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Switzerland's aviation industry in 2015

Since the last issue of this Experts Guide in 2014 Switzerland's aviation industry has faced significant challenges. A nearly collapsed financial market with a still insecure market environment and high volatility in the aftermath not only resulted in a decrease in demand for aviation related services and goods but also making external financing, other than to AAA customers, still almost unavailable to its participants with sometimes devastating effect. What is more, investors seeking safety in the Swiss currency and the therewith related dramatic surge of the Swiss Franc (in comparison with the US Dollar and the Euro) is not easing life for export related services and goods either. However, despite such a difficult economical environment it is fair to say that Switzerland and its aviation industry once again affirm their reputation as a stronghold in crisis situation.

General

Due to its geographical position in the centre of Europe, its healthy and strong economy, its sophisticated and diverse financial markets and high quality standards as well as its most reliable and efficient legal system, Switzerland has been, and still is, one of the leading jurisdictions for aviation worldwide. This is not only with respect to airlines, business jet operators, airports, maintenance and completion centres but also with respect to its highly professional and experienced financial institutions rendering worldwide services from their Swiss base.

Infrastructure

Zurich Airport was, again, able to set a new record in passenger volume in 2014 and the 25-million mark has been exceeded for the first time. In 2014, Zurich Airport was host to 25.5 million passengers – a year-on-year increase of 2.5%.. In early 2010 Zurich Airport was made fit for daily take-off and landings by Singapore Airlines' Airbus A380 and was at that time only the third airport in Europe to enjoy regular service by the world's largest passenger aircraft. In 2014, Dubai-based Emirates has launched a daily A380 service to Zurich. "Europe's Leading Airport", "Best Airport for Food and Drink", "Swiss Award for Steel construction": Zurich Airport has again received a variety of awards in different categories. At Basel-Mulhouse Airport AMAC Aerospace, Air Service Basel as well as Jet Aviation have completed their new hangars competing to provide international VIP customers with high quality handling, maintenance and completion services for corporate aircraft. Despite the worldwide financial sit-uation and due to their long term orders, completion and maintenance providers seem to not only resist the downturn but are increasing their capacity. Last but not least Geneva International Airport, home of EBAA's annual European Business Aviation Convention & Exhibition (EBACE), regularly ranks within the top five of the most popular business aviation departure airports in Europe.

Carriers

Compared to its European competitors the "national" carrier SWISS is doing very well. However, and like its 'legacy' competitors in Europe, SWISS is faced with a strong competition of the Mid East carriers flying not only directly into Switzerland with very competitive ticket prices but also with acquiring minority stakes in regional airlines based in Switzerland which shall act as distributors in Europe for such Mid East carriers. Etihad just recently purchased a minority of Lugano based Darwin Airlines which is now flying all over Europe not only with ATR-72 but under a new marketing brand as 'Etihad Regional' and for very competitive ticket prices which even low cost carriers can't beat. SWISS is operating a fleet of currently 83 aircraft; 29 for longhaul and 54 for medium- and shorthaul routes. The thirty orders of the all new Bombardier C-Series (CS100s and CS300s) will soon replace SWISS' Avro RJ100 Aircraft and commencing in 2017 the Airbus A340 fleet will be replaced by Boeing 777-ER. Helvetic Airways currently operates six Fokker 100s (four of which are operated under a wet-lease arrangement for SWISS) and one Airbus 319-100. Just recently, the airline concluded long-term leases for seven Embraer 190s which will enter operation in 2015., Edelweiss Air (since 2008 a subsidiary of SWISS), celebrating its 20th anniversary this year, remains to be a success story and has added two Airbus 330-300 to its fleet. SWISS has again earned several distinctions in this year's Business Traveller Awards, where it was, amongst other awards, declared 'Best Airline for Europe' for the fifth consecutive year.

In 2014 the German based Germania launched a new Swiss operating company which aims to serve various charter destinations with two Airbus A319 aircraft, whereby one A319 will fly for a Swiss tour operator under the new brand HolidayJet. Sky-Work Airlines with home base in Berne-Belp airport disposed of its three Bombardier Dash 8Q-400 (which are now operated by Air Berlin) but continues operation with its five Dornier 328-110 aircraft serving 18 different destinations all across Europe.

Business Aviation

The demand for the charter of, and ownership in, business aircraft has remained on a high level in Switzerland also over the last two years. There are currently over 1700 aircraft registered in the Swiss aircraft registry, many of them corporate and private jets. Switzerland is home base of many high quality business and private jet operators, such as Jet Aviation, G5 Executive, Comlux Aviation, ExecuJet Europe (just recently acquired by Luxaviation), Premium Jet, Jet-Link (now a subsidiary of DC Aviation, Germany), Cat Aviation and PrivatAir, to mention a few.

Financing

The coming together of the financial crisis and the deterioration of aircraft values over the last years has had significant effect on financiers worldwide. In aircraft finance purely asset based financing has almost disappeared. Financiers require additional securities in form of guarantees and other assets as aircraft values have proven not to be sustainable and reliable sources. As a further consequence borrow-ers/lessees sometimes find themselves unable to pay back their lenders in case of margin calls due to the deterioration of the aircraft's value leading to default scenarios and recoveries. However, even in these circumstances Swiss financiers such as Credit Suisse, BNP Paribas Leasing Solutions Switzerland, SG Equipment Finance, UBS, GE Capital Solutions, J.P. Morgan Suisse etc. remain strong players and reliable partners, even if faced with new competitors such as Banque CIC and Raiffeisen Bank Austria that have entered the Swiss aviation financing market.

Legal Framework

Swiss law offers significant advantages not only from a corporate, contractual or aviation law perspective but also regarding tax law. Swiss law does not only recognise foreign mortgages (Geneva Convention on the Recognition of Rights in Aircraft) but also allows the registration and protection of mortgages, leases and other encumbrances and provides for one of the strongest securities worldwide; amongst others avoiding the same to become subject to workman or other possessory liens. Further, the greatly promoted self-help remedies allowed under English law have proven again not to be as reliable as advocated. During recent recovery cases it became evident that enforcing rights privately in most cases creates more liability than offering fast relief to creditors. In comparison the well established and straight forward enforcement regime under the Swiss legal system, however, covers not only the needs of aviation financiers but also addresses debtor's and operator's concerns which result in a more efficient enforcement than most other jurisdictions. What is more, with the Swiss Federal Office of Civil Aviation Switzerland provides for a well proven, reliable and efficient civil aviation authority which was attested by the last ICAO audit report to provide for an appropriate organisation, well operating procedures and well qualified personal to secure supervision of safety. With the loophole for privately managed aircraft to be brought in to free circulation within the European Union effectively free from VAT (now 20%) through the United Kingdom being closed as of 2011, Switzerland, with an import VAT of currently 8%, has become a viable option in the heart of Europe. Also, Switzerland has not (yet) joined the European Emissions Trading System (EU ETS), which covers all aviation activities with take-off and landings within the European Union, and may therewith be considered as a white spot for intercontinental flights. Finally, the Swiss Federal Council has granted a mandate to enter into negotiations with the EU on an extension of air traffic rights to so-called cabotage flights which may pave the way for Swiss commercial aircraft operators to freely serve destinations within any EU country.