China's new aviation law has changed the legal landscape and finance lawyers will be busy for months sorting it out, but they do not think it will change the overall risk of dealing with China.

'People will have to reevaluate risks and figure out how to cover them,' says David Walton, aviation lawyer with Perkins Coie in Hong Kong. The new law, effective 1 March, embraces everything from air safety to airports, but parties dealing with China are likely to be most interested in the sections on aircraft mortgages, leases, and liens.

The law allows registration of aircraft mortgages and leases and confirms their priority over third parties. The Civil Aviation Administration of China, which now oversees nationality registration of aircraft, says mortgagees and lessors can record their interests in that same register so everything is centralised, but procedures were not in place at presstime.

But there are contradictions over what national jurisdiction can apply to aircraft contracts. One section says parties have a choice but another says control rests in the country of registration, that is China.

Changes in lien rights have caused consternation. Under the new law, maintenance providers can preserve their claim only if they file a lawsuit within three months. But financiers complain that is too long, that the law does not cover all liens, such as for taxes or airport charges, and that it might allow lessees to claim a lien for aircraft maintenance required under the terms of the lease.

Walton says this assessment is 'far fetched,' but warns that China's new law 'is going to take some time to work through.'

David Knibb

Source: Airline Business