1. November 2010 William Ho – Partner Jackson Chow – Senior Foreign Registered Lawyer William KK Ho & Co The statements contained herein are based on good faith assumptions and provided for general information purposes only. These statements do not constitute and shall not be construed as any tax or legal advice by William KK Ho & Co, the author or presenter and should not be used or relied upon for any purpose other than for general information. Getting the Deals Done!! – Understanding and overcoming legal challenges in the PRC

2. William KK Ho & Co Page 2 Outline Introduction - Aims Cape Town and recordation of IDERAs in the PRC Tax Bonded Areas and PRC Project Companies 1 2 3 PRC Regulatory Authorities – Approvals and Registrations Conclusion 4 5

3. William KK Ho & Co Page 3 Introduction Aims Focus on the PRC Understanding PRC Regulatory Requirements Checklist when managing PRC aircraft financing transactions Highlight recent developments relating to Aircraft Financing practices in the PRC

4. William KK Ho & Co Page 4 PRC Regulatory Authorities Inter-relationships…  NDRC Approval  SAFE Approvals  CAAC Registrations

5. William KK Ho & Co Page 5 PRC Regulatory Authorities National Development and Reform Commission (NDRC) Responsible for macroeconomic management of the PRC Formulates policies for economic and social development, guides the economic system of the PRC NDRC Approvals Applications sought by the relevant entity wishing to import, purchase or lease aircraft into the PRC – applications to specify:  number and type of aircraft; and  structure of lease or financing (detail the amount of financing). time restrictions to obtaining SAFE approval.

6. William KK Ho & Co Page 6 PRC Regulatory Authorities State Administration of Foreign Exchange (SAFE) People’s Bank of China (PBOC) China’s central bank. Formulates and implements monetary policy. provides financial services to promote economic growth and financial stability. Responsible for planning and administrative control of foreign exchange. Formulates policies and regulations and manages the exchange rate and foreign exchange reserves. SAFE delegated authority by PBOC to regulate compliance with FX regulations.

7. William KK Ho & Co Page 7 PRC Regulatory Authorities State Administration of Foreign Exchange (SAFE) SAFE – responsible for regulating compliance, approving and registering foreign exchange transactions Monies to be remitted outside of the PRC will require SAFE approval – Loans, Leases, Guarantees, Fee Letters, etc will require registration with SAFE and its approval Applications for SAFE Approval Failure to obtain approval prohibits purchase of foreign currency to satisfy payment obligations offshore

8. William KK Ho & Co Page 8 PRC Regulatory Authorities Civil Aviation Administration of China (CAAC) Civil Aviation Law of the People’s Republic of China (“Aviation Law”) Responsible for “Civil Aircraft” affairs “Civil Aircraft” means aircraft other than those used for military, customs and police services (Article 5)

9. William KK Ho & Co Page 9 PRC Regulatory Authorities CAAC Registration Rights in the PRC Article 11of Aviation Law – Rights of a civil aircraft to be registered with CAAC: (1) the ownership rights of a “civil aircraft”; (2)the rights for the acquisition and possession of a “civil aircraft” through an act of purchase; (3)the right to possess the “civil aircraft” under a Lease where the term is more than six months; and (4)the mortgage rights of a civil aircraft

10. William KK Ho & Co Page 10 PRC Regulatory Authorities - CAAC  Any: - acquisition - transfer - extinction of ownership of a civil aircraft must be registered with CAAC (Article 14 – CA Law) Ownership Rights  The mortgage shall be “established“ by registering the mortgage with CAAC by both the mortgagor and the mortgagee (Article 16 – CA Law)  Once the mortgage has been registered, ownership of the aircraft shall not be transferred without the consent of the Mortgagee (Article 17 – CA Law) Mortgage Rights  An aircraft lease (including a financing lease) which has a term longer than 6 months shall require the lessee to register its right of possession over the civil aircraft with CAAC  Any unregistered possession right shall not act against any third party claim (Article 33 – CA Law) Possession Rights

11. William KK Ho & Co Page 11 PRC Regulatory Authorities CAAC Registration Rights in the PRC CAAC registrations aim to give public notice of an interested party’s rights with respect to the Aircraft – failure to register shall not act against any third party claim. Registered rights of civil aircraft may be made available to the public for inquiry, reproduction or extraction (Article 12)

12. William KK Ho & Co Page 12 Cape Town Convention and Protocol in China Cape Town Convention & Protocol Convention and Protocol signed on 16 November 2001 China ratified the Cape Town Convention and Protocol on 3 February 2009 Cape Town came into force in China on 1 June 2009 Creates international standards for registration, ownership, leasing and enforcement of security and legal remedies for default International Standards assist domestic importers of aircraft to access international financing

13. William KK Ho & Co Page 13 Cape Town Convention and Protocol in China Priority system (based on first to file) in respect of international interests in Aircraft Objects Remedies available to enforce international interests: take possession sell or grant a lease; and receive income or profits from management of the aircraft CAAC registration rights to co-exist with Cape Town IR system? Mortgage rights registration necessary? Possessory rights registration necessary?

14. William KK Ho & Co Page 14 Cape Town Convention and Protocol in China China has nominated CAAC as an authorised entry point – similar to FAA Authorisation codes and IR register CAAC provides for standard form applications for authorisation codes for: registration; amendment; and discharge, of an international interest Supporting documents to be provided CAAC for registration of international interest - Certificate of Nationality Registration for the Aircraft - Extract of relevant transaction documentation

15. William KK Ho & Co Page 15 Cape Town Convention and Protocol in China Upon ratification, China also pronounced the certain declarations Declaration under Article 39(1)(a) – certain non-consensual rights or interest in China shall rank ahead of registered international interests (without any formality of registration) Bankruptcy expenses Liens of an employee for unpaid wages Taxes payable by the debtor Remuneration for salvaging and aircraft; and Fees for custody and maintenance Declaration under Article 50(1) - Convention shall not apply to “internal domestic transactions” in the PRC

16. William KK Ho & Co Page 16 IDERAs Irrevocable De-Registration and Export Request Authorization (IDERA) Allows for the deregistration, export and physical transfer of the Aircraft out of the State of Registration IDERA to be registered with CAAC Recent developments in the recordation of IDERAs CAAC Guidelines/Procedures for the De-registration of Civil Aircraft According to an IDERA (Ref. No.: AP-45-AA-2009) (June 2009) Airworthiness management program held in Beijing provide training and information seminar on the recordation of IDERA’s in PRC (Sept 2010)

17. William KK Ho & Co Page 17 IDERAs CAAC Guidelines/Procedures Recordation of IDERAs (Part 2 of Guidelines) Agreed form IDERA (in duplicate) to be submitted to CAAC Signed by an authorized person and affixed with company chop (if individual, signed by such applicant) Submitted with supporting documentation (evidence authorization) and other evidence as required by CAAC CAAC to review application. Determination within 20 working days. CAAC if satisfied, shall record and retain one copy of the IDERA and return the other copy to the Applicant Bottleneck of recordations. Process still being formalised.

18. William KK Ho & Co Page 18 IDERAs Revocation, amendment and deregistration - IDERA Authorization given under IDERA shall not be revoked or amended without the consent of the Authorized Party in writing (Article 1.6.2) Removal of an authorization at the request of the Authorized Party (Article 1.6.2) Nominal fee will be charged on de-registration determined by CAAC (Article 1.6.4) Authorized Party to complete agreed form for deregistration (Form AAC- 104(06/2008)) and signed by authorized person with company chop to be affixed (Article 3.1)

19. William KK Ho & Co Page 19 IDERAs Procedures for deregistration - IDERA Authorized Party to file de-registration application together with supporting documentation:  evidence of Authorised Party’s legal identity  authorisation issued by a PRC court consenting to the de-registration and export the aircraft out of China; and  such other documents required by the CAAC If application satisfied, CAAC to issue a Letter for Civil Aircraft (Form AAC- 194(06/2008)) within 5 working days after its receipt of the de-registration application

20. William KK Ho & Co Page 20 PRC Regulatory Authorities Inter-relationships…  NDRC Approval  Precondition to import, purchase or leasing of aircraft  Conditions tied to application  SAFE Approvals  Leases, Loans, Fee Letters, Guarantees, etc will need SAFE approval  Failure prohibits purchase of foreign currency to satisfy obligations  CAAC Registrations  Notice to public of interested party’s rights in aircraft  Inherent protections afforded under PRC law  Harmony - IR & CAAC ??

21. William KK Ho & Co Page 21 Tax Bonded Areas and PRC Project Companies China Banking Regulatory Commission (CBRC) notice on “Financial Leasing Companies in the Territory of Bonded Areas” FLCs established under CBRC be permitted to establish “project companies” within particular "bonded zones/areas" in China “Bonded Areas” PC lease to a domestic airline be regarded as “cross-border leasing transaction” end user Airline to take benefit of competitive tax rates Permits FLC’s to be more competitive in global aircraft leasing market

22. William KK Ho & Co Page 22 Tax Bonded Areas and PRC Project Companies Background: SPCs traditionally established in tax neutral jurisdictions SPCs enjoy competitive tax benefits, bankruptcy remoteness and integrally involved in limited recourse financings PRC domestic FLCs subject to heavier tax burdens Foreign lessors using offshore SPCs (appropriately structured) enjoy favorable withholding tax rates, lower local tax liabilities

23. William KK Ho & Co Page 23 Tax Bonded Areas and PRC Project Companies PRC Project Companies now participating in PRC Leasing transactions PC’s, not equivalent to offshore SPCs but have characteristics of SPCs: PC can enter into one leasing transaction, and would own one asset (or assets that are subject to a common leasing transaction) PC enjoys certain favorable tax treatments FLCs to better manage risks of leasing transactions Flexibility for FLCs to dispose of the asset

24. William KK Ho & Co Page 24 Tax Bonded Areas and PRC Project Companies Establishing an Onshore PC PC’s akin to being granted a “business licence” FLC to satisfy threshold conditions (Article 6) FLC - capital adequacy ratio of not less than 8% net assets of not less than RMB 1 billion (allowing for loss reserves) Sound corporate governance, internal control and risk management systems FLC applicants to make submission to CBRC for approval (Article 7) Ongoing reporting obligations to CBRC (Article 15)

25. William KK Ho & Co Page 25 Tax Bonded Areas and PRC Project Companies Traditional SPCsFLC Project Companies Jurisdiction: Cayman Islands, Ireland Limited recourse:  Bankruptcy remote:  No other business  Covenants: Grant of Share Charge:  Favorable PRC Tax  Treatment: Jurisdiction: PRC Tax Bonded Areas Limited recourse  characteristics: Bankruptcy remote  characteristics: Single asset business:  Strict set up qualifications:  Favorable PRC Tax  Treatment:

26. William KK Ho & Co Page 26 Conclusion Revert to our Aims Understanding PRC Regulatory Requirements NDRC approvals SAFE approvals CAAC Rights registrations Cape Town IR registrations IDERA registrations Checklist when managing PRC aircraft financing transactions Recent developments relating to Aircraft Financing practices in the PRC – IDERA and Cape Town registrations, Tax Bonded Areas & Project Co’s

27. William KK Ho & Co Page 27 Questions?

28. William KK Ho & Co Getting deals done !! Understanding and overcoming legal challenges in the PRC