a private limited company or a Designated Activity Company (DAC) under the Companies Act 2014. The DAC structure is particularly well-suited because it allows for the corporate constitution to specify the limited business purpose of the company—aircraft ownership and leasing.
Key features of setup include:
Constitutional documents: The memorandum and articles of association define the company’s objectives and governance.
Shareholding: To ensure bankruptcy remoteness, many SPVs are structured as “orphan entities,” with shares held by a charitable trust rather than the parent lessor.
Directors: Typically a mix of professional directors and representatives with aviation finance expertise.
Company secretarial obligations: Maintenance of registers, statutory filings with the Companies Registration Office (CRO), and drafting of board minutes and resolutions for major decisions (e.g. aircraft acquisition, lease novation, financing arrangements).
The objective is to create a standalone, self-contained entity that has just enough governance structure to operate legally and transparently, while being narrow enough to isolate its risks.
SPVs are not simply legal shells—they are central to the financing structures underpinning aviation. SPV's, especially in Aircraft leasing are frequently established under Section 110 of the Taxes Consolidation Act 1997 (often referred to as a section 110 company)
Financing Structures
Debt financing: Banks and institutional investors provide secured loans, often with the aircraft as collateral.
Equity contributions: Provided by lessors or private equity sponsors.
Capital markets: Larger portfolios of SPVs may be bundled into Asset-Backed Securities (ABS), where investors receive returns from pooled lease income.
Tax Efficiency
Ireland’s attractiveness is enhanced by its wide double taxation treaty network. These treaties allow lease rentals to flow from lessees in multiple jurisdictions to Irish SPVs with reduced withholding tax exposure.
Other considerations include:
VAT treatment on the supply of aircraft and leasing services.
Thin capitalisation rules to ensure debt/equity structuring is tax compliant.
Bankruptcy remoteness: ensuring that the insolvency of the parent does not cascade down to the SPV.
This is where the SPV’s role shifts from structure to day-to-day operation.
Monthly/Quarterly Billing Cycles
SPVs issue invoices to lessees, typically on a monthly or quarterly basis, for:
Base rent (the core leasing fee).
Maintenance reserves (funds set aside for future heavy checks or engine overhauls).
My experience in Dublin involved monitoring these billing cycles closely, ensuring that payments were received on time and in full. Given that lease rentals were often denominated in USD, but financing obligations could be in EUR, currency management also played a key role.
Maintenance Covenants
Aircraft wear is inevitable, so leases include strict covenants around maintenance. These typically involve billing based on flight hours or cycles (take-offs and landings), with lessees required to deposit funds into restricted accounts. Ensuring these reserves were accurate and sufficient was essential to protecting the lessor’s investment.
Default and Enforcement
Late or missed payments had to be escalated quickly. Options included negotiating deferrals, drawing on security deposits, or—at the extreme—pursuing repossession under the Cape Town Convention. During the COVID-19 pandemic, this became a reality for many SPVs as airlines sought deferrals or fell into insolvency.
Aviation SPVs operate in one of the most heavily regulated financial environments.
International Framework
The Cape Town Convention provides a uniform system for recognising security interests in aircraft. It enables lessors to enforce their rights more effectively in cross-border disputes.
Local Compliance in Ireland
Companies Act 2014 obligations: annual returns, audited accounts, maintenance of registers.
Anti-Money Laundering (AML) and KYC requirements: especially important given the international nature of lessees.
Aviation authority filings: aircraft must be registered with national aviation authorities, and mortgages or charges registered with the International Registry.
Corporate Governance Best Practice
Best-in-class SPVs maintain:
Regular board meetings, even if only to ratify routine matters.
Independent directors to demonstrate arms-length operation.
Detailed minutes and resolutions to evidence compliance.
Theory and frameworks are one thing; the day-to-day management of an SPV is another.
In Dublin, I worked on small-scale lessor entities, typically with two to six aircraft each. While modest in size, each entity carried substantial responsibility:
Cash management: Timely invoicing and payment collection were critical. A single missed rental could jeopardise the SPV’s ability to service debt.
Maintenance tracking: I frequently liaised with technical asset managers to reconcile flight hour reports with reserve billings.
Company secretarial duties: Drafting board minutes for financing transactions, lease novations, or director changes was routine but vital to governance.
Audit process: Preparing year-end files meant ensuring lease revenue reconciled with bank statements and financing schedules.
Stakeholder communication: Each SPV interacted with banks, auditors, technical teams, lessees, and regulators—requiring strong coordination.
Challenges Encountered
Multi-jurisdictional disputes: Particularly with lessees in emerging markets where repossession rights were harder to enforce.
Currency fluctuations: Impacting the ability to meet debt obligations in a different currency.
COVID-19 pandemic: Deferrals and restructurings became common, requiring careful documentation and renegotiation of covenants.
This hands-on perspective illustrates that while SPVs may appear as “passive” holding entities, their successful operation requires constant vigilance and multi-disciplinary coordination.
Despite their robustness, SPVs face significant risks:
Lessee default risk: Airlines may face liquidity crises, leaving SPVs unable to service debt.
Jurisdictional enforcement: Repossession is easier in Cape Town Convention signatories, harder elsewhere.
Regulatory changes: Tax reforms (such as OECD BEPS and Pillar Two) may erode traditional treaty benefits.
Operational risks: Maintenance delays, insurance claims, or technical failures can all impact lease value.
Reputational risk: Poor governance or compliance failures reflect badly on the lessor group.
Looking forward, SPVs remain integral to the sector, but their role is evolving.
Sustainable finance: Green bonds and ESG-linked lease structures are emerging, with SPVs as the platform for issuance.
Digitalisation: Blockchain-based registries and smart contracts could streamline lease enforcement and maintenance tracking.
Industry consolidation: Larger lessors are acquiring smaller ones, but SPVs remain the unit of structuring.
Jurisdictional competition: Singapore, Hong Kong, and Cayman continue to challenge Dublin’s dominance, offering alternative tax and regulatory frameworks.
SPVs are the backbone of modern aviation finance. They allow high-value aircraft assets to be financed, leased, and managed in a way that isolates risk, ensures compliance, and provides tax and operational efficiency.
From my experience in Dublin, I saw first-hand that running an SPV is not just about incorporation documents and financing structures. It requires disciplined cash flow management, diligent tracking of maintenance covenants, and robust company secretarial governance.
As the aviation industry adapts to global challenges—sustainability pressures, technological disruption, and regulatory reform—the SPV will continue to evolve. What remains constant is its role as the trusted vehicle for protecting assets, facilitating finance, and keeping the world’s aircraft flying.
Recommended Further Reading
Irish Aviation Authority (IAA): https://www.iaa.ie
Aircraft Leasing Ireland (ALI): https://www.aircraftleasingireland.ie
Cape Town Convention International Registry: https://www.internationalregistry.aero
We have teams based in the UK, Ireland and Hong Kong to support SPVs in all sectors. Find out how we can support you by contacting members of our team.
Author of this article Marc Cormack-Bissett is a Director at Law Debenture, based in our Hong Kong office. Do reach out to Marc to find out more about the ways in which we support businesses operating on Hong Kong.