Aircraft Registry - Report - 14 September 2012

Economic Affairs

Scrutiny Panel

Aircraft Registry

Presented to the States on 14th September 2012

S.R.6/2012

CONTENTS

1. PANEL MEMBERSHIP AND TERMS OF REFERENCE.................................................4
2. CHAIRMAN'S INTRODUCTION ...................................................................................5
3. EXECUTIVE SUMMARY .............................................................................................8
4. KEY FINDINGS.........................................................................................................11
5. RECOMMENDATIONS..............................................................................................16
6. INTRODUCTION.......................................................................................................18
7. JERSEY AIRCRAFT REGISTRY BACKGROUND AND OPTIONS................................21

1. Context...................................................................................................................21
   2. What is an Aircraft Registry?...................................................................................21

7.1.7  The Isle of Man.......................................................................................................22

7.1.12 The scope of a Jersey/Channel Islands Aircraft Registry ........................................23

2. The Options............................................................................................................24
3. Background – Development of the Options.............................................................26

7.3.1  Initial Proposals – 2005...........................................................................................26

7.3.4  Emergence of Political Interest in a Channel Islands Aircraft Registry – 2009/10....27

7.3.8  A Separate Jersey Registry? ..................................................................................28

7.3.11 Faltering Negotiations – 2011.................................................................................29

7.3.17 Guernsey Registry Strategic Partner Announcement – 2012..................................31

7.3.23 Criticism of Jersey's handling of the project............................................................33

8. WHAT NEXT: SHOULD JERSEY PURSUE A CI REGISTRY?......................................37

1. Introduction.............................................................................................................37
2. Joint Channel Islands Registry or Standalone?.......................................................37
3. Is There an Opportunity For Jersey Without Involvement in a Registry?.................42
4. Scepticism of the Aircraft Registry Project ..............................................................43

9. PROJECT VIABLITY: EXAMINING THE KEY ELEMENTS............................................47

1. Introduction:............................................................................................................47
2. Tax Issues – GST and VAT ....................................................................................47

9.2.1  GST........................................................................................................................47

9.2.12 VAT ........................................................................................................................52

3. Business Case........................................................................................................55

9.3.2  The costs................................................................................................................55

9.3.6  The potential economic value and establishing demand.........................................56

4. Unique Selling Point................................................................................................63
5. Infrastructure...........................................................................................................68

9.5.2  Administration and Regulation opportunities...........................................................68

9.5.10 Opportunities for aircraft support services...............................................................70

6. Developing Legislation............................................................................................72

9.6.1  Changes to UK and Islands Legislation to allow a CI Aircraft Registry....................72

9.6.14 Implications from the Cape Town Convention on International Interests?...............77

10. CONCLUSION..........................................................................................................80
11. APPENDIX 1 – EVIDENCE CONSIDERED .................................................................81
12. APPENDIX 2 ............................................................................................................82 C Option costing...........................................................................................................82

C.1 Overview.................................................................................................................82 C.2 Option 1..................................................................................................................82

C.3 Option 2..................................................................................................................83 C.4 Registry cost build...................................................................................................84

D Economic analysis inputs...........................................................................................86

D.1 Overview.................................................................................................................86 D.2 Assumptions about world fleet................................................................................86 D.3 Benefits from aircraft registration ............................................................................87 D.4 Benefits from aircraft purchase...............................................................................88 D.5 Benefits from local aircraft registration....................................................................89 D.6 Results....................................................................................................................89

1. PANEL MEMBERSHIP AND TERMS OF REFERENCE

1. The Economic Affairs Scrutiny Panel is comprised of the following members: Deputy S.G. Luce , Chairman

Connétable S.W. Pallett, Vice-Chairman

Connétable M.J. Paddock

2. The following Terms of Reference were established for the Review:

1. To examine the potential value to the Island's economy for current proposals to establish either:

1. a Jersey Aircraft Registry or;
2. a Channel Islands Aircraft Registry in partnership with Guernsey

2. To assess key structural elements of an Aircraft Registry involving Jersey, including:
   1. safety standards/regulation
   2. the unique selling point
   3. the location of the Registry
   4. VAT and GST related issues
   5. cost (development and administration) and strategic partnership
3. To establish whether the potential economic value and key structural elements of either current option for an Aircraft Registry are sufficiently robust to merit continued exploration by the Minister for Economic Development.

2. CHAIRMAN'S INTRODUCTION

1. The vast majority of us will use commercial aircraft for our holiday or business travel, but the aspiration of actually owning a small or medium sized plane is way beyond all but a very small number. Consequently, the subject of registering aeroplanes is not perhaps one that will excite many people. It was, however, something that was of immediate interest to the Economic Affairs Scrutiny Panel when it appeared on a list of subjects we might consider reviewing. In many ways, the concept of, and principles behind, opening an aircraft registry in the Channel Islands is not dissimilar to many other ideas that come forward as ways to genuinely diversify the economy here in Jersey. Our overpowering initial thought was......why was it that Jersey didn't identify this opportunity to develop the economy and, more importantly, act many years ago?

2. During informal briefings before we started the Review, it became clear that the idea of an aircraft registry was not new, and indeed had been suggested by members of the local aviation industry as early as 2005. At that time, the rules concerning the registration of private planes inside the European Union were changing, and it was obvious to some that there were opportunities presenting themselves that could be beneficial. Here in Jersey we had the expertise, the experience and, most importantly, the enthusiasm within the private sector to make things happen. Another of our fellow Crown Dependencies, the Isle of Man, had acted very quickly and set up their own aircraft register, and with their success evident for all to see the Panel thought it appropriate to try to discover why this initiative had not been grasped here in Jersey.

3. It would be wrong to give the impression in this foreword that nothing has happened at all, and that the concept has not been looked at seriously. Reports have been written, investigations by independent third parties have been commissioned, and advice has been sought, however, there seems to have been a reluctance to make decisions, a reluctance to "see the project through". In truth, both Guernsey and Jersey identified the possibilities and benefits that an aircraft register could offer, and discussions took place as to whether the Channel Islands could support two individual registers, or indeed if we would all be better served by one overarching Channel Islands entity. It will be shown in this Review that, in our opinion, it is now the latter Channel Islands option that is the better alternative, but it is unfortunate that the necessity for inter-island discussion, and the deliberations as to whether to "go it alone" or work together, have without doubt slowed down the decision making process further.

4. To much of the outside world, Jersey and Guernsey are perceived as "the Channel Islands". This means that working independently on subjects such as aircraft registry (where there is mutual interest) is most likely counter-productive. However, we are increasingly creating "pan-island positions", and the Director of Civil Aviation for the Channel Islands is one such post, a post well suited to investigating, and deciding on, the feasibility, or otherwise, of this project. We found the Director's experience and expertise invaluable to our discussions.
5. It is recognised by everyone that the aircraft register itself will not be a lucrative money making venture, but that it will be the "value added" business that derives from registering aircraft that sees the economic benefit for government. Certainly there will be commercial competition for this additional business, but it will be important to make sure that a level playing field is created the both Jersey and Guernsey to compete on. Once again, it will be the Director of Civil Aviation for the Channel Islands who will be crucial to creating an equal environment for both islands to work inside. While parallel "pan Channel Islands legislation" will be more complicated to write and more time consuming to draft, in the long run it will be the best alternative.
6. In closing this foreword I would just say that, despite an unnecessary amount of indecision over the last few years, an aircraft register here in the Channel Islands is still viable, and that the opportunity to create a well respected and well regulated offshoot of the global aviation industry is not lost. However, there is much to do, and "working together" could never be more important. The Minister for Economic Development needs to get to work "in house" to move this project forward. He also needs to work together with his fellow Ministers to resolve tax issues, and promote the training of Islanders with the appropriate skills as quickly as possible. Finally, Jersey needs to work together with Guernsey at best speed to identify and resolve any legislative difficulties.
7. The Panel has been pleased with what we have established in this, our first Review, and hope that our deliberations and investigations now lead to some swift and tangible progress in the setting up of an aircraft register here in the Channel Islands.

Deputy S.G. Luce

Chairman

Economic Affairs Scrutiny Panel

3. EXECUTIVE SUMMARY

1. The concept of establishing an Aircraft Registry in the Channel Islands is not new, having been championed to the States of Jersey by some private stakeholders since at least 2005. It has been proven elsewhere, in comparable jurisdictions to Jersey, that a successful Aircraft Registry project can lead to significant economic benefits, through the economic flow generated from the wealthy individuals and corporations registering their aircraft and then accessing a range of supporting services that can be sold to them. Indeed, we need look no further than the Isle of Man as a prime example of what can be achieved in a short space of time. It is with significant disappointment, therefore, that the Panel has found that since 2005, Jersey has failed at a number of key moments in the Aircraft Registry project to either recognise or seize the opportunity to deliver the momentum required to achieve significant progress.
2. The appointment of the joint Director of Civil Aviation in 2009 provided real impetus to the project, and having been appointed by the authorities in Guernsey to head the project on their behalf it is notable that the Aircraft Registry project in Guernsey has been successful in achieving significant progress, but Jersey's part in the project has been subject to criticism for quite the opposite. This is despite it being identified in January 2010 as a potential winner' by the Economic Development Department in Jersey and Commerce and Employment in Guernsey, as part of their project to identify areas of common interest which could deliver improvements in service or cost saving through the efficiency gains of joint working. The Panel has recommended that in order to establish an appropriate single point of responsibility for the cross-Departmental and cross-Island Aircraft Registry project, the Minister for Economic Development should, through the Chief Minister, engage with Director of Civil Aviation with a view to him assuming project management responsibility on behalf of the Economic Development Department.
3. There is little doubt that rather than try to establish its own or piggyback' on a Guernsey Registry, it is in Jersey's best interest to continue to pursue a joint Channel Islands Aircraft Registry, this being a conclusion reached overwhelming majority of the stakeholders that engaged with the Panel during the Review. The Panel urges the Minister for Economic Development without delay to seek to engage with the Minister for Commerce and Employment in Guernsey and its strategic partner SGI Aviation to formally secure Jersey's position in a joint Channel Islands Aircraft Registry.

4. Even if Jersey can secure its place in a Channel Islands Registry with Guernsey, there are issues to overcome, including legislative changes in the UK, Jersey and Guernsey, the Channel Islands VAT position, and perhaps most significant of all to Jersey, the GST issue. As Jersey has GST set at 5% and Guernsey has no comparable tax, it is clear that Jersey faces a significant competitive disadvantage to Guernsey which, unresolved, would appear to seriously undermine Jersey's chances of generating associated economic activity from an Aircraft Registry. The Panel was surprised and disappointed by an apparent lack of urgency and momentum on the part of the Minister for Economic Development to explore ways of resolving the GST issue, although there is some encouragement that the Minister for Treasury and Resources has, nevertheless, begun preliminary work on identifying the issues his Department faces and the possible solutions to be examined. The Panel has recommended that the Minister for Economic Development must engage at the earliest opportunity with the Minister for Treasury and Resources to achieve a solution that is satisfactory to both to overcome the GST issue. The issue of competitive disadvantage to the Isle of Man and other Registries presented by VAT is a challenge, but does not appear to be insurmountable. The CI Strategic Case report established that, due to the different VAT regimes, it was likely that different clients would be attracted to the Channel Islands Registry than those using the Isle of Man, depending upon their place of business and planned base of activity for their aircraft.
5. Concerns were raised about the reliance on business case figures from pre 2008 that may now be outdated given the recent nature of the local/global economy. It appears, however, that there remains a confidence amongst a number of stakeholders about the underlying business case and the health of markets relevant to a Channel Islands Aircraft Registry. Nevertheless, the Panel recommends that it will be necessary for the Minster for Economic Development to establish up-to-date figures relating to the target market(s) of the Channel Islands Aircraft Registry and the impact, if any, this may have on projected economic flow and the business case. Indeed, this may be required quickly to assist negotiations with the Minster for Treasury and Resources regarding a solution over the GST issue.
6. Further concern was raised about the lack of a unique selling point for a Channel Islands Aircraft Registry. It was suggested to the Panel that allowing the registration of aircraft under fractional ownership offers the potential for a genuine unique selling point of a Channel Islands Aircraft Registry, but the relevant work assessing the potential associated risk has yet to be undertaken. With the agreement of Guernsey, the Minister for Economic Development should request the Director for Civil Aviation to undertake the necessary work

to establish a recommendation on the issue of allowing fractional ownership within a Channel Islands Aircraft Registry.

7. Finally, on the important issue of potential liabilities to Jersey and Guernsey in the event of an accident, whilst the UK Air Accident Investigation Branch is likely to be the designated chief investigating authority in the event of an accident involving a Channel Islands registered aircraft, a clear position to mitigate against potential liability and cost implications to the States of Guernsey and Jersey has yet to be established, although initial consideration is being given to insurance. The Panel believes that it is particularly important that work is undertaken by the Aircraft Registry project team to establish an acceptable solution to both Islands, in mitigation against possible cost liabilities associated with an accident involving a Channel Islands registered aircraft. The potential to insure against such an eventuality should be given thorough consideration.

4. KEY FINDINGS

1. Key Finding 1:

It has been proven elsewhere, in comparable jurisdictions to Jersey, that a successful Aircraft Registry project can lead to significant economic benefits, through the economic flow generated from the wealthy individuals and corporations registering their aircraft and then accessing a range of supporting services that can be sold to them. (7.1.6)

2. Key Finding 2:

Launched in May 2007, the Isle of Man Aircraft Registry announced the achievement of registering its 500th aircraft by June 2012 and has generated significant amounts of revenue for locally based associated industry. (7.1.11)

3. Key Finding 3:

The concept of establishing an Aircraft Registry in the Channel Islands has been championed to the States of Jersey by some private stakeholders since at least 2005. (7.3.3)

4. Key Finding 4:

By January 2010, the Aircraft Registry had been identified as a potential winner' by the Economic Development Department in Jersey and Commerce and Employment in Guernsey, as part of their project to identify areas of common interest which could deliver improvements in service or cost saving through the efficiency gains of joint working. (7.3.5)

5. Key Finding 5:

It is clear that the Aircraft Registry project in Guernsey has been successful in achieving significant progress, but Jersey's part in the project has been subject to criticism for quite the opposite. (7.3.28)

6. Key Finding 6:

Since 2005, Jersey has failed at a number of key moments in the Aircraft Registry project to either recognise or seize the opportunity to deliver the momentum required to achieve significant progress. (7.3.30)

7. Key Finding 7:

The announcement of the new partnership agreement between SGI Aviation and the States of Guernsey in May 2012 marked a significant point in the Aircraft Registry project, and the context of Jersey's role within it. (8.1.2)

8. Key Finding 8:

The desire to see Jersey continue to pursue a joint Channel Islands Aircraft Registry was a conclusion of the overwhelming majority of the stakeholders that engaged with the Panel during the Review. (8.2.6)

9. Key Finding 9:

Given the initiative established by Guernsey, it is likely that a Channel Islands Aircraft Registry would be administered from Guernsey. As an administrative function however, whether it is located in Guernsey or Jersey is relatively immaterial. It is the potential to access the associated business flowing from the establishment of a Channel Islands branded and marketed Registry which is most important. (8.2.6)

10. Key Finding 10:

During negotiations with Guernsey, the Minister for Economic Development linked the development of a joint Channel Islands Aircraft Registry based in Guernsey to a joint Channel Islands Category 1 Shipping Registry based in Jersey. (8.2.10)

11. Key Finding 11:

The Panel understands that the States of Guernsey do not presently intend to pursue the development of a joint Channel Islands Category 1 Shipping Registry, requiring a change of approach from the Minister for Economic Development to this and the Aircraft Registry projects. (8.2.10)

12. Key Finding 12:

Whilst accepted that in principle it may be possible, there is little enthusiasm for Jersey to piggyback' on a Guernsey Aircraft Registry, whereby Jersey would play no active role in the Registry but would seek to take advantage of proximity and attract associated business and economic flow. (8.3.4)

13. Key Finding 13:

Administrative costs, liabilities in the event of an accident, tax, and the lack of a unique selling point were all highlighted to the Panel as issues that would need to be addressed for an Aircraft Registry to be a success. (8.4.6)

14. Key Finding 14:

Whilst the UK Air Accident Investigation Branch is likely to be the designated chief investigating authority in the event of an accident involving a Channel Islands registered aircraft, a clear position to mitigate potential liability and cost implications to the States of Guernsey and Jersey has yet to be established, with consideration being given to insurance. (8.4.6)

15. Key Finding 15:

As Jersey has GST set at 5% and Guernsey has no comparable tax, it is clear that Jersey faces a significant competitive disadvantage to Guernsey which, unresolved, would appear to seriously undermine Jersey's chances of generating associated economic activity from an Aircraft Registry. (9.2.4)

16. Key Finding 16:

There appears to have been a lack of urgency and momentum generated by the Minister for Economic Development to explore ways of resolving the GST issues. There is some encouragement that the Minister for Treasury and Resources has, nevertheless, begun preliminary work on identifying the issues his Department faces and the possible solutions to be examined. (9.2.10)

17. Key Finding 17:

The issue of competitive disadvantage to the Isle of Man and other Registries presented by VAT is a challenge, but does not appear to be insurmountable. The CI Strategic Case report established that, due to the different VAT regimes, it was likely that different clients would be attracted to the Channel Islands Registry than those using the Isle of Man, depending upon their place of business and planned base of activity for their aircraft. (9.2.17)

18. Key Finding 18:

There is some concern about the reliance on business case figures from pre 2008 that may now be outdated given the recent nature of the local/global economy. However, there remains a confidence amongst a number of stakeholders about the underlying business case and the health of markets relevant to a Channel Islands Aircraft Registry. (9.3.25)

19. Key Finding 19:

Allowing the registration of aircraft under fractional ownership offers the potential for a genuine unique selling point of a Channel Islands Aircraft Registry, but the relevant work assessing the potential associated risk has yet to be undertaken. (9.4.7)

20. Key Finding 20:

It is envisaged that, initially, a limited amount of technical expertise both directly and indirectly associated with an Aircraft Registry would be required to be brought in from outside the Island. However, in addition to some immediate job opportunities for local people, others could be created through training and apprenticeships. (9.5.13)

21. Key Finding 21:

The Panel acknowledges and welcomes the expansion opportunities at the airport that have been identified as part of the development of proposals to incorporate Jersey's harbours and airport, including additional hangar facilities. (9.5.13)

22. Key Finding 22:

From an aviation safety regulatory perspective, it would be highly desirable that the required aviation regulations are developed as a single, coherent and consistent code applicable throughout the Channel Islands. (9.6.7)

23. Key Finding 23:

A Channel Islands Aircraft Registry requires new primary and secondary legislation to enable the delegation of the performance of State responsibilities for running and regulating aircraft registration from the UK to the DCA. The need for legislative changes applies not only to Jersey and Guernsey, but also the UK. (9.6.13)

24. Key Finding 24:

There appears to be confidence that the necessary law drafting can be delivered. The Economic Development Department has secured the required law drafting time and budget, and Guernsey law drafters have undertaken an initial review and scoping of the legislative changes, estimating that the process to draft, consult and enact the necessary legislation will take around 18 months from the start of the project. (9.6.13)

25. Key Finding 25:

Although there is a greater potential for delay in implementation and a higher draw on legal resources costs, the most appropriate solution to establish the required legislative framework for a Channel Islands Aircraft Registry is for parallel legislation that is as identical as is practical to be passed in both Islands. (9.6.13)

26. Key Finding 26:

Both Guernsey and Jersey have work outstanding to establish suitably developed Securities Interest legislation providing the necessary safeguards around lending to stimulate confidence in investing through a Channel Islands Aircraft Registry. (9.6.20)

27. Key Finding 27:

While it may not be practical for Jersey to sign up to the Cape Town Convention, the Panel acknowledges the Minister for Treasury and Resources sentiment that there should be no activity associated with the Aircraft Registry that detracts from Jersey's reputation as a quality financial services jurisdiction. (9.6.21)

5. RECOMMENDATIONS

1. Recommendation 1:

To establish an appropriate single point of responsibility for the cross-Departmental and cross-Island Aircraft Registry project, the Minister for Economic Development should, through the Chief Minister, engage with Director of Civil Aviation with a view to him assuming project management responsibility on behalf of the Economic Development Department. (7.3.30)

2. Recommendation 2:

The Minister for Economic Development must, without delay, seek to engage with the Minister for Commerce and Employment in Guernsey and its strategic partner SGI Aviation to formally secure Jersey's position in a joint Channel Islands Aircraft Registry. (8.2.6)

3. Recommendation 3:

Through the project manager, the Minister for Economic Development will need to ensure that wherever the Registry is based for administrative purposes, the marketing of the associated industry opportunities available to clients is impartial and equitable to both Islands. There must also be active communication with relevant industries in Jersey to promote the opportunities available to them to engage with and benefit from the Aircraft Registry project. (8.2.6)

4. Recommendation 4:

The work being undertaken by the Minister for Economic Development to develop a Category 1 Shipping Registry is welcomed, but should no longer be linked to negotiations with Guernsey on Jersey's role within a possible Channel Islands Aircraft Registry. (8.2.10)

5. Recommendation 5:

It is particularly important that work is undertaken by the Aircraft Registry project team to establish an acceptable solution to both Islands in mitigation against possible cost liabilities associated with an accident involving a Channel Islands registered aircraft. The potential to insure against such an eventuality should be given thorough consideration. (8.4.6)

6. Recommendation 6:

The Minister for Economic Development must engage at the earliest opportunity with the Minister for Treasury and Resources to achieve a solution, satisfactory to both, to overcome the clear competitive disadvantage undermining Jersey's position in a Channel Islands Aircraft Registry. (9.2.10)

7. Recommendation 7:

It will be necessary for the Minster for Economic Development to establish up to date figures relating to the target market(s) of the Channel Islands Aircraft Registry and the impact, if any, this may have on projected economic flow and the business case. Indeed, this may be required quickly to assist negotiations with the Minster for Treasury and Resources regarding a solution over the GST issue. (9.3.25)

8. Recommendation 8:

With the agreement of Guernsey, the Minister for Economic Development should request the Director for Civil Aviation to undertake the necessary work to establish a recommendation on the issue of allowing fractional ownership within a Channel Islands Aircraft Registry. (9.4.7)

9. Recommendation 9:

Limited inward migration for certain key technical positions may be necessary and acceptable in the short term as the Aircraft Registry project develops. However, the Minister for Economic Development must develop a longer term plan in conjunction with relevant industry representatives and States Departments that is consistent with Strategic Plan priorities to manage inward migration and encourage employment opportunities for the locally qualified. (9.5.13)

10. Recommendation 10:

In setting up the legislative framework for a Channel Islands Aircraft Registry, the Minister for Economic Development should ensure a collaborative approach, through the Aircraft Registry project leadership, to develop parallel legislation that is as identical as is practical to be passed in both Islands. (9.6.13)

11. Recommendation 11:

In the event that Jersey cannot be a signatory, the Minister for Economic Development must ensure that the updated Securities Interest legislation is at the very least compatible with the principles established by the Cape Town Convention on International Interests. (9.6.21)

6. INTRODUCTION

1. As it established its 2012 Work Programme, the Economic Affairs Scrutiny Panel (the Panel') received a detailed briefing from the Economic Development Department (EDD') regarding proposals for the establishment of a Jersey or joint Channel Islands Aircraft Registry (CI Registry'). It was clear to the Panel that this was a potential opportunity, if it could be proven to be merited, for genuine economic diversification, but one that may be passing the Island by given the limited progress that appeared to have been made and the establishment of potential competitor Registries in places such as the Isle of Man (IoM'). The Panel gathered further information, and after consideration agreed that an objective Review could assist the decision making of the Minister for Economic Development (the Minister') on whether to pursue or draw a line under the project, through the impetus provided by an objective, impartial assessment of the underlying business case and the options on the table.
2. The Panel began its Review in April 2012, and set about gathering the views of stakeholders and the public, starting with an advertising campaign in the Jersey Evening Post. The Panel also wrote directly to key stakeholders for their views. Public Hearings were held with the Minister on two occasions, as well as with the Minister for Treasury and Resources (T&R), Director of Civil Aviation for Guernsey and Jersey (DCA), the Aircraft Owners and Pilots Association (AOPA) CI Region and representatives from Executive Jet Charter Ltd (EJC). The Panel would like to thank everybody who contributed information and evidence to the Review.
3. The introduction of an IoM Registry, and work being developed in other jurisdictions in Europe including Malta, saw the idea to develop a Jersey Aircraft Registry raised again, after its initial emergence around 2005. Nevertheless, Jersey is not yet in a position to implement a Registry. As the Panel launched its Review there were a number of key issues that had yet to be resolved, not least issues around GST and competitive disadvantage with Guernsey in particular, or the specific details of whether the Registry would be a joint project with Guernsey or a standalone Jersey Aircraft Registry. Other elements vital to any potential success of Registry also required further work, including robustness of the business case, infrastructure demands for the associated industry growth, unique selling point and legislative changes.
4. The Panel begins the body of its report in Section 7 by examining the progression of the Aircraft Registry project in Jersey, establishing what options were/are being considered and why an opportunity first raised in 2005 appears to stand some way from fruition today. In

Section 8 the Panel moves on to present its examination of a simple but key question, and one of the main points of rationale behind its Review – what next? With the project in Guernsey gathering momentum, the Panel presents its findings on whether the opportunity for a joint Registry has passed Jersey by, or whether this and/or any other options remain on the table.

5. In Section 9 the Panel examines key challenges to the viability of the project to establish whether these have or can be overcome. Issues covered in this section include the competitive disadvantage of Jersey's Goods and Services Tax (GST) - particularly pertinent to comparison with Guernsey, the business case, unique selling point and legislative demands.
6. All of the evidence that the Panel has gathered and considered through public hearing and written submissions, that have lead to its findings and conclusions presented in this report, can be viewed on the Scrutiny website at www.scrutiny.gov.je or by contacting the Scrutiny Office.

Glossary of Terms

• C&E: Commerce and Employment Department, Guernsey
• Cape Town Treaty: Cape Town Convention on International Interests
• Chicago Convention: Convention on International Civil Aviation
• the Chief Officer': Chief Officer, Economic Development Department
• CAA: Civil Aviation Authority, UK
• CI Registry: Channel Islands Aircraft Registry
• CI Strategic Case report: Strategic Case for a Channel Islands Aircraft Registry
• DCA: Director of Civil Aviation, Jersey and Guernsey
• DfT: Department for Transport, UK
• EASA: European Aviation Safety Agency
• EDD: Economic Development Department, Jersey
• EU: European Union
• FAA: Federal Aviation Administration (US)

• GST: Goods and Services Tax
• the Minister': Minister for Economic Development
• T&R: Treasury and Resources, Jersey
• UK: United Kingdom
• US/USA: United States of America
• VAT: Value Added Tax

7. JERSEY AIRCRAFT REGISTRY BACKGROUND AND OPTIONS

1. Context
   2. What is an Aircraft Registry?
   3. Under the Convention on International Civil Aviation all aircraft must be registered with a national aviation authority. The Register carries with it certain safety and regulatory responsibilities, including ensuring that the aircraft are airworthy, that the crew are suitably qualified to fly them and that in the event of an accident anywhere in the world there is clear responsibility for conducting investigations. On registering, a unique identification number is issued for all civil aircraft, similar to a car registration, with each Registry having its own distinguishing prefix. Registries will also provide a Certificate of Registration as proof of each aircraft's registration.[1]
   4. A number of registries based in Caribbean States that were overseas territories of the UK and Netherlands, and who would have been served by the registry of the parent State, emerged during the 1980's. Well known examples of such Registries within the industry are Aruba and the Cayman Islands. These registries were established as an opportunity for the smaller States to benefit through generating associated economic activity and industry, much as has been seen in the IOM and much as the Channel Islands plan to achieve.[2]
   5. There is no overarching CI Aircraft Registry at the present time, and neither are there separate registries in any of the individual Channel Islands. The registration of aircraft belonging to residents typically takes place in either the UK or the US.
   6. The Registry itself is a largely administrative function that would not be expected to generate significant, if any, income. However, it is believed, and has been proven elsewhere, that a successful Registry project could lead to significant economic benefits, through the economic flow generated from the wealthy individuals and corporations registering their aircraft and then accessing a range of supporting services that can be sold to them. This could include Trust services for ownership arrangements, providing purchase finance, insurance and legal services. It might also be possible to grow a local aircraft maintenance industry.[3]

7. The Isle of Man
8. There have been a number of successful registries developed in places that are comparable to Jersey/Channel Islands and which offer a useful insight into the potential opportunity and challenges that come with the project. Notable examples include Aruba and Malta, however the most obvious and logical comparison can be made with the IoM. The IoM launched its Registry (effectively a Sub-Registry of the UK Civil Aviation Authority's Aircraft Register, as a Channel Island/Jersey Registry would be) in May 2007, and by June 2012 had announced the  achievement  of  a  significant  milestone  with  the  registration  of  its  500th  aircraft,  a Bombardier Global 5000.
9. The IoM specialises in the registration of private and corporate owned business jets, as well as high quality twin turbine-engine helicopters. It cannot register fixed-wing aircraft below 5,700 kgs for non-residents of the island. Aircraft registered through the IoM are not allowed to be used for commercial air transport. The Registry has sixteen specialist surveyors, who are resident in Switzerland, USA, UK and the IoM. According to Flightglobal, the IoM is currently  the  fastest  growing  offshore  aircraft  register  in  the  world  and  the  7th  largest business jet register.[4]
10. The Registry claims that as well as being the only dedicated corporate aircraft register in Europe, it offers high international standards and a competitive scheme of charges. [5] It outlines the benefits of registering an aircraft in the IoM as:

• High regulatory standards
• High service levels and quality international reputation
• Neutral Nationality registration prefix
• Secure mortgage register
• No insurance premium tax (6% in UK)
• European time zone

• Professional infrastructure with experience in aviation finance
• Clear and simple taxation regime
• Stable legal and political environment

11. In  his  2012 budget  speech,  Hon  Allan Bell  MHK,  Minister for  Treasury highlighted  the economic benefit associated with the Registry, which at the time was less than half the size it is now:

The Isle of Man register is now in its third year and has been an internationally recognised success. To date, around 200 high-quality corporate and private aircraft have been attracted to the Island's register. To put this in perspective, one of our major competitors, the Cayman Islands, has added 50 aircraft in the last 10 years. The growth of the Isle of Man aircraft register has generated millions of pounds of new revenues for local banks, advocates, CSPs and others. The future of the aircraft register looks extremely promising, with increasing numbers of new customers from Russia and the Middle East.'[6]

12. The scope of a Jersey/Channel Islands Aircraft Registry
13. As with the IoM, any CI/Jersey Aircraft Registry would be a Sub-Registry of the UK Civil Aviation Authority's  Aircraft  Register. This  comes  about  through the requirement  of  the extension  of  the  Chicago  Convention  (Convention  on  International  Civil  Aviation)  to Jersey/Guernsey, via the UK's signature. As a result of this status, Jersey/Guernsey require the consent of the Department for Transport (DfT) in the UK to establish an Aircraft Registry and to use one of the registration letters or numbers that it has been allocated for the purpose of registering aircraft.[7]
14. The CI Strategic Case report sets out clear vision for the CI Registry project as being low cost and low commercial risk, with a manageable reputational impact and the potential for significant benefits to local businesses. It is intended to be a high quality, professional registry operated to the highest international safety standards. It will be aimed at owners of new or nearly new business aircraft seeking high service standards in a cost effective, tax efficient jurisdiction. To this end the CI Aircraft Registry is envisaged as being more exclusive that traditional all encompassing bigger Registries, with a focus on attracting larger modern, new or nearly-new private or corporately owned aircraft (e.g. business jets, turbine helicopters, etc.) that hold a type certificate from EASA, the FAA or possibly from Transport Canada.[8]

15. The CI Strategic Case report also outlines the intention for local aircraft registrations:

It will also be open to residents of the Channel Islands for the registration of locally based aircraft, whatever their type.

16. It adds:

As the Registry becomes larger and experience is gained then it may be possible for locally based airlines such as Aurigny and Blue Islands to also move onto the Register, but this is not expected to occur initially.

2. The Options

1. The Minister has been considering three principle options for the delivery of the Aircraft Registry project; a Jersey Aircraft Registry, a Joint CI Registry based in either Jersey or Guernsey, a CI branded Aircraft Registry managed by Guernsey with the Channel Islands Shipping Registry managed by Jersey.[9] These were described in an Options' paper that was sent to the Panel by EDD, setting out the potential benefits and challenges associated with each:

1. Jersey Aircraft Registry

Benefits:

• Raise Jersey's profile on international scene – unique Jersey prefix registration – Nice to have' for enthusiasts. J' prefix not available from UK authorities

• Form part of suite for promoting Jersey offering including the shipping registry, which is well established and highly regarded.
• Diversifying the economy and potentially bringing in money to finance, legal, insurance and fiduciary sectors and possibly aviation support sector including landing fees and hanger space.
• Ownership of aircrafts becoming more popular, particularly for young individuals.
• Possibly set up a training school for servicing of aircraft

Challenges:

• Confusion if Guernsey set up a registry at the same time
• GST disadvantage, particularly if Guernsey has a registry as well.
• Developing a delivery model which is acceptable by the UK authorities and potentially be different to Guernsey's offering – confusion in the stakeholder

2. Joint CI Registry based in Guernsey or Jersey

• An option made by ED to C&E host the joint CI Registry in Jersey was rebuffed on the basis that Guernsey has taken the lead on this initiative.

If it was hosted in Guernsey the following benefits and challenges would be:

Benefits:

• Cost of developing registry and ongoing cost.
• Branded as Channel Islands Registry – potentially greater impact.
• Reduces duplication in terms of drawing up legislation and dealing with UK authorities.

Challenges:

• Both Islands agreeing to the right delivery model
• Registry apportioning business between both Islands – right balance, particularly if one Island is having lion's share of business (sharing costs of registry)

• Registry in Guernsey – staffing – benefits to Guernsey
• Agreeing on a prefix for the registrations
• Jersey's GST

3. Guernsey manage the CI Aircraft Registry and Jersey the CI Shipping Registry

Benefits:

• Seen as co-operative working between both Islands – outwardly this is seen to be positive – CI branding more powerful than individual Islands
• Clear distinction as to which Island is doing what
• Less of a risk for Jersey as registry is well established and highly regarded
• Potentially more registered vessels owing to maximum tonnage allowance in Jersey Challenges:
• Guernsey Authorities agreeing to proposal. Jersey's registry is over 200 years old – 2,120 vessels. Guernsey's, just over 100 years old – 1,838 vessels. Tonnage maximums different Jersey 400, Guernsey 150
• Jersey Shipping Registry having the resources to take on Guernsey registrations
• Ensuring customers are not disadvantaged – GST issues for Guernsey registered vessels

2. The Panel also learnt of another hybrid' option that had been considered that would have established Registration offices in both Islands, with Registry in between the Islands in the cloud'. However the Panel understands that this was considered too complicated, potentially confusing for clients and, in any case, unacceptable to the UK authorities.[10]
   3. Background – Development of the Options

1. Initial Proposals – 2005
2. The Panel heard from industry stakeholders EJC that the idea that Jersey could see economic benefit from the development of an Aircraft Registry was first raised as far back as

2005. They explained to the Panel that they have been researching and lobbying for the setting up of a registry for a number of years and brought this issue to the attention of the then Industries Committee in 2004/5. They had highlighted to the Committee that at that time the IoM was proposing to set up a Register, and that Jersey could be about to miss out on a potential  economic  opportunity.[11] Speaking  at  a  Public  Hearing,  Captain L.  McConnell representing EJC elaborated:

Going back to 2005 I mentioned the aircraft registry to the Jersey Government and I used to work for a company in Farnborough called Tag Aviation which was also a very big corporate jet  operator and  I got  the  Minister  for  Economic  Development (sic),  the  Jersey  Airport management team to come across to Farnborough. It was in 2007, on an education to educate them on potential business aviation in Jersey, creating a niche market. So we have been at it a long time'[12]

3. The  DCA  confirmed  that the  concept of establishing a feasible Aircraft  Registry  in  the Channel Islands had been worked on by interested stakeholders for a number of years before the establishment of the post of DCA in both Bailiwicks in 2009.[13]

4. Emergence of Political Interest in a Channel Islands Aircraft Registry – 2009/10
5. The DCA advised the Panel that soon after his appointment in 2009, he held discussions with those stakeholders at their invitation which ultimately led to the matter being brought to the attention of the C&E in Guernsey and its counterpart EDD in Jersey. In late 2009 C&E commissioned a survey of Channel Islands aviation and financial sector stakeholders to establish local interest levels in a Guernsey/Jersey/Joint Aircraft Registry. There was a positive response to the broad idea, and the joint project was favoured. The findings were shared by C&E with EDD in January 2010:

as  part  of  their  project  to  identify  areas  of  common  interest  which  could  deliver improvements in service or cost saving through the efficiency gains of joint working. "The Aircraft Registry" was quickly added as a potential winner to the EDD/C&E joint working agenda.[14]

6. Further joint work on the project took place in the final Quarter of 2010. In September, C&E in Guernsey, with the DCA leading the project for C&E, sought expressions of interest to undertake a strategic outline case for a CI Aircraft Registry. On becoming aware of the developments, EDD contacted C&E and, following discussions with the DCA, it was agreed that a representative from EDD should sit on the C&E Project Board to be involved in the short listing of the expressions of interest, take part in the tendering exercise and assist in the development of the report.[15]
7. The work, part paid by EDD's £15,000 contribution, was undertaken by aviation consultants Helios,  who  had  been  appointed in  December  2010 through  the  short  listing/tendering process. Its comprehensive report (the basis of the CI Strategic Case' report) was presented to the C&E Project Board in March 2011, significantly concluding that:

the establishment of an aircraft registry in the Channel Islands was a sound financial proposition offering potential as an economic enabler for the economy while also providing diversity and the opportunity to enhance the reputation of Jersey and Guernsey.[16]

8. A Separate Jersey Registry?
9. Whilst work was taking place with Guernsey on the development of a joint Registry project, the Minister commissioned a report by a local stakeholder consortium into a single Jersey registry option, reporting to the Minister in April 2011. Although containing broadly similar conclusions to the Helios/CI Strategic Case report, it contained a notable difference in its forecast for economic value. It suggested that the potential yield to the Island from a single

Jersey registry could equate to more than 60% than that of a joint venture. [17] The Minister explained how the background to this work:

We also funded some work looking at a Jersey registry in its own right. There was a strong lobby locally that suggested that that, indeed, was something that was worthy of consideration so we felt it was incumbent upon us to look at it, which we did.'[18]

10. Following this initial report, the Minister asked the consortium to draft up a proposal for the work required to develop a business plan for a Jersey Registry, and a proposal was presented to the EDD that summer. However, due to the value of the work contained within that proposal, it was agreed that in line with States Financial Directions it would not be possible to proceed without going out to a formal tender for the work.[19]
11. Faltering Negotiations – 2011
12. In evidence provided by the DCA, he explained that it was around this time that the joint project began to noticeably falter. During the hiatus' he told the Panel that C&E had agreed to:

forge ahead with the concept on their own, commissioning a States Report into the subject, which was approved in September 2011.'[20]

13. The approved Billet d'Etat Number XV set out Guernsey's plans for the Aircraft Registry:

AIRCRAFT REGISTRY

XVI.- After consideration of the Report dated 12th July, 2011, of the Commerce and Employment Department:-

1. To approve in principle the establishment of:-

1. a Channel Islands aircraft registry, subject to agreement with the relevant authorities in Jersey; or
2. in default of such agreement within such time frame as the Department considers reasonable, a Guernsey aircraft registry on the basis set out in this States Report.

2. To direct the Department to work with the Law Officers to identify the necessary legislative requirements for the establishment of a Registry and to report back to the States outlining the necessary legislation.
3. To direct the Department to appoint a commercial partner for the proposed Registry.
4. To delegate authority to the Treasury and Resources Department to approve the Full Business Case for the establishment of a Guernsey Aircraft Registry.

14. From its perspective, EDD outlined to the Panel that in the last quarter of 2011 there had been political correspondence on the matter that had flown' between both Islands.[21] The Panel was told:

C&E offered Jersey the opportunity to work together on a CI Registry, ED responded by stating that they would be minded to consider a joint registry subject to it being in Jersey, which was subsequently rebuffed by C&E.

The most recent correspondence was from C&E to ED advising that the States of Guernsey had given C&E flexibility for ensuring that the registry could proceed on a joint basis between the two Bailiwicks. The offer was for the Aircraft Registry to be based in Guernsey, but for eligibility criteria to be expanded to include Jersey residents and companies. The Minister for ED has responded stating that he is minded to agree to this proposal but to be fair and equitable, that there should be a joint Shipping Registry and that this should be based in Jersey – currently there are two separate shipping registries in both Islands.[22]

15. By the time of submitting a project update to the Panel in February 2012, the EDD position was that it was awaiting a response from C&E on that proposal.[23]
16. In a response to the Panel's request in April 2012 for an update on the project from Guernsey's perspective, the outgoing Minister for C&E informed the Panel:

I note that the opening paragraph of your letter does not appear to consider an alternative scenario in terms of the Channel Islands: that is the establishment of an Aircraft Registry in Guernsey. Such a Registry could be established either in collaboration with the States of Jersey or separatelyour view is that there is room for only one aircraft Registry in the Channel Islands. Throughout our development process we have offered full participation in the project to JerseyHowever, around May of 2011 after the publication of the Helios

Report, Jersey EDD appeared to withdraw somewhat from the collaborative approach and indicated an intention to proceed alone with its own project..Guernsey, in the meantime, has proceeded at full speed to engage with a suitable strategic partnerthe possibility remains for Jersey to be involved to an extent with the project...'[24]

17. Guernsey Registry Strategic Partner Announcement – 2012
18. Since the approval of the Billet, C&E have sought to keep momentum up on the project. The Helios Report had recommended that the Registry might be best established under a public/private partnership, and C&E therefore undertook an Expressions of Interest process to source a suitable strategic partner organisation with whom to develop and run the registry. A formal tendering process was undertaken in January 2012 and a decision made on which partner to engage further with in February.[25] Contract negotiations were completed on 30 April 2012, and the new partnership agreement with SGI Aviation was announced in a Press Release on 10th May that set out the rationale, ambitions and timeframe of the partnership:

....The agreement establishes a unique public-private partnership, whereby the responsibility for the operational aspects of the public service of an aircraft registry will be outsourced to SGI Aviation as a private provider.

The Director of Civil Aviation of the Bailiwick of Guernsey, Fergus Woods, comments: "This is a great opportunity for Guernsey. It is not just about offering this one service; the presence of an aircraft registry will create an attractive environment for private enterprise to flourish and thereby contribute to the local economy." The project is expected to result in significant financial benefits for the Guernsey community with potential revenue opportunities for the aviation and financial services sectors, with the associated positive impact on private sector employment.

Mr Woods explained "We have envisaged the project as a long term strategic partnership between the States of Guernsey and SGI Aviation with an established strong commitment on both sides." The initial development phase is expected to take approximately 14 – 18 months, after which the registry will become fully operational, with a launch date set for mid- 2013. The day to day operation of the registry will be managed by SGI Guernsey, a

subsidiary of SGI Aviation which will be incorporated in Guernsey specifically for this purpose early in 2013.[26]

19. Further details about the SGI/Guernsey partnership project include:

The aircraft registry is expected to achieve 150 Guernsey registered aircraft by 2015. Resident aircraft owners and operators from the Channel Islands will form the initial primary group of users.

The Guernsey registry will differentiate itself from competitors through its unique tax advantages, quality of service, operational flexibility and targeted marketing. SGI Aviation intends to draw on its international network of inspectors and unique expertise to add value to the proposition.

The Registry activities include safety oversight of all aircraft, applying safety standards that are on a par with the highest in the world, which are those of the European Union and the United States of America. The registration prefix is anticipated to be the number 2', followed by four letters (e.g. 2-ABCD'), allowing unique and attractive letter combinations.[27]

20. Upon publication of the partnership announcement, several key stakeholders expressed their concern to the Panel about where this left Jersey's plans to be involved in the development of an Aircraft Registry. The Panel addressed the issue with the Minister, who informed us that there appeared to be some misinformation in through media giving the impression that Guernsey had decided to proceed alone without Jersey:

That is not the position as I understand it. Since the end of 2010, we have been in discussions with Guernsey, both at officer level and politically, in order to progress an aircraft registry. The Islands have considered the options of independent registries and they have also had discussions about a joint Channel Island registry...we entered into and contributed financially to a piece of work that was carried out and commissioned by Guernsey looking at a joint Channel Island registry. We have maintained the dialogue with Guernsey all along.'[28]

21. The Minister further explained at a Public Hearing on 14th June that the situation had not been helped by elections in Guernsey in March and the appointment of a new Minister for C&E on 8th May, which he suggested had given little opportunity to meet at a political level to progress the matter and identify the position of the new Minister for and his Board on it. However, a meeting was planned in the coming weeks and the Aircraft Registry would be discussed. Additionally, the Minister had spoken to his opposite number at C&E twice, in one conversation raising the aircraft registry and making it clear that Jersey is interested in a joint CI registry.[29]
22. The Chief Officer for EDD confirmed the position on 14th June:

as recently as this morning, we made it very clear both to the D.C.A. who is running the project for Guernsey and, indeed, to my equivalent who is the acting Chief Officer with the C&E (Commerce and Employment Department) that the Minister's position was that there should be a joint registry. We have both funding in 2012 budget and law drafting resource available to deliver that, and it was suggested that what we do is we move to that as quickly as possible. We had communicated our position to them some time ago and linked the development of a joint aircraft registry based in Guernsey to a joint category 1 shipping registry based in Jersey. We have also, as of yesterday contacted the third party who are working for the Guernsey authorities who have confirmed that there is absolutely no impediment whatsoever to them working for us jointly on a Channel Islands registry.'[30]

23. Criticism of Jersey's handling of the project
24. Whilst EDD has explained (see above) its commitment to the project and outlined its understanding that communication has remained open throughout with counterparts in Guernsey, the Panel has received a number of critical comments with regard to the handling of the Aircraft Registry by the States of Jersey, and in particular the slow speed of progress. EJC outlined to the Panel the basis of their frustrations with a perceived lack of political decision making:

Our main concern is that Jersey missed an opportunity in 2005, we had another opportunity in 2011 but it seems that Guernsey are stealing a march whilst we continue to consult and consult again. At some point the Minister needs to make a decision and decide to go ahead with a Registry or not. We hope that this Scrutiny Review will force this issue to the fore once

more and that a definitive answer will be given.[31]

25. The criticism levelled at the political decision making in Jersey was echoed by others who contacted the Panel:

What is most disappointing is that the idea of a registry in the Channel Islands was raised over 3 years ago and little / no progress has been made. In the mean time all involved in European aviation have watched as the IOM makes considerable progress and revenue from a relatively simple plan and modest investment on their behalf. Much of this delay is due to the lack of political willingness to share revenue between the two islands and commit to a joint venture.'[32]

26. The Chairman of AOPA, CI Region explained that he understood that it was originally the intention of both Islands to research the possibility of an aircraft register to compete with the existing one in the IoM, and that in Guernsey this task had been given to the D.C.A. who then reported separately to the relevant Minister in each Bailiwick. He continued:

It appears that somewhere along this process Jersey procrastinated whereas Guernsey decided to go ahead with further development. Ultimately this led to their decision to go ahead with a register based on a public private model requiring no additional civil servants and no cost other than the already expended research and development costs of finding a suitable operator and drawing up and getting approval for a register.'[33]

27. The Minister for T&R, whilst very supportive of exploring the economic potential of the Aircraft Registry project, also expressed some concern about the speed of progress, raising questions about the structure of the project management:

You need to have a single point of responsibility cross- departmental with the appropriate departments engaged. Otherwise, these things, we talk about for a long time but they never happen and off the top of my head, there are certainly 5 departments that need to be involved in this; 2 are sub ones within E.D. So if we are serious about it ....You need a project manager in government that drives change. I am not criticising the public sector but the public sector needs managing in terms of getting things done and you need a single point of responsibility with accountability to do it and that is what I would do.'[34]

28. This led the Panel to consider the role of the DCA in the project, who whilst having overall responsibility for ensuring the safety of civil aviation in Jersey and Guernsey airspace, reports to the C&E Minister in Guernsey, but the Chief Minister in Jersey. The DCA has played a prominent part in the project in Guernsey, having been asked to lead it on behalf of C&E, whereas in Jersey representatives from within EDD have undertaken the relevant project management. It is clear that the project in Guernsey has been a success in achieving significant progress, but Jersey's part in the project has been subject to criticism for the opposite. Speaking to the Panel about the project's progress in Jersey, the DCA commented:

It is about focus, because I have been directed to do certain things in Guernsey with regards to this project and, to be fair, they have been done. What we need to see is the same level of clear direction and focal point for responsibility for getting these things done here as well, for it to move on. That, I think, has been the drag on the project, overall.'[35]

29. He continued to explain that as a major outcome from the project is the delivery of the law changes, which he would be using on a day- to-day basis, he is required to be involved and can advise with technical expertise. There would therefore certainly be a role for him:

but not necessarily as project manager, I hasten to add.I work from the Commerce and Employment Department in Guernsey, which is roughly the equivalent of the Economic Development over here. So, Economic Development is, because of the drivers for this project, the right place for it, but I work for a Chief Minister here. But, the Chief Minister, I am sure, would be more than happy to provide his resources in the form of me to that project, as much as I could help.'[36]

30. The DCA was asked whether, as DCA. for both Islands, he sometimes – such as during this project - found both hats uncomfortable to wear and whether there were any conflicts that arose from that situation. He explained:

my prime task as the D.C.A. is set out in the Civil Aviation Law (Jersey) 2008 and the equivalent aviation law for Guernsey 2008. They are the same responsibility. It is primarily the  safety  regulatory  oversight  for the  airport  and  the  airspace.  That  is  my  prime responsibility. This is a project in addition. It is not a statutory responsibility I have, but it is clearly in my area of expertise and therefore that is why I am involved. When it comes to co- operation between the Islands on matters where there is competition - you heard the Minister for Treasury and Resources mention this - it is not always easy to find a smooth path through when there are competing interests in that respect. I would say that is where the difficult is. In terms of my statutory function, there is no difficulty.[37]

8. WHAT NEXT: SHOULD JERSEY PURSUE A CI REGISTRY?

1. Introduction

1. The Panel has previously established the options that the Minister has been considering for the delivery of the Aircraft Registry project (see 7.2); a Jersey Aircraft Registry, a Joint CI Registry based in either Jersey or Guernsey, a Channel Islands branded Aircraft Registry managed by Guernsey with the Channel Islands Shipping Registry managed by Jersey. The Panel sought to establish what key stakeholders determined to be the most appropriate involvement for Jersey in an Aircraft Registry.
2. The signing of the new partnership agreement between SGI Aviation and the States of Guernsey marked a significant point in the Aircraft Registry project and Jersey's role in it. In that  context,  the  Panel  also  examined  whether  Jersey  might  be  able  to  essentially piggyback' and develop economic activity on the back of a Guernsey Registry should it proceed  to  establish  a  standalone  Guernsey  Registry,  without  the  need  for  Jersey involvement in a Registry.

2. Joint Channel Islands Registry or Standalone?

1. It is clear from the evidence that the Panel has taken that there was and remains a belief from almost all parties that Jersey's interests would be best served through a joint CI Registry in partnership with Guernsey, with a number of reasons given as to why this would be the case. Although some acknowledged that a Jersey standalone Registry was a genuine option, and still might be, developments in Guernsey have reduced its feasibility.
2. The Chairman of AOPA, CI Region was unequivocal that the joint option should be pursued, and explained why this was the case:

There arein our opinion, just 3 alternatives now open to Jersey. One, acknowledge the research and development so far done by the D.C.A. (Director of Civil Aviation) on behalf of and at the behest of the States of Guernsey and accept their offer of extending all the arrangements made by them for a Guernsey register to a Channel Island one. This would then give equal access to the Jersey Financial Service industry to participate.

Option 2: start the whole lengthy, costly process of creating a separate and competing Jersey register. Option 3: do nothing. Only option 1, which offers an excellent ready-made solution makes any sense to A.O.P.A. from an aviation perspective. However, from a taxpayer and benefit to a potentially involved finance service industry also, only option 1 makes any sense.'[38]

3. The desire to continue to pursue a joint Registry was a conclusion reached in the majority of the written submissions that we received from industry stakeholders, including current pilots. One of those pilots explained:

Regardless of whether the islands have two registers, one for Guernsey and one for Jersey using individual registration prefixes, what is clear is that a single body / organization should administer the register / registers. The argument against running two independent registers, with individual units of administration is clear both on grounds of cost and competition. Within the present financial climate it would simply be unacceptable to public, and should clearly be unacceptable to politicians of both islands to duplicate expenditure when it is clearly not required.

If this argument in itself is not sufficient to avoid duplication, then that of direct completion between two judiciaries that have almost identical climates would also support a single joint venture.[39]

4. Another written submission received during the Review outlined to the Panel further reasons in support of the joint Registry option:

Jersey should go with Guernsey for a Channel Islands Aircraft Register as we have a joint Director of Civil Aviation. If Jersey do go alone with this we will have to set up a new unit and will most definitely lose out to Guernsey due to GST. This has already shown up with delivery aircraft routing to the south coast of England rather than Jersey. Aircraft for re registration are using Guernsey rather than Jersey since the increase in GST last year.

There may also be the possibility that ICAO will not allow separate Registers for both Islands as no other group of Islands have a separate register at the moment.' [40]

5. EJC told the Panel that it was crucial for the Registry project to be a joint one, preferably located in Jersey, and with the option for separate prefixes to satisfy varying demands for those wanting to place their business in either Guernsey or Jersey:

I think it must be a Channel Islands registry because otherwise it sends a mixed signal. We are dealing with world business leaders or C.E.O.s of companies and I think if there is a Jersey and a Guernsey registry it sends out the signal that 2 islands, 24 miles apart cannot get onI know the Islands' legislations are very different in many respects but fundamentally there is one Channel Islands Director of Civil Aviation. I do not know why you cannot perhaps split the registry so that people who have business interests in Jersey, for instance, will decide: "Okay, I am going to go to the Channel Islands registry but I want my business dealings through Jersey or my business dealings through Guernsey." I think that would be an interesting angle to pursue. I know we have not really looked at it from a legal point of view but I think it would be worth looking at because you have the Channel Islands registry, you would approach a common board or department and then according to what that aircraft donor wants or where his business affairs or loyalties lie, you would have: "Okay I will have a J reg or I will have a Guernsey reg." '[41]

6. The opportunity to work in conjunction with Guernsey was welcomed by the Minister for T&R[42], and remains the option strongly favoured by the Minister (for ED), as described previously (see 7.3.21). There was no clear consensus amongst stakeholders about the physical location of the Registry, some being ambivalent, some preferring Jersey. The Minister outlined to us the position that he has taken in relation to where a joint Registry should be administered from, explaining that the registry itself would not be a big revenue generator, rather a catalyst to generate associated revenue. He said:

whether it is located in Guernsey or whether it is located in Jersey is largely immaterial, it is the function that has to be carried out. There was one suggestion that was put forward a while ago of a hybrid, a cloud solution where a registry, effectively, sits in either on a small basis, and it is operated between the 2 Islands. So it does not really matter where it is we

believe. It is a cost and that is why we believe sharing it with Guernsey makes sense; it is the business flows that come from having a Channel Island registry.'[43]

7. It  is in  this  context  that  the  Minister  has  been  negotiating with  Guernsey about  the opportunity to establish the administration of a CI Aircraft Registry from Guernsey and a CI Shipping Register from Jersey (see Section 7.3.14). The Chief Officer explained to the Panel what the CI Shipping Registry entailed, and how it was comparable to the Aircraft Registry:

what we are talking about as far as the shipping registry is concerned is if both Islands move to a category 1 register (which, of course, we do not have at the moment) that would be the joint register. The existing shipping registers would remain as they are because I think they are there and there are differencesThe cat 1 registry, which almost exclusively would be vessels that are not based in Jersey or Guernsey waters for that matter, could be done jointly. It is more of an administrative function that has more similarity to the aircraft registry.'[44]

8. The Minster added:

the shipping registry interestingly is very similar to an aircraft registry: it is what flows from it from a commercial economic point of view is where the real interest is. What we have sought to do with the existing shipping registry is to grow it. It is category 2 and we are looking to make slightly larger super yachts applicable for our category 2. Again, it feeds into our aims of inward investment and high net worth individuals, economically active people that stimulate the local economy.'[45]

9. Indeed it was announced at the end of June 2012 that at the Annual Red Ensign Conference held in the IoM, there had been endorsement for a new Categorisation Order from the UK DfT allowing smaller registries to take on all ship types up to 400 gross tons, rather than solely pleasure craft. This agreement replaces the current limit of just 150 gt for commercial ships and should enable the Jersey registry to administer larger craft from January 2013.[46]
10. Having linked the development of a joint aircraft registry based in Guernsey to a joint Category 1 Shipping Registry based in Jersey, the Panel sought to establish with EDD what stage negotiations were now at on the creation of the CI Shipping Registry. The Chief Officer explained that there had been some initial discussions with the relevant Department in Guernsey (Public Services), and was presently awaiting a response. He also explained that the joint Shipping Registry was not something that could be achieved before 2014.[47] The Panel understands that in July 2012, EDD was informed by the Guernsey authorities that it is does not intend to pursue a Category 1 Shipping Registry.

3. Is There an Opportunity For Jersey Without Involvement in a Registry?

1. Given the developments made in Guernsey and the possible ramifications of the project continuing without Jersey, the Panel examined with witnesses attending the Public Hearings whether there may be an opportunity for Jersey to effectively piggyback' on a Guernsey Registry. This would see Jersey have no active role in any Registry but attract associated business  and  economic  flow  through  the  promotion  of  the  opportunities  presented  by relevant  financial  services  and  industry  opportunities  at  the  Airport  (eg  hangarage  and servicing).
2. The Minister accepted that it was not unfeasible to generate business in Jersey from a Guernsey Registry. However, it would not be an option that he would favour pursuing ahead of working together on a joint Registry. He explained:

I think that is something we would need to look at very closely. There is a train of thought that if they had a registry that we could capitalise upon that. There are some difficulties, I suspect, associated with thatFrom our point of view, it is part of our portfolio when we are looking at inward investment businesses, perhaps individuals of high net worth who, for business

purposes, want an aircraft; 1(1)(k)s coming to the Island, high net worth individuals again for

practical uses would need an aircraft. It is something else to sell as a package so if the aircraft was then registered in Guernsey but we have the flow of business in Jersey, there are still some measurables that one could argue we are getting. So Guernsey having one and us not having one would not necessarily be a major deterrent but I think it is much more constructive and effective if we work jointly with them. [48]

3. It was a sentiment echoed by other witnesses, whilst some were clear that they could not see the feasibility in such an approach. For instance, the Chairman of AOPA, CI Region was clear that he didn't see the piggyback option as attractive to potential Registry clients:

if he has everything done in Guernsey why should he suddenly decide to come here instead.'[49]

4. However, as reflected in Section 8.2, the overwhelming consensus was that a joint Aircraft Registry should continue to be the option pursued with the benefits associated with that approach far outweighing those attributable to the go it alone' or piggyback' alternatives.

4. Scepticism of the Aircraft Registry Project

1. During its evidence gathering, the Panel did become aware of some scepticism about the benefits of Jersey pursuing a role in an Aircraft Registry project. EDD informed us that in early  January  2012,  senior  officers  had  held  a  meeting  with  a  representative from  an organisation based in Jersey involved with aircraft registrations. EDD explained that this individual had provided a number of sound business reasons as to why Jersey should not proceed with the expense of either being part of a pan Island initiative or have a sole Jersey aircraft registry. These included, amongst others:

a lack of a unique selling point, the VAT issue - particularly in the current economic climate as most registrations would be from European owned aircraft and the issue of GST.'[50]

2. The Panel also heard from Aviation Beauport, who told the Panel that they had discussed the idea of an Aircraft Registry a number of years ago with a previous Airport Director who had been opposed to the idea on the grounds of the cost of administration and potential cost of an incident involving a Jersey registered aircraft. They believed that the issues of cost remained valid today, and that the project was further compromised by the establishment of the IoM Aircraft Registry and the possible economic lessons that could be learnt from it:

The reasons are still very relevant today but the most important factor is that the Isle of Man has already introduced a register. Whilst this has been very successful in terms of number of aircraft and whilst of course we do not have any financial information in this regard, our view is that even with the current number of aircraft registered in the Isle of Man, the undertaking may not be generating a substantial profit. Crucially, there is no reason to believe that there are many more aircraft prepared to register in the Channel Islands in preference to the Isle of Man. Therefore there is a very high risk that the costs of setting up and maintaining a local register could outweigh the potential income.[51]

3. The CI Strategic Case report recognises a number of important areas of risk to the project and establishes actions to be taken to mitigate against them (for example, cost implications of a low take up of registrations covered in Section 9.3). On the significant safety/regulatory issue of a possible accident involving a CI registered aircraft, the report explains:

One of the primary risks that arises is that the DCA would be required to be involved in accident investigations for Channel Islands registered aircraft wherever in the world an accident could occur. Currently the UK Air Accident Investigation Branch (AAIB) acts for accidents that occur within the Channel Islands and worldwide where that accident relates to a UK registered aircraft. They also currently act on behalf of aircraft registered in the Isle of Man. It would be beholden upon the States to secure an equivalent arrangement to the Isle of Man for aircraft registered here. The possibility could arise that the UK may seek part funding for investigations relating to the Channel Islands and this could pose a financial risk.[52]

4. The DCA explained that Jersey and Guernsey may also seek to insure against this eventuality, informing the Panel:

most States who are responsible for the registries do not insure their liabilities or their responsibilities and obligations in that case. We are talking primarily about accident investigation costs, probably as the main contingent cost that could arise. Most do not insure, because the states, as you know, do not insure everything. They self-insurethere is one statethat does insure and that is Irelandbecause they feel they are quite exposed with a large Atlantic seaboard for the potential for expensive aircraft accident investigation costs, which they would be responsible for as the territory or the location of the accident. Insurance is not a big feature in this regard, but it is a solution that I think the Channel Islands would look towards.'[53]

5. He further explained:

Unless there was a change to the law specific to that, then I would expect the U.K. Air Accident Investigation Branch still to be designated as the chief investigator of accidents for the Channel Islands. I do not see any push for that to change from the U.K. That individual body is designated as such for all overseas territories, for the Isle of Man, for Gibraltar. I do not see any push to change that. What there is a push towards is to, if you like, ring fence the activity such that there is no financial liability on the U.K. Government for the cost of that activity. That is going back to the insurance point. We would have to find a solution for that.'[54]

6. The submission from Aviation Beauport also suggested that whilst there may be an opportunity to pursue a register of commercial aircraft, this was likely to be a very limited market. They explained:

As you are no doubt aware the Isle of Man register is only applicable to private aircraft and, we believe, only in certain weight bands. Aviation Beauport's aircraft owning subsidiary, Gator Aviation, is unable to register on the Isle of Man register since the aircraft are operated on Aviation Beauport's Air Operator's Certificate. There may be an argument for a Jersey register of commercial aircraft such as ours, but this would likely be a very limited market.[55]

9. PROJECT VIABLITY: EXAMINING THE KEY ELEMENTS

1. Introduction:

1. A number of challenges were identified by EDD and other stakeholders regarding certain key elements that underpin the viability of succeeding in delivering the Aircraft Registry project and the potential economic benefits. The Panel sought to establish the progress made on overcoming those challenges and to identify what issues, if any, remained outstanding. Having established, in Section 8, that if Jersey is going to proceed with involvement in an Aircraft Registry project it should do so in conjunction with Guernsey, the Panel presents its evidence and findings within that context.
2. Within that section the Panel has also already covered one of the key elements facing a significant challenge, establishing where the Registry should be administered from. We therefore draw the reader's attention to Section 8.2 to avoid repetition here.

2. Tax Issues – GST and VAT

1. GST
2. It was clear to the Panel from the outset of the Review that Jersey faces a significant competitive disadvantage to Guernsey which, unresolved, would appear to seriously jeopardise the Minister's plans to develop an Aircraft Registry and the associated potential economic activity. The issue is simple; whilst Jersey has a GST set at 5 %, Guernsey has no such tax and an immediate competitive advantage. The implications of the situation were acknowledged by the Minister for Economic Development:

That is one of the issues that would need to be addressedThat is a barrier at the moment. It would be a barrier that would not be satisfactory.'[56]

3. It was a view expressed throughout the evidence that we received, with a number of stakeholders agreeing that unless the competitive disadvantage was removed, the project in Jersey did not appear to have any chance of success and was fundamentally flawed. AOPA illustrated the scale of the problem to the Panel:

Since 1 January 2012 a GST threshold of 8000kg for an aircraft, above which no GST is payable, has a significant deterrent effect on anyone importing aircraft into Jersey as this includes light' to bottom end mid-sized' jets which retail (used) up to US$9 million. In the circumstances it is difficult to see why any potential owner, given the choices presently available, would wish to locate their aircraft on a Jersey Register paying up to £300,000 in GST for the privilege when they can use other Registries with no such payment. This issue requires to be dealt with before the establishment of a register.[57]

4. EJC  also  concurred  that  the  GST  issue  was  a  major problem,  and  reflected  most stakeholders opinion that the relevant exemptions from GST need to be sought as the only viable solution, and that comparable exemptions existed:

Well,  it  is,  it  is  a  huge  competitive  disadvantage  for  Jersey,  a  huge  competitive disadvantage, and why would anybody use Jersey over Guernsey if they can save that G.S.T.? I know yachts in Jersey have G.S.T. exemptions so why not aircraft?'[58]

5. The Panel sought to establish what steps the Minister had taken to try to resolve this fundamental issue. The Minister informed us that there had been some initial discussions with the Treasury to explore potential exemptions. He explained that there has been a precedent  with  regard  to  shipping  and  G.S.T. and  that  his  Department would  need  to establish a position with Treasury on the matter relating to aircraft in order to overcome it.[59]
6. Given the importance of the matter to the viability of the project in Jersey, the Panel took evidence from the Minister for T&R at a Hearing on 14th June 2012, arranged at very short notice and for which the Panel was grateful to the Minister for making time available on what it appreciated was a particularly busy day. The current position regarding relevant GST taxation was confirmed to the Panel in a briefing note drawn up by Tax Policy Unit and provided by the Minister for T&R:

Jersey GST treatment of airplanes

Commercial aircraft are zero-rated for GST purposes and no GST applies to them or to many of the services supplied in connection with them. Private aircraft are subject to GST at the standard rate of 5%. A plane is considered to be "private" if:

• It is designed or adapted for recreational purposes; or
• It has a weight of less than 8,000 kilos; and
• It is not operated by an airline for reward on international routes

This definition was changed in the 2012 budget, extending the scope of GST to smaller aircraft.

The provision of a private plane to an individual or company not resident in Jersey would not be subject to GST. GST would however be chargeable on supplies made in connection with the plane, such as hangar space, fuel and maintenance. The provision of private planes to Jersey residents is subject to GST, as are any services provided in connection with the plane.

An individual relocating to Jersey may import his personal belongings, including private aircraft, free of GST provided he has owned the items for at least six months before coming to the Island.

GST revenues

In the last 18 months Jersey has collected approximately £10,000 of GST from the importation of private aircraft. This may suggest that the GST treatment is deterring Jersey residents from importing planes. However, it is also possible that the GST collected is low because Jersey residents do not buy many planes.[60]

7. It should be emphasised that there is no GST liability on a plane itself if the plane is not imported. This remains the case even when importation is only temporary, and could be a significant factor to the operation of the registry, although as highlighted above, associated services would currently attract a GST charge.
8. It was clear to the Panel that the Minister for T&R is, in principle, extremely enthusiastic about the potential economic opportunities offered by the Aircraft Registry and is open to exploring what taxation adjustments could be made, despite the underlying policy to keep GST as simple as possible with minimal exemptions.

Obviously, we are aware that there is a difference between Jersey and Guernsey in terms of G.S.T. We would need to maintain competitiveness. You will know the hard line that we have taken on G.S.T. that there are no exemptions and we keep is simple. I think there can be if there is an economic compelling case to do some further review about G.S.T. applicability to aircraft but we need to know the analysis that this is economically beneficial and we will basically fall in behindWe will always look at these issues. They are politically sensitive but we will always look at them but we have obviously got to maintain the integrity of our duty and G.S.T. systems here.[61]

9. The Panel examined the details of the work that was being undertaken with EDD, and was concerned to hear that there appears to have been very little progress on this crucial issue. The Treasury Department is not yet clear about whether there is a requirement to physically import a plane for it to be on the registry or the extent to which the registry relies on those aircraft purchasing services from Jersey, and hence the extent of the GST issue. The Minister for T&R told us:

we want to know what the economic benefit is and we need the analysis to be done. I do not understand - because I have not been close to it - why this issue of aircraft registry has not moved faster. I am not criticising. I just genuinely do not know. We have a huge agenda of work to do in the Treasury, as I am sure you know. We will respond when a conclusion is made but we need that conclusion to be made. If the analysis has been made, if you agree with that, then we will respond and we will respond as quickly as we possibly can and we will give the most careful consideration'[62]

10. Asked about how long the Treasury had been looking at the issue given that it is one of the major stumbling blocks to moving forward, the Director of Tax Policy replied:

It has only been a matter of days and weeks and we have not started drilling down in to the issues. We have identified what the issues might be but we have not got full information on what the registry is likely to provide. What service are we likely to be providing and ...

The Deputy of St. Martin :

Would it be fair to say, Minister, that your department has not been approached for any detailed advice as to whether this idea was going to run or not?

The Minister for Treasury and Resources:

Well, politically, that is the case and, officially, that is the same thing.'[63]

11. Despite what appeared to be a lack of momentum generated by EDD to explore ways of resolving the GST disadvantage with Guernsey, there is some encouragement that the Treasury has nevertheless begun preliminary work on identifying the issues it faces and possible solutions to be examined further. The Tax Policy Unit's briefing paper on the matter explains that work:

GST and an aircraft registry

It is understood that one of the aims of creating an aircraft registry in Jersey is to encourage the ownership and – possibly more importantly – the storage of aircraft in the Island.

With that in mind, the Taxes Office and Tax Policy Unit are considering whether the current GST treatment of private aircraft and services provided in connection with them would act as a deterrent. This is particularly important given that Guernsey, which has recently announced its own aircraft registry, does not charge GST and its businesses could therefore be at an advantage. However, it is currently not clear that the GST treatment would be a barrier, as the Isle of Man appears to have a successful aircraft registry despite charging VAT at 20%.

Consideration is being given to zero rating all aircraft from GST to facilitate the registry, provided it is considered to be a commercially viable business. The Taxes Office and Tax Policy Unit agreed last week to review this with the potential to lodge an amendment to the GST Law with the 2013 Budget. Work is ongoing to identify and consider all the potential issues.

GST issues to consider Issues to consider include:

• Whether the GST treatment of private aircraft in Jersey would be a deterrent to the creation of a successful aircraft registry in the Island
• Whether the zero-rating of all aircraft would be sufficient to remove this barrier, if it does exist, or whether it would be necessary to extend this treatment to services supplied in connection with private aircraft in the same way as currently exists for commercial planes
• Whether the zero-rating should apply equally to the importation and onward supply of private aircraft within the Island
• If private aircraft were to be zero-rated for GST purposes, should the same treatment apply to pleasure boats or certain motor vehicles
• The potential GST revenues foregone from the above measures, compared with the potential for growth in Jersey businesses
• How the Isle of Man's VAT regime affects its aircraft registry[64]