Aviation Finance & Leasing 2019

Last Updated August 01, 2019

Panama

Law and Practice

Authors



Arias, Fabrega & Fabrega is a full-service law firm with a multidisciplinary approach, and is one of the few law firms in Panama to offer a group of experts in the field of aviation law. The firm’s banking, capital markets, M&A, litigation, antitrust and regulatory specialised practice groups bring together their broad understanding of the dynamics and major challenges and opportunities facing the aviation industry, and advise industry providers competing in the public procurement and public-private partnerships field, providing full understanding of the requirements of the aviation contracting authorities and the various stages of the awarding process. The team has also been involved in diverse transactions derived from the expansion of the Tocumen International Airport.

The sale of aircraft that are registered in Panama and engaged in international transport is exempt from the payment of income tax. 

In the sale of aircraft registered in Panama, a bill of sale that evidences the transfer would need to be recorded with the Public Registry Office of Panama (where the registration of titles, liens and leases on aircraft takes place, making such document/information effective vis-à-vis third parties). If the bill of sale is executed in a language other than Spanish, it must be translated into Spanish by an authorised translator in Panama and protocolised (transcribed) into a Notarial Deed by a Panamanian Notary Public before it can be registered with the Public Registry Office of Panama.

Transferring property in an aircraft constitutes an act of “transferring title” to such aircraft. 

A transfer of ownership of an entity that owns aircraft is considered a transfer of ownership of that entity, which continues to be the owner of the aircraft.   

A transfer of title to an aircraft or engine physically delivered in Panama would be recognised if the bill of sale is governed by either English or New York law, provided that there are no provisions contrary to the laws of Panama, public order or moral principles of Panama. 

Also, such bill of sale must comply with certain formalities that allow for the recordation of that bill of sale with the Public Registry Office of Panama, in order to become effective vis-à-vis third parties. 

In order for a bill of sale to be recognised in Panama, the signatures to such bill of sale must be authenticated by a Notary Public from the place of execution. If executed and notarised outside of Panama, such Notary Public’s signature must further be legalised by either a Panamanian Consul or the Apostille (pursuant to the 1961 Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents). Such notarised/legalised bill of sale would then need to be translated into Spanish if it was executed in a foreign language; in order to become effective vis-à-vis third parties, it must further be protocolised (transcribed) into Notarial Deed by a Panamanian Notary Public and recorded with the Public Registry Office of Panama. 

Bills of sale for the transfer of Panamanian registered aircraft must have the signatures thereto authenticated by a Notary Public from the place of execution. If executed and notarised outside of Panama, such Notary Public’s signature must further be legalised either by a Panamanian Consul or by the Apostille (pursuant to the 1961 Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents).

Furthermore, bills of sale must be translated into Spanish if executed in a foreign language; in order to become effective vis-à-vis third parties, they must further be protocolised (transcribed) into Notarial Deed by a Panamanian Notary Public and recorded with the Public Registry Office of Panama. 

Bills of sale for the transfer of Panamanian registered aircraft must be recorded with the Public Registry Office of Panama in order to become effective vis-à-vis third parties.

Furthermore, the recorded bill of sale must be filed with the Civil Aviation Authority in Panama in order to obtain a registration certificate on the aircraft in the name of the new owner. 

Bills of sale need to be translated into Spanish if executed in a foreign language and further protocolised (transcribed) into Notarial Deed by a Panamanian Notary Public in order to be filed for recordation with the Public Registry Office of Panama.

Completing the translation, protocolisation and recordation process could take between two and four weeks. 

No government applications or consents are required as a prerequisite to the execution and delivery of a bill of sale to transfer ownership of a Panamanian registered aircraft. 

The sale of shares in a company that does not generate income in Panama is exempt from the payment of income tax. 

The sale of aircraft that are registered in Panama and engaged in international transport is exempt from the payment of income tax.

Panamanian laws do not prohibit leases concerning only engines or parts. 

A lease agreement relating to an aircraft may be governed by foreign law, provided that there are no provisions that are contrary to the laws of Panama, public order or the moral principles of Panama. 

Such lease agreements must comply with certain formalities that allow for the recordation of the bill of sale with the Public Registry Office of Panama, in order to become effective vis-à-vis third parties. 

The US dollar is a lawful currency of the Republic of Panama and is used in commercial transactions in Panama. Therefore, there are no restrictions on domestic lessees making rent payments to foreign lessors in US dollars. 

There are no exchange controls currently in place in Panama that could prevent rent payments under a lease or any repatriation of realisation proceeds. 

If any document, including a lease agreement, is to be used in evidence in the courts of the Panama, stamp taxes at a rate of USD0.10 for each USD100 of face value must be paid. For documents recorded with the Public Registry Office of Panama, the amounts paid in notarial paper for their protocolisation and in registration duties would be deducted from the applicable stamp tax. 

A lessor does not have to be licensed or otherwise qualified in Panama in order to do business with a domestic lessee. 

Panamanian laws do not require specific terms to be included in a lease agreement governed by English or New York law. However, the Public Registry Office of Panama will calculate registration fees based on the lease term and rent payable under the lease agreement, so such information should be included in the lease agreement or an ancillary document, filed for recordation. 

Tax and other withholding gross-up provisions are permissible and enforceable in Panama. 

Leases may cover parts that are installed or replaced on an aircraft or engine after its execution, if such is provided in the agreement. 

Panamanian laws would consider title annexation if removing such part without replacement would affect the principal asset to which it is attached. 

Panama recognises the concept of a trust and the role of an owner trustee under a lease. 

It is necessary to register at the Public Registry Office of Panama and file the entire chain of ownership/lease of a Panamanian registered aircraft with the Civil Aviation Authority, evidencing the lease structure from the owner to the lessee. Therefore, any title of property document and lease or sublease agreement would be recorded and filed in Panama. 

It is necessary to register at the Public Registry Office of Panama and file the entire chain of ownership/lease of a Panamanian registered aircraft with the Civil Aviation Authority, evidencing the lease structure from the owner to the operator (if the owner is not the same person as the operator). 

Leases are recorded with the Public Registry Office of Panama in order to become effective vis-à-vis third parties, and filed with the Civil Aviation Authority in order to obtain the applicable navigation and operative authorisations. 

Leases must be recorded with the Public Registry Office of Panama in order to become effective vis-à-vis third parties, and filed with the Civil Aviation Authority in order to obtain the applicable navigation and operative authorisations, otherwise the aircraft will not be allowed to operate under the Panamanian registry. 

Leases need to be translated into Spanish if they are executed in a foreign language and further protocolised (transcribed) into Notarial Deed by a Panamanian Notary Public in order to be filed for recordation with the Public Registry Office of Panama.

Completing the translation, protocolisation and recordation process could take between two and four weeks. 

No government applications or consents are required as a prerequisite to the execution and delivery of a lease regarding a Panamanian registered aircraft.

Leases on Panamanian registered aircraft must have the signatures thereto authenticated by a Notary Public from the place of execution. If executed and notarised outside of Panama, such Notary Public’s signature must further be legalised either by a Panamanian Consul or by the Apostille (pursuant to the 1961 Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents).

Furthermore, leases must be translated into Spanish if they are executed in a foreign language; in order to become effective vis-à-vis third parties, they must further be protocolised (transcribed) into Notarial Deed by a Panamanian Notary Public and recorded with the Public Registry Office of Panama. 

The Public Registry Office of Panama charges registration fees based on the rent and lease period of a lease agreement.  Also, the Notary Public charges a notarial fee for the protocolisation of a lease agreement, including stamp taxes on each notarial page. 

As far as is known, the two most popular alternative countries where aircraft based in Panama are typically registered are the United States of America (“N” registered mark) and Colombia (“HK” registered mark).

Any document filed with a judicial or administrative authority in Panama must be in its original form or a certified copy thereof. In addition, such document must be notarised (by a Notary Public) and/or legalised (by a Panamanian Consul or by the Apostille – pursuant to the 1961 Hague Convention Abolishing the Requirement of Legalisation of Public Foreign Documents). Furthermore, if executed in a language other than Spanish, the document must be translated into Spanish. 

In addition to the above, a document filed with the Public Registry Office of Panama would need to be protocolised (transcribed) into Notarial Deed by a Panamanian Notary Public. 

Rental payments for the lease of a Panamanian registered aircraft between a foreign lessor and a local lessee/operator are subject to income tax, by way of withholding by the lessee, unless a double taxation or similar treaty applies and benefits the lessor.

If the lessee was to withhold and remit withholding tax but failed to do so, in theory the lessor and lessee would be severally liable for the payment of the amounts due as withholding tax and the Panamanian authorities may, in theory, have the power to go after the lessor, although in practice they would first go after the local lessee.

A foreign lessor would not be deemed to be resident, domiciled, carrying on business or subject to taxation in Panama solely by reason of being a party to the lease or enforcing such lease. 

The person responsible for maintenance, etc, of a Panamanian registered aircraft would be the operator of the aircraft, unless otherwise agreed in a lease agreement. 

A foreign owner, lessor or financier of an aircraft should not be considered responsible for loss or damage caused by the aircraft unless there was gross negligence or willful misconduct on the part of the foreign owner, lessor or financier that could be related to such loss or damage, or unless otherwise provided for in an agreement with the operator of the aircraft. 

Creditors of a domestic lessee could attempt to attach an aircraft leased to it but owned by a different entity. However, such attempt would not progress unless the aircraft is covered by security in favour of such creditor for the obligations of the domestic lessee. 

An operator that is not the owner of the aircraft does not have the right to impose or create a third party’s lien on the aircraft. 

However, mechanic liens (if the aircraft is at a repair shop and the repairs have not been paid for) could be enforced. 

Panamanian laws require insurances related to aircraft registered in Panama to be placed with domestic insurance companies, if such insurance is available. 

Panama law requires air carriers to contract insurance for risk of damage to third parties on the ground, to the crew, to users and in general to anyone who could suffer damages as a result of the carrier’s operations. 

As far as is known, there is no restriction on reinsurance coverage for domestic insurance companies. 

Cut-through clauses in the insurance/reinsurance documents should be enforceable.

Assignments of insurances/reinsurances are not prohibited under Panamanian laws.

There are no restrictions imposed by law on a lessor’s ability to terminate an aircraft lease, re-export the aircraft and/or sell the aircraft following such termination, assuming this is authorised by the authorities. 

Under the law, the aircraft does not need to physically be in Panama in order to exercise any of the above actions.

A court order that authorises a lessor to take physical possession of the aircraft should be obtained, if the lessee’s consent is not granted. 

There are no aviation-specific courts in Panama. Aviation matters should be heard by a civil circuit court.   

A lessor may commence executory and/or summary proceedings in Panama, and may also ask for the attachment of the aircraft in order to gain immediate possession of it. 

In order to attach or seize the aircraft, the lessor may be required to post a bond or guarantee, which may be equivalent to 30% to 40% of the amounts claimed.

Typical executory proceedings may take between four and 18 months, depending on the defences posed by the counterparty.

In general terms, the courts would uphold a foreign law as a valid choice of governing law for an aircraft lease. However, the courts will not enforce provisions that may be deemed to be contrary to the laws of Panama, public order or moral principles of Panama. The courts would also uphold the submission to a foreign jurisdiction, subject to the terms of the lease, and a waiver of immunity by the parties of such lease, subject to the laws applicable to such party. 

Final judgments rendered by a foreign court would be recognised and enforced by the courts in the Republic of Panama without re-examination of the merits of the case, subject to the issuance of a writ of exequatur by the Supreme Court of Panama. The Supreme Court of Panama is authorised to issue a writ of exequatur in respect of a final judgment rendered in a foreign jurisdiction only in the following circumstances:

  • if such judgment arises out of an in personam action;
  • if the party against whom the judgment was rendered (or its agent) was personally served in such action;
  • if the obligation in respect of which the judgment was obtained is lawful in Panama;
  • if such judgment is properly authenticated by diplomatic or consular officers of the Republic of Panama, or pursuant to the 1961 Hague Convention Abolishing the Requirement of Legalisation for Public Documents and translated into Spanish by a Panamanian Official Translator; and
  • if judgments of Panamanian courts are reciprocally recognised in such foreign court (which the Panamanian Supreme Court will presume to be the case, unless proved otherwise).

The Supreme Court of Panama should also recognise a foreign arbitration award, provided that:

  • the parties subject to the arbitration proceedings were not subject to some incapacity under the laws governing the applicable arbitration clause or under the laws of the place where the arbitration was held;
  • the party against whom enforcement is being sought was duly notified of the appointment of arbiters or of the arbitration proceedings, and had the opportunity to defend itself in the arbitration proceedings;
  • the foreign arbitral award referred to a matter that was within the scope of the arbitration clause and did not include decisions that exceeded the scope of the arbitration clause;
  • the constitution of the foreign arbitration tribunal and the procedure followed comply with what the parties agreed upon in the arbitration clause or, in the absence of any provision to that effect in an arbitration clause, with the laws of the place where the arbitration was held;
  • the award is final on the parties or it has not been annulled or suspended by a court of the country where or pursuant to the laws of which the award was rendered;
  • the subject matter is capable of settlement by arbitration under the laws of Panama; and
  • the recognition and enforcement of the award would not be contrary to the public policy of Panama.

A lessor under an aircraft lease can obtain a judgment in a foreign currency. 

There is no interest limitation law in Panama that would restrict the recovery of default interest payments in accordance with the lease. 

Stamp taxes at the rate of USD0.10 for each USD100 of face value would be payable on a lease presented in evidence to a Panamanian court or administrative authority. The obligation to pay such stamp tax will not arise through the mere execution and delivery of the lease. In practice, stamp taxes will have to be paid and adhered to the lease by the party who is using it as evidence. In any event, such stamp taxes are not due with respect to the lease unless and until the lease is to be used in evidence, as indicated above. However, the amounts paid in notarial paper and recordation duties (for the recordation of the lease at the Public Registry Office of Panama) would be deducted from the applicable stamp tax. 

Notice periods for the termination of a lease should be exercised as provided for in the lease agreement. 

Sovereign or other immunity from suit is not available in Panama. 

Panama ratified the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) and should therefore recognise and enforce an arbitral decision, provided that:

  • the parties subject to the arbitration proceedings were not subject to some incapacity under the laws governing the applicable arbitration clause or under the laws of the place where the arbitration was held;
  • the party against whom enforcement is being sought was duly notified of the appointment of arbiters or of the arbitration proceedings, and had the opportunity to defend itself in the arbitration proceedings;
  • the foreign arbitral award referred to a matter that was within the scope of the arbitration clause and did not include decisions that exceeded the scope of the arbitration clause;
  • the constitution of the foreign arbitration tribunal and the procedure followed comply with what the parties agreed upon in the arbitration clause or, in the absence of any provision to that effect in an arbitration clause, with the laws of the place where the arbitration was held;
  • the award is final on the parties or has not been annulled or suspended by a court of the country where or pursuant to the laws of which the award was rendered;
  • the subject matter is capable of settlement by arbitration under the laws of Panama; and
  • the recognition and enforcement of the award would not be contrary to the public policy of Panama.

In general, Panama does recognise the concepts of contractual assignment and novation. 

A lease assignment or novation relating to the transfer of an aircraft may be governed by New York or English law, provided that there are no provisions contrary to the laws of Panama, public order or the moral principles of Panama. 

There are no specific terms required by Panamanian laws to be included in the assignment/novation agreement. However, such assignment/novation agreement must be recorded with the Public Registry Office of Panama. For such purposes, the Public Registry Office of Panama will calculate registration fees based on the lease term and rent payable if such terms have been modified under the assignment/novation agreement. Therefore, such information should be included in the assignment/novation agreement or an ancillary document, filed for recordation. 

The signatures on an assignment/novation of lease agreement relating to an aircraft should be authenticated by a Notary Public from the place of execution. If executed and notarised outside of Panama, such Notary Public’s signature must further be legalised either by a Panamanian Consul or by the Apostille (pursuant to the 1961 Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents).

Furthermore, such document must be translated into Spanish if it was executed in a foreign language; in order to become effective vis-à-vis third parties, it must further be protocolised (transcribed) into Notarial Deed by a Panamanian Notary Public and recorded with the Public Registry Office of Panama. 

An assignment/novation of lease agreement must be recorded with the Public Registry Office of Panama in order to become effective vis-à-vis third parties, and filed with the Civil Aviation Authority in order to obtain the applicable navigation and operative authorisations. 

If these conditions are not complied with, the aircraft will not be allowed to operate under the Panamanian registry. 

The assignment/novation of lease agreement needs to be translated into Spanish if it was executed in a foreign language, and must be further protocolised (transcribed) into Notarial Deed by a Panamanian Notary Public in order to be filed for recordation with the Public Registry Office of Panama.

Completing the translation, protocolisation and recordation process could take between two and four weeks. 

No government applications or consents are required as a prerequisite to the execution and delivery of an assignment/novation of lease regarding a Panamanian registered aircraft.

The mere execution of an assignment/novation of a lease agreement relating to a Panamanian registered aircraft in commercial transportation should not give rise to taxes/duties. 

Panama would recognise the transfer of ownership interest of the entity (or the beneficial interest in the trust) owning an aircraft. 

The owner and the operator of an aircraft (or an authorised person empowered by the owner and operator for such purposes) are entitled to request the deregistration of such aircraft. 

If the deregistration is requested by the owner, the Civil Aviation Authority has previously requested written evidence from the operator of the aircraft to the effect that the lease has been terminated or that it does not have objections to the cancellation of the registry.

Panama regulations provide that the owner and the operator of an aircraft are entitled to request the deregistration of such aircraft.

If the deregistration is requested without the operator’s consent, a court order authorising the taking of physical possession of the aircraft should be obtained.

The owner would need to provide evidence that it is the owner of the aircraft. In theory, the registration certificate of the aircraft in favour of the owner or a certificate of ownership issued by the Public Registry Office of Panama (where the title would have been recorded) should suffice for purposes of evidencing the ownership of the aircraft.

The owner would also need to obtain an airworthiness certificate of export for the aircraft by the Civil Aviation Authority.

The deregistration process for an aircraft may take between two and six weeks.

As far as is known, the authorities have never provided advance assurances as to the prompt deregistration of an aircraft.

The government duties to deregister an aircraft with the Civil Aviation Authority are USD100. An airworthiness certificate of export of the aircraft will also be issued by the Civil Aviation Authority, at the cost of USD1,000.

A deregistration power of attorney should be recognised.

The signatures to the deregistration power of attorney would have to be authenticated by a Notary Public from the place of execution. If executed and notarised outside of Panama, such Notary Public’s signature must further be legalised either by a Panamanian Consul or by the Apostille (pursuant to the 1961 Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents).

The deregistration power of attorney should also be recorded with the Public Registry Office of Panama. For such purposes, it would be necessary to translate the deregistration power of attorney into Spanish, if it was executed in a foreign language, and to protocolise (transcribe) it into Notarial Deed.

In the process of enforcing a deregistration power of attorney, the court could ask for additional supporting documentation of the claim.

A deregistration power of attorney does not need to be governed by the laws of Panama.

If a deregistration power of attorney is expressed to be irrevocable, the grantor would not be able to revoke it anyway.

Panama regulations state that owners of aircraft are entitled to request the deregistration of their aircraft. The regulations do not mention that the lessee or operator of such aircraft will have to consent to such deregistration. In practice, however, the Civil Aviation Authority has requested written evidence from the operator to the effect that the lease has been terminated or that it does not have objections to the cancellation of the registry.

A court order that authorises the owner of an aircraft to take physical possession and deregister the aircraft should be obtained if the operator’s consent is not granted.

Panama does not require an export licence for the deregistration and removal of aircraft from Panama.

Panama does not charge taxes, etc, in respect of the export of an aircraft.

The liquidation of a lessee/operator of an aircraft should not void or terminate a deregistration power of attorney.

For operating leases, the law allows the liquidator to terminate the lease, subject to providing notice to the lessor. The liquidator may not prevent the owner from repossessing the aircraft. The aircraft will not be deemed part of the lessee’s property if the lessee is not the registered owner. The liquidator should not be able to impose the rights of any other creditors in priority to the owners’ rights.

The main risks for a lender if a borrower, a guarantor or an entity providing security becomes insolvent would be that the security is considered unenforceable (does not constitute an “executive title” eligible for enforcement under “executive proceedings”) or that the collateral results are insufficient to cover the amounts due to the lender.

Panama's insolvency laws provide for a stay period of no longer than six months in the enforcement of security.

In Panama, a domestic lessee can be liquidated or placed in administration or receivership by court order.

Panama's insolvency law does not allow the unilateral terminational of an agreement due to a reorganisation process of the debtor.

If a domestic lessee is wound-up (liquidated), the Panamanian insolvency law provides that the lease agreement can be terminated, and the aircraft would be returned to its legitimate owner by judicial order. Any amounts due for lease rentals would become part of the mass of creditors. The lease security deposit and maintenance reserves would have to be dealt with as provided for in the lease agreement.

Panama ratified the Cape Town Convention on International Interests in Mobile Equipment and the related Protocol on Matters Specific to Aircraft Equipment.

Below please find the text of the Declarations made by the Republic of Panama at the time of depositing the instrument of ratification in respect of the Cape Town Convention:

Pursuant to Article 56(1) of the Convention and Article XXXII of the Protocol and in accordance with its internal legal system, the Republic of Panama makes the following declarations in respect of Articles 13, 39, 50, 53 and 54 of the Convention and Article XXX of the Protocol:

1. In respect of Article 13(1)(a), (b) and (c) of the Convention, the words “speedy relief” shall be taken to mean seven (7) working days and, in respect of Article 13(1)(d), the same words shall be taken to mean twenty (20) working days.

2. In respect of Article 39 of the Convention, the following non-consensual rights and interests shall prevail over an international interest registered in accordance with the Convention:

– any sums due from or capable of being demanded from the debtor by way of salaries, pensions and other social security benefits and employment allowances owed in respect of employees of that debtor;

– any sums due from or capable of being levied from the debtor by way of fiscal and parafiscal contributions owed in respect of employees of that debtor;

– any sums due from or capable of being levied from the debtor, by way of taxes, duties or contributions payable to the Panamanian State or to the decentralised bodies that collect such revenue, in accordance with Panama’s internal laws;

– the right of the Republic of Panama to arrest, attach or confiscate mobile equipment and aircraft equipment in the event of breach of the customs or criminal laws of the Republic of Panama.

The Republic of Panama declares that the rights or interests covered by this declaration shall prevail over an international interest registered before the date of the deposit of its instrument of ratification in respect of the Convention and the Protocol.

Likewise, it declares that none of the provisions of the Convention shall affect the right of the Panamanian State, a State entity, an intergovernmental organisation or a provider of public services to arrest or detain an object under the laws of the Republic of Panama for payment of amounts owed to such entity, organisation or provider directly relating to those services in respect of that object.

Finally, the Panamanian State states that these declarations do not pose an unacceptable risk to the holders of registered rights.

3. As to Article 50 of the Convention, the Convention and the Protocol shall not apply to any transaction which is an internal transaction in relation to the Republic of Panama with regard to all those types of objects falling within the sphere of application of the Convention or the Protocol.

4. As to Article 53 of the Convention, in accordance with the internal laws of the Republic of Panama, the relevant courts are as follows:

– ordinary courts;

– administrative courts;

– the civil aviation authority;

– those advisory bodies exercising supervisory functions in respect of financial institutions and insurance companies (superintendencias);

– arbitral tribunals,

subject to the powers vested in them by the internal laws of the Republic of Panama.

5. Pursuant to Article 54(2) of the Convention, any remedies available to the creditor under any provision of the Convention and the Protocol which are not there expressed to require application to the court may be exercised without leave of the court.

6. As to Article XXX(1) of the Protocol, it will apply Articles VIII, XII and XIII of the Protocol.

7. As to Article XXX(2) of the Protocol, it will apply Article X of the Protocol.

8. As to Article XXX(3) of the Protocol:

(a) it will apply the entirety of Alternative A of Article XI of the Protocol to all types of insolvency proceeding, as defined in the Convention;

(b) the waiting period under Article XI shall not exceed 60 days.

Article XIII of the Protocol does apply in Panama. In order to submit an IDERA with the Civil Aviation Authority, a copy of the IDERA has to be filed with the Civil Aviation Authority, authenticated by a Notary Public from the place of execution and accompanied by a translation into Spanish by an official translator in Panama.

As far as is known, there is no precedent in which the Panama courts have had to enforce the Convention or the Protocol.

Panama is a party to the 1948 Geneva Convention on the International Recognition of Rights in Aircraft.

However, Panama is not a party to the 1933 Rome Convention on the Unification of Certain Rules relating to the Precautionary Arrest of Aircraft.

There are no restrictions imposed by Panama on foreign lenders financing an aircraft locally, nor on borrowers using the loan proceeds.

There are no exchange controls currently in place in Panama.

Borrowers are permitted to grant security to foreign lenders.

Downstream, upstream and/or cross-stream guarantees are permitted under Panamanian laws. Such guarantees are not filed or recorded with any authority in Panama. However, the signature of the guarantor should be authenticated by a Notary Public at the place of execution and, if done outside of Panama, such Notary Public’s signature should be further legalised by a Panamanian Consul or with the Apostille (pursuant to the 1961 Hague Convention Abolishing the Requirement of Legalisation for Public Documents).

Having done the necessary corporate and other due diligence on the company, a lender may take share security over a domestic special purpose vehicle that owns the financed aircraft. Pledges of shares are recognised and regulated in Panama.

Panamanian laws do not prohibit negative pledges.

As far as is known, there are no material restrictions or requirements imposed on intercreditor arrangements.

Panama recognises the concept of agency and the role of an agent under a syndicated loan.

An intecreditor agreement between lenders that have pari passu debts, by which a lender agrees to subordinate its debt, should be permissible and recognised.

A transfer or assignment of all or part of an outstanding debt between lenders under an English or New York law governed loan would be permissible and recognised in Panama.

There are no usury or interest limitation laws in Panama.

Typically, a loan financing an aircraft registered in Panama could be secured by an aircraft mortgage, a shares pledge on the aircraft owning company or holding parent, or guarantees by a parent or affiliates, among others.

As far as is known, no types of security cannot be taken over an aircraft or related collateral.

The concept of a trust and the role of a security trustee is recognised in Panama.

A borrower who is the owner of the aircraft can grant a mortgage over the aircraft in favour of a security trustee and assign its rights under an aircraft lease.

It is possible to assign only the rights and benefits of the lessor under an aircraft lease, without also assigning the attendant obligations.

A security assignment or guarantee can be governed by English or New York law, provided that there are no provisions contrary to the laws of Panama, public order or the moral principles of Panama.

If filed before Panamanian courts for enforcement, the signatures to the security assignment should be authenticated by a Notary Public at the place of execution and, if done outside of Panama, such Notary Public’s signature should be further legalised by a Panamanian Consul or with the Apostille (pursuant to the 1961 Hague Convention Abolishing the Requirement of Legalisation for Public Documents). Also, the security assignment would have to be accompanied by a Spanish translation done by an authorised translator in Panama.

If the signatures are not authenticated, it would be necessary to initiate a process of recognition of signatures before the court.

In addition to a security assignment governed by English or New York law, a financier should also take a Panamanian mortgage over the aircraft as security, which would need to be recorded with the Public Registry Office of Panama.

The registration costs of an aircraft mortgage with the Public Registry Office of Panama are a fixed fee of USD100, plus USD2.50 for every USD1,000 or fraction thereof of the amounts secured by the mortgage, up to a maximum of USD51,250.

Only a local law security instrument can be registered domestically.

The transfer of security interest over an aircraft and/or engines would be recognised.

If security is held by a security agent whose role does not change, the security interest would not be jeopardised if the identity of the secured parties changes.

However, if the role of the security agent changes, the security document would have to be updated to reflect this.

Parallel debt structures can be used domestically and should be recognised.

A secured party under a security assignment would not be deemed to be resident, domiciled, carrying on business or subject to taxes solely for the reason of being a party to or enforcing a security assignment.

In order to be perfected, mortgages need to be recorded with the Public Registry Office of Panama. For such purposes, the signatures to the mortgage need to be authenticated by a Notary Public from the place of execution. If done outside of Panama, such Notary Public’s signature would further have to be legalised either by a Panamanian Consul or by the Apostille.

The mortgage would also need to be translated into Spanish if it was executed in a foreign language, and protocolised (transcribed) into Notarial Deed by a Panamanian Notary Public, for further filing with the Public Registry Office of Panama for recordation.

A mortgage over an aircraft and a mortgage over spare engines would be governed by the same law (Law No. 129 of 31 December 2013, regarding mortgages on movable assets).

Pledges over bank accounts are perfected by the bank account acting as depository, designated by the pledgee and pledgor, to hold custody on behalf of the pledgee.

Only third party liens arising from repairers’ costs could be enforceable on an aircraft operated by a lessee.

The lien should cover only the amounts due for the repairers’ works done to that asset, up to the value of the assets.

A fleet lien that is not granted by the owner(s) of the aircraft would not be recognised.

Judicial remedies are available to a third party enforcing a repairers’ work lien.

Because mortgages are recorded at the Public Registry Office of Panama, the discharge of a mortgage must also be recorded at the Public Registry Office of Panama in order to become effective. The registration process of a discharge could take between one and two weeks.

Mortgages on aircraft are recorded with the Public Registry Office of Panama. The recordation of an aircraft mortgage with the Public Registry Office of Panama would give effects vis-à-vis third parties.

If a lessee/operator is not the owner of an aircraft, statutory rights of detention or non-consensual preferential liens over an aircraft and/or on a “fleet-wide” basis should not apply.

A potential purchaser of an aircraft could search on the records of the Public Registry Office of Panama to verify whether any mortgages have been recorded.

There are no differences in the enforcement procedure of a security assignment as opposed to a loan or a guarantee.

The security trustee should be able to enforce its rights under a security assignment, pursuant to a notice and acknowledgement executed by the lessor and lessee.

In general terms, Panama courts would uphold a foreign law as a valid choice of governing law of a finance or security document. However, the courts will not enforce provisions that may be deemed to be contrary to the laws of Panama, public order or moral principles of Panama. The courts would also uphold the submission to a foreign jurisdiction, subject to the terms of the finance or security document.

Final judgments rendered by a foreign court would be recognised and enforced by the courts in the Republic of Panama without re-examination of the merits of the case, subject to the issuance of a writ of exequatur by the Supreme Court of Panama. The Supreme Court of Panama is authorised to issue a writ of exequatur in respect of a final judgment rendered in a foreign jurisdiction only in the following circumstances:

  • if such judgment arises out of an in personam action;
  • if the party against whom the judgment was rendered (or its agent) was personally served in such action;
  • if the obligation in respect of which the judgment was obtained is lawful in Panama;
  • if such judgment is properly authenticated by diplomatic or consular officers of the Republic of Panama or pursuant to the 1961 Hague Convention Abolishing the Requirement of Legalisation for Public Documents, and translated into Spanish by a Panamanian Official Translator; and
  • if judgments of Panamanian courts are reciprocally recognised in such foreign court (which the Panamanian Supreme Court will presume to be the case, unless proved otherwise).

The Supreme Court of Panama should also recognise a foreign arbitration award, provided that:

  • the parties subject to the arbitration proceedings were not subject to some incapacity under the laws governing the applicable arbitration clause or under the laws of the place where the arbitration was held;
  • the party against whom enforcement is being sought was duly notified of the appointment of arbiters or of the arbitration proceedings, and had the opportunity to defend itself in the arbitration proceedings;
  • the foreign arbitral award referred to a matter that was within the scope of the arbitration clause and did not include decisions that exceeded the scope of the arbitration clause;
  • the constitution of the foreign arbitration tribunal and the procedure followed comply with what the parties agreed upon in the arbitration clause or, in the absence of any provision to that effect in an arbitration clause, with the laws of the place where the arbitration was held;
  • the award is final on the parties or it has not been annulled or suspended by a court of the country where or pursuant to the laws of which the award was rendered;
  • the subject matter is capable of settlement by arbitration under the laws of Panama; and
  • the recognition and enforcement of the award would not be contrary to the public policy of Panama.

A court order that authorises the secured party to take physical possession of the aircraft should be obtained if the lessee/operator’s consent is not granted.

There are no aviation-specific courts in Panama. Aviation matters should be heard by a civil circuit court.

A secured party may commence executory and/or summary proceedings in Panama, and may also ask for the attachment of the aircraft in order to gain immediate possession of it.

In order to attach or seize the aircraft, the secured party may be required to post a bond or guarantee, which may be equivalent to 30% to 40% of the amounts claimed.

A secured party under a security agreement/aircraft mortgage can obtain judgment in a foreign currency.

Stamp taxes at the rate of USD0.10 for each USD100 of face value would be payable on the security agreement/aircraft mortgage presented in evidence to a Panamanian court or administrative authority. The obligation to pay such stamp tax will not arise through the mere execution and delivery of the security agreement/aircraft mortgage. In practice, stamp taxes will have to be paid and adhered to the security agreement/aircraft mortgage by the party who is using it as evidence. In any event, such stamp taxes are not due with respect to the security agreement/aircraft mortgage unless and until the security agreement/aircraft mortgage is to be used in evidence, as indicated above. However, in respect of the aircraft mortgage, the amounts paid in notarial paper and recordation duties (for the recordation of the aircraft mortgage at the Public Registry Office of Panama) would be deducted from the applicable stamp tax.

As far as is known, there are no other material issues and/or any material court judgments that would be relevant to the purchase, sale, lease or debt finance of an aircraft registered domestically and/or involving a domestic party.

As far as is known, there are no proposals before the legislative relating to the foregoing items that may alter the same or be worth noting.

Arias, Fábrega & Fábrega

ARIFA Building, 10th Floor
West Boulevard
Santa Maria Business District
Panama
Republic of Panama

+507 205 7000

+507 205 7001

panama@arifa.com www.arifa.com
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Law and Practice

Authors



Arias, Fabrega & Fabrega is a full-service law firm with a multidisciplinary approach, and is one of the few law firms in Panama to offer a group of experts in the field of aviation law. The firm’s banking, capital markets, M&A, litigation, antitrust and regulatory specialised practice groups bring together their broad understanding of the dynamics and major challenges and opportunities facing the aviation industry, and advise industry providers competing in the public procurement and public-private partnerships field, providing full understanding of the requirements of the aviation contracting authorities and the various stages of the awarding process. The team has also been involved in diverse transactions derived from the expansion of the Tocumen International Airport.

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