Local business owner takes aircraft ownership dispute with FTX to US bankruptcy court

Local business owner takes aircraft ownership dispute with FTX to US bankruptcy court
FTX logo is seen in this illustration taken, November 8, 2022. REUTERS/Dado Ruvic/Illustration

NASSAU, BAHAMAS — A prominent Bahamian businessman and charter flight operator is seeking a US bankruptcy court ruling that clarifies the ownership status of two aircraft acquired through financing from FTX via a ‘handshake’ agreement with its embattled founder Sam Bankman-Fried.

Island Air Capital (IAC), owned by Paul Aranha, has filed for relief from the automatic stay in the FTX bankruptcy case, claiming in court filings that it is the owner of the two aircraft, the Legacy and the Global together valued at over $28 million which it purchased using financing provided from FTX,  “in the form of an unsecured, no-interest loan agreed to in a handshake deal between FTX’s then-CEO Sam Bankman-Fried.”

The US Government has, however, taken the position that both aircraft are subject to forfeiture as property purchased with the proceeds of fraud, with the Global having been in the government’s custody since February of this year. 

IAC contends that the aircraft are sensitive and expensive assets that, if not maintained under the proper standard of care, will rapidly lose value.

Additionally, it was noted that aviation regulations require that owners perform and fully document ongoing regular inspections, maintenance, and repairs. Failing to do so would render the aircraft virtually unsellable. 

According to court filings, Aranha informed the Supreme Court-appointed liquidators of his plans to operate the Legacy and sell the Global in order to repay the remainder of the aircraft loan.

Aranha allegedly started flying Sam Bankman-Fried to and from the Bahamas in 2021 and grew into a business partnership from there. Court documents also note that from approximately October 2021, Aranha’s Trans Island Airways provided more than $15 million worth of private charter and cargo flights, customized plane upgrades and other services to SBF and other FTX executives, employees, business associates, guests, family, and friends. 

“By January 2022, the volume of the Flight Services TIA was providing to FTX required additional planes. FTX did not wish to own planes, and TIA’s business model supported the acquisition of additional aircraft, so FTX agreed with Mr Aranha that he would purchase the planes. FTX would finance the purchase of those planes with an unsecured, no-interest loan, to which SBF agreed in a handshake deal with Mr Aranha,” court filings stated.

The first airplane IAC bought to service FTX was a Bombardier Global BD700- 1A11 (the “Global”) for $15,900,000. The second airplane IAC bought to service FTX’s business was an Embraer Legacy EMB-135BJ (the “Legacy”) for $12,545,000. 

“For both Aircraft, Mr Aranha obtained approval from FTX for the purchases, and  FTX wired the deposits and balances directly into escrow. The wires originated from Alameda Research and North Dimension. Aranha contends in court filings that he was unaware of, and had no reason to suspect, the fraud at FTX, and he had no reason to question the source of funds FTX used to finance the aircraft.”

According to court filings, FTX requested upgrades to the aircraft, such as state-of-the-art wifi and entirely new interiors. TIA arranged for the requested upgrades and other necessary maintenance to be performed at a facility in Florida promptly after IAC bought the aircraft. Neither aircraft was ever used for any of the flight services—the aircraft was unavailable during the upgrades, which were still in progress in November 2022 when FTX collapsed, meaning no one associated with FTX ever flew on the Global or the Legacy.

In addition, by the time of the aircraft purchases, FTX Ventures and Mr Aranha had signed a term sheet committing FTX Ventures to a $17 million dollar equity investment in TIA.  In early November 2022, FTX’s financial problems came to light. Mr Aranha was warned to withdraw his funds from FTX, and he had multiple opportunities to do so before FTX suspended activity in his account. However, he did not because he was committed to repaying the Aircraft loan to FTX. 

After FTX’s collapse, Aranha returned the Legacy to the Bahamas to put it to use and since there was no similar need for the Global, he took steps to sell that plane, aiming to repay the balance of the aircraft loan. While multiple offers were received for the Global in excess of $15 million, those marketing and sale efforts were interrupted when the US Marshals Service seized the Global on February 8, 2023. 

With the legal proceedings dragging on, there is risk of the aircraft becoming worthless and IAC is seeking a court order that it is the sole owner of the aircraft and that they are not the property of the state.