Legal Framework For Aircraft Acquisition And Financing In Nigeria

1. Introduction

1.1 Air transportation is easily one of the most incredible and remarkable innovations in the history of man. It has redefined how people and goods move across the world, offering the highest level of speed and flexibility amongst various travel options. Yet, this convenience comes at the indispensable cost of being the most expensive travel option available. In Nigeria, however, where security challenges have significantly affected road travels in recent years, air transport has increasingly become not only a matter of convenience, but a safer and more reliable alternative for many.

1.2 Behind this essential service lies a business that is both complex and heavily capital-driven. The aviation industry is widely regarded as one of the most capital-intensive sectors globally, with airlines constantly navigating significant financial demands. These range from the cost of acquiring aircraft and investing in specialized technology, to managing high fuel and operational expenses, as well as exposure to foreign exchange volatility. At the heart of these challenges is one critical issue: aircraft acquisition.

1.3 Aircrafts are not just expensive assets, they are sophisticated, mobile, and often financed through intricate cross-border arrangements. For many airlines, outright purchase is rarely feasible, making access to structured financing not just important, but necessary for survival. This is where the law plays a central role. The legal framework governing aircraft acquisition shapes how airlines access funding, allocate risk, and protect, not only their interests but also those of their financiers. These legal frameworks are structured to accommodate these complexities, particularly through international instruments such as the Cape Town Convention¹ and its accompanying Aircraft Protocol which seeks to standardize creditor protections and reduce financing risks across jurisdictions. In Nigeria, this framework is complemented by domestic legislation including the Civil Aviation Act ("CAA")² and regulatory oversight by the Nigerian Civil Aviation Authority ("NCAA").

1.4 Against this backdrop, it is evident that the acquisition of aircraft is not a walk in the park. It is not merely a commercial decision, but a legally structured process shaped by both domestic and international considerations. Therefore, this article explores the legal dimensions of aircraft acquisition, with a particular focus on the mechanisms through which airlines access funding, the security arrangements that underpin such transactions and the practical challenges encountered within the Nigerian context. It also explains the framework within the broader international aviation finance landscape, highlighting both opportunities and areas for reform.

2. Nature of Aircraft as a Legal Asset

2.1 Ordinarily, aircraft are classified as moveable property. Notwithstanding, their legal status differ in many respects from that of ordinary movables. This distinction is strongly rooted in their international character, high economic value and the strict regulatory framework governing their operation and financing. In effect, an aircraft possesses a nationality, and consequently, each state has to keep a public register for the registration of aircrafts. The fact of being entered on this register determines the nationality of the aircraft.³ The implication of this is that each State is obligated to maintain a public register for aircraft, in which details of ownership, registration marks and other relevant interests are recorded. Hence, the act of registration is not just administrative or procedural; it is determinative of the legal identity of the aircraft within the international aviation system. In other words, registration establishes the aircraft's identity, subjects it to regulatory authority of the state of registration and forms the foundation for safety compliance and jurisdictional control.

2.2 While registration may not constitute conclusive proof of ownership,⁴ it serves as prima facie evidence of title and provides a level of transparency necessary for third parties, particularly creditors and lessors. This becomes especially important in financing transactions, where lenders rely on the certainty of registration systems to assess risk and protect their interests.

2.3 It is noteworthy that the registration system operates globally, that is, alongside international mechanisms such as the registry established under the CTC, 2001, which allows for the registration of international interests in aircraft objects. The CTC 2001, provides for the establishment of an international registry which will inter alia serve the purpose of registration of international interests, prospective international interests and registrable non-consensual rights and interests.⁵ It further captures the effect of priority following registrations to the effect that the registration of an interest ensures priority over any interest subsequently registered over an unregistered interest.⁶ There is also an equivalent of this provision in the CAA wherein the Act empowers the NCAA to establish a national registry and maintain a national register of civil aircraft in Nigeria, and an aircraft, when registered, acquires Nigerian nationality under the Act.⁷

2.4 In essence, notwithstanding the fact that aircraft are categorized as movable property, their legal status is more complex than that of other movable assets. They are governed by a combination of national and international laws which holistically reflect their high value, cross-border use and importance in global commerce. Thus, aircraft are better understood as movable assets with unique and specialized legal framework.

3. Methods of Aircraft Acquisition

3.1 Having established the unique legal status of aircraft; it is important to briefly consider the methods through which airlines acquire these mobile equipment/assets in real practice. Considering the fact that the said acquisition is capital-intensive, outright purchase is very rare, especially for airlines operating in developing countries. Therefore, this paper shall focus on the aircraft acquisition via a Lease. A lease is a contract or agreement between a lessee, a lessor, and sometimes a third-party financier, where the lessor grants the lessee the use of an asset for a designated amount of time in exchange for predetermined and regular rental payments.⁸ There are two general classes of leases which include the Operating Lease and the Capital/Finance Lease. Under the former, there is a contract between a lessor and a lessee of an asset for its use over a particular period of time, and the duration is shorter than the economic life of an asset. With respect to the latter, there exists a long-term lease agreement that allows the lessee to hold the asset on their balance sheet at the present value of the lease payments and depreciate the asset as if they owned it.⁹ Under this arrangement, the lessor substantially transfers all the risks and rewards of ownership to the lessee, often with an option to acquire title at the end of the lease term.

3.2 Another widely accepted structure is the Sale and Leaseback Agreement where an airline, as owner of an aircraft will sell its aircraft to a third party and immediately undertake an agreement to lease the aircraft back.¹⁰ This gives the airline the avenue to access liquidity/cash flow while making payments overtime and retaining the use of the aircraft for its operations.

3.3 In effect, the methods of aircraft acquisition reflect a clear commercial preference for flexibility over outright ownership. While direct purchase remains legally straightforward, it is largely impractical for most airlines due to the substantial capital outlay required. Leasing, therefore, emerges as the dominant model, allowing airlines to access and operate aircraft without the immediate financial burden of full ownership. Through Operating Leases, airlines maintain short-term flexibility and avoid long-term asset exposure, while Finance Leases provide a pathway to ownership in substance, with the attendant transfer of risks and rewards. On the other hand, Sale and Leaseback arrangements further underscores the strategic importance of liquidity management within the aviation industry. By converting owned aircraft into cash while retaining operational use, airlines are able to optimize their balance sheets and sustain operations in a capital-constrained environment.

3.4 Ultimately, these acquisition structures are not merely contractual arrangements but financial tools that enable airlines particularly in developing markets to remain viable.

4. Financing Structures for Aircraft Acquisition>/strong>

4.1 Following the examination of the principal methods through which aircraft are acquired, it becomes imperative to consider the following structures through which finance is sourced for the acquisition of aircrafts. In practice, acquisition and financing are closely interwoven because the ability of an airline to purchase an aircraft largely depends on airline's access to substantial capital. It further depends on the type of aircraft, the intended use, the owner/operator, the financier or lessor, etc.¹¹ The common forms of aircraft financing are as follows:

4.1.1 Debt Financing/Loans

Under this structure, an airline obtains funding from commercial banks for the acquisition of an aircraft, with the aircraft itself serving as collateral. In other words, the secured loan's structure involves a lender granting a loan to an airline or a leasing company to purchase an aircraft with the loan secured by way of a mortgage or other security interest over the aircraft.¹² By extension, the lender relies on the enforceability of such interest in the event of any default(s). Therefore, the willingness of any lender to extend credit to any airline for the purpose of aircraft financing is heavily influenced by the strength of the legal framework governing secured transactions.

4.1.2 Lease Financing

This structure allows airlines to operate aircraft without significant upfront capital expenditure. In this context, leasing serves not merely as a means of accessing aircraft, but also as a financing tool through which the lessor effectively funds the acquisition and recovers its investment through periodic lease payments.

4.1.3 Export Credit Financing

This involves guarantees from export credit agencies which help improve an airline's creditworthiness and to secure better financing terms, often with lower interest rates or longer repayment periods.¹³ Put differently, this form of financing typically involves support from government-backed institutions, commonly referred to as Export Credit Agencies ("ECAs"), which provide direct loans, guarantees or insurance to mitigate the risks associated with cross-border transactions. In Nigeria, export credit is primarily provided by the Nigerian Export Import Bank ("NEXIM") which serves as the country's official export credit agency.

4.1.4 Enhanced Equipment Trust Certificates ("EETCs")

this is designed to provide airlines and aircraft lessors with long-term funding secured by aircraft while allowing investors to obtain exposure to asset-backed credit with bankruptcy protections and structural enhancements.¹⁴ In other word EETCs allow airlines to raise funds from institutional investors. Although this model is not widely utilized in Nigeria, it represents a potential avenue for growth within the sector.

Ultimately, aircraft financing structures are designed to allocate risk, ensure access to capital, and provide adequate protection for lenders and investors. The effectiveness of these structures, however, is largely dependent on the legal and regulatory framework within which they operate, particularly with respect to the recognition, priority, and enforcement of security interests.

5. Legal Framework Governing Aircraft Financing

5.1 Given the high value of aircraft and their inherently cross-border operation, financiers require robust legal protection in order to mitigate risk and ensure the enforceability of their interest. Accordingly, the legal regime governing aircraft financing operates on two levels, to wit: - the National Legal Framework and the International Legal Framework.

5.1.1 National Legal Framework

At the domestic level, aircraft financing transactions are governed by aviation-specific legislation and general laws relating to secured transactions. The primary statute is the CAA which provides for the regulation, registration and operation of aircraft within Nigeria. The Act is administered by the NCAA, which maintains the national aircraft register¹⁵ and oversees compliance with regulatory requirements. Section 59 of the CAA details the intricacies of the registration of an aircraft and for the creation of a mortgage on an aircraft or its engine, the aircraft and the engine must first have been registered in Nigeria. The Act establishes the NCAA as the regulatory body for the aviation sector, vesting it with the authority to oversee air navigation, issue licences and air permits, grant safety certifications, and maintain the registration of aircraft. It further incorporates applicable international aviation conventions into Nigeria's domestic legal framework.

5.1.2 International Legal Framework

Given the cross-border nature of aircraft operations and the substantial capital involved, domestic legal systems alone have proven insufficient to address the complexities associated with asset-based financing and leasing in this sector. It is against this background that the Cape Town Convention was adopted. The Convention represents a conscious effort by Member States to facilitate the efficient acquisition and use of high-value mobile equipment by putting in place clear and uniform rules governing the creation, recognition, and enforcement of interests in such assets. At its core, the Convention acknowledges the importance of asset-based financing and leasing, while also promoting legal certainty and allowing parties the freedom to structure their transactions in a commercially practical manner. A key feature of the Convention is its emphasis on the universal recognition and protection of proprietary and security interests. By creating a harmonized legal regime, it seeks to reduce the risks traditionally associated with cross-border financing, thereby encouraging greater participation by creditors and investors. This is further reinforced by the establishment of an international registration system designed to record and prioritize interests in aircraft and other mobile equipment.¹⁶

In practice, a creditor seeking to protect its interest in an aircraft must ensure compliance with different layers of registration and perfection requirements. This may include registration of the aircraft with the NCAA and where applicable, registration under the Cape Town Convention. The legal framework governing aircraft financing reflects a careful balance between international standardization and domestic regulation. While the international regime enhances creditor confidence through uniform rules and enforceable remedies, the effectiveness of aircraft financing transactions ultimately depends on the extent to which domestic laws align with and support these principles. For Nigeria, continued strengthening of its legal and institutional framework will be essential in attracting investment and improving access to aircraft financing within its aviation sector.

6. Challenges Facing Aircraft Financing in Nigeria

Aircraft financing in Nigeria continues to face a number of structural and practical challenges in terms of its accessibility and attractiveness to investors and lenders. Some of the challenges are high operation costs including bank interest rates, multiple taxation and a lack of understanding of the sector by local financial institutions.¹⁷

Another major constraint is the issue of foreign exchange volatility and limited access to foreign exchange currency. Aircraft transactions are typically denominated in foreign currencies, particularly the US dollar, whereas the revenue streams of Nigerian airlines are largely in naira. This mismatch exposes operators to exchange rate risks and often makes debt servicing unpredictable, thereby increasing the risk profile of financing arrangements.

In addition, another significant challenge facing aircraft financing in Nigeria is the perception of weak governance structures and institutional uncertainties, particularly in the management and enforcement of creditor rights. This is evident in the issues involving Arik Air and the Asset Management Corporation of Nigeria, where regulatory intervention in the management of the airline raised concerns about creditor priority and the sanctity of contractual arrangements.¹⁸ For financiers, the predictability of legal and regulatory outcomes is a critical factor in assessing risk. Where governance frameworks appear inconsistent or subject to external influence, investor confidence is often undermined. From a financing perspective, this uncertainty has significant implications. Lenders and lessors are more likely to price in higher risk premiums, impose stricter contractual safeguards, or, in some cases, refrain from entering the market altogether. Therefore, strengthening governance frameworks, ensuring transparency in regulatory interventions, and reinforcing the sanctity of contractual and proprietary rights remain essential to improving investor confidence and facilitating sustainable aircraft financing in Nigeria.

6.1 Practical Solutions to Challenges in Aircraft Financing in Nigeria

6.1.1 Bridging the Knowledge Gap within Financial Institutions

There is a need for the banks and other financial institutions in Nigeria to deliberately close the knowledge gap on aircraft financing. Given the technical nature of such transactions, a dearth of specialized knowledge opens the chances of poorly structured deals.

6.1.2 Foreign Exchange Volatility

Government must continue its recent management of the foreign exchange market in order to reduce volatility and ensure stability in the foreign exchange market. This is important because aircraft financing obligations are typically denominated in foreign currency.

6.1.3 Contractual Discipline by Operators

Operators must keep fidelity of their contractual obligations with their financiers. The failure of some operators to strictly adhere to contractual obligations such as timely lease payments and maintenance commitments poses a significant risk to financiers. Therefore, ensuring fidelity to contractual commitments are essential for improving the credibility of Nigerian airlines in the global market.

7. Conclusion

While Nigeria has taken important steps to align its legal framework with global standards particularly through instruments like the Cape Town Convention, the effectiveness of aircraft financing in practice ultimately depends on addressing key structural and institutional challenges. Issues such as foreign exchange volatility, limited expertise within financial institutions, weak financial positions of airlines, and governance concerns continue to affect investor confidence and access to funding.

However, these challenges can be addressed. By building capacity within Nigerian banks, maintaining a more stable foreign exchange environment, and ensuring that airline operators meet their contractual obligations, the financing landscape can be significantly improved.

Footnotes

1. Convention on International Interest in Mobile Equipment Signed at Cape Town on 16 November 2001 available at https://www.unidroit.org/wp-content/uploads/2021/07/Cape-Town-Convention_English.pdf accessed on 10^th April 2026.

2. Civil Aviation Act, 2022 available at https://placng.org/lawsofnigeria/laws/C13.pdf accessed on 10th April 2026.

3. Jan Piet Honig, 'The Legal Status of Aircraft' https://link.springer.com/chapter/10.1007/978-94-015-0987-9_4 accessed 26^th March 2026.

4. CAA 2022 s59(9).

5. CTC 2001 Article 16.

6. CTC 2001 Article 29.

7. CAA 2022 s59(1)(2)(8).

8. Vitaly S. Guzhva, Sunder Raghavan, Damon J. D'Agostino, Aircraft Leasing and Financing (2^nd edn, Elsevier 2024).

9. Supra.

10. Supra.

11. Alex Izinyon II, 'A Guide to Aviation Finance in Nigeria' https://alexizinyon.com/2020/10/02/finance-structures-a-guide-to-aviation-finance-in-nigeria/ accessed 30 March 2026.

12. Ola Alokolaro, Oladayo Ogungbe, 'Aircraft Financing in Nigeria; Challenges and Prospects in a Growing Economy' https://advocaat-law.com/wp-content/uploads/2021/11/1d7a97bdb6ea9f7d5ef6dc17c77218eb.pdffaccessed 30^th March 2026

13. Patrick Osu, Oluwafunmilola Lawal, 'Aviation Finance & Leasing in Nigeria 202-2026' https://iclg.com/practice-areas/aviation-finance-and-leasing/nigeria accessed 30 March 2026.

14. Enhanced Equipment Trust Certificates (EETCs) https://www.corvidpartners.com/bond-valuations/eetc accessed 30 March 2026.

15. CAA 2022 s59(2).

16. CTC 2001 Article 16.

17. Ola Alokolaro, Oladayo Ogungbe, 'Aircraft Financing in Nigeria; Challenges and Prospects in a Growing Economy' https://www.ibanet.org/article/bb8add33-eedd-4341-80b5-bf7f42d39229 accessed 30 March 2026.

18. Olusegun Koiki 'Why Financiers are Cautious of Nigeria's Aviation Sector, by Experts' (Lagos, 27 February 2026) https://guardian.ng/business-services/why-financiers-are-cautious-of-nigerias-aviation-sector-by-experts/ accessed 30 March 2026.

Becky Nwaroh is an Associate, Dispute Resolution, at S. P. A. Ajibade & Co., Lagos, Nigeria.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.