Aviation Finance & Leasing 2019

Last Updated August 01, 2019

Portugal

Law and Practice

Authors



CSBA & Associados Sociedade de Advogados, SP, RL. is a leading boutique law firm located in Lisbon, with local advisers in other Portuguese-speaking jurisdictions such as Angola, Mozambique and Cape Verde. The firm works in practice areas including aviation, aircraft finance and maritime, corporate, real estate and labour law. Its clients include banks, aircraft manufacturers, aircraft leasing finance companies, airlines and international leasing companies.

VAT may be due on aircraft or engine sales agreements.

However, in accordance with paragraph g) number 1 of Article 14 of the VAT Code, the transfer of an aircraft or engine may be exempt from VAT if the aircraft/engines that are the object of the transfer are intended to be used by an airline operating on international routes.

Therefore, if an aircraft or an engine is subject to a sale agreement being used by a company that is exempt for VAT purposes, no difficulties are anticipated.

If it is written in a foreign language, a sale agreement should be accompanied by a translation certified by a Portuguese notary or lawyer in order for it to be enforceable against a domestic party.

In order for it to be enforced as an executive title, a sale agreement should be authenticated before a Portuguese lawyer or notary; if executed abroad, the sale agreement should be authenticated at a Portuguese consulate or before a notary, as well as being apostilled.

A purchase and sale agreement and a bill of sale are mandatory for the transfer of title to an aircraft or engine. They do not extend to include all installed parts, such as an APU, unless so established in the agreement in question.

Purchase and sale agreements, as well as bills of sale, should also be registered with the Portuguese Authority for Civil Aviation (ANAC).

The sale of the ownership interest in an entity that owns an aircraft or engine does not itself constitute sale of the aircraft or engine proper, but as a practical legal issue it would be sufficient to confirm sale.

It is possible for a sale agreement as well as a bill of sale to be governed by a foreign law (including English or New York law); such an agreement will be recognised in Portugal in terms of its obligations. However, in any case with respect to its property aspects where in rem rights are at stake, the governing law will be Portuguese Law.   

The document evidencing the transfer must be signed and the signatures duly recognised by attestations of the signatories' capacity and power to bind the entity (eg, a company). 

The bill of sale should be signed/authenticated before a Portuguese lawyer or notary and, if executed abroad, the bill of sale should be authenticated at a Portuguese consulate or before a notary, as well as being apostilled.

Bills of sale should be notarised as explained in Sales Governed by English or New York Law,above, and be accompanied by a translation certified by a Portuguese notary or lawyer in order for them to be enforceable against a domestic party. 

Bills of sale should be filed with ANAC in order for them to be fully enforceable within the Portuguese jurisdiction and in order to transfer the ownership of an aircraft (ie, only with the registration of the bill of sale before ANAC is the ownership transferred).

All documents to be presented before ANAC must be notorised and either consularised or legalised with the Hague Apostille of 5 October 1961 if issued abroad. Notarisation and, if applicable, apostille should be made in the country of origin for the document. For documents issued in Portugal and only to be used in Portugal, the apostille is not required.

As soon as all the required documents are filed as above addressed, registration with ANAC is complete with immediate effect.

A petition requesting the registration of an aircraft must be filed before ANAC requesting the registration of the ownership and indicating the Portuguese operator. A duly notarised and apostilled bill of sale is required, as well as the technical documentation of the aircraft.

Portuguese individuals or companies wishing to register the ownership are subject to the Rules of Air Navigation.

ANAC allows the registration in Portugal of the ownership of an aircraft by foreign entities, provided that the aircraft regularly uses a Portuguese airport.

Accordingly, the Portuguese registration of the aircraft/ownership may be cancelled should the aircraft leave Portuguese territory for a continuous period of time (eg, six or 12 consecutive months, at the discretion of ANAC).

The foreign owner of the aircraft (individual or corporate entity) must appoint either a Portuguese individual or a company with permanent domicile in Portugal to act as its attorney-in-fact.

The application form for the registration of the aircraft with ANAC must conform with the requirements set out by this entity.

No consent is required, but in Portugal the authority in charge of the recording and filing of bills of sale or transfers of beneficial interest is ANAC.

Transfer taxes, VAT (if applicable) or fees associated with the recording in Portugal of the transfer of aircraft or beneficiary interests within the airspace of Portugal may be payable. Such taxes or charges are not payable in Portugal if the transfer does not occur within Portuguese territory. VAT is payable on the transfer of an aircraft into Portugal, unless any of the exemptions provided in the VAT Code applies.

The legislation exempts any transfer of an aircraft (eg, by way of sale) as well as any transformation, repair or any lease of an aircraft used by an air carrier whose business involves international flights. These exemptions also apply to any transfer, repair, maintenance and lease of objects incorporated in such an aircraft or as part of its use (eg, engines and spare parts).

The various types of operating/wet/finance leases or leases concerning only engines or parts are permissible and recognised in Portugal. In fact, under Portuguese law, a finance lease is considered an agreement by which one of the parties undertakes the obligation to confer the temporary enjoyment of the asset in question to the counterparty upon remuneration; when the agreement is terminated, the lessee is entitled to the option to acquire the asset. By contrast, under Portuguese Law, an operating lease is a lease agreement by which the lessor confers the right to the temporary utilisation of the asset to the counterparty upon the payment of rent, but in which there is no possibility for the transfer of the asset to the lessee upon the termination of the agreement. Operating leases include dry and wet leases.

It is possible for a lease involving either a domestic party or an asset situated in Portugal to be governed by a foreign law.

There are no material restrictions imposed on domestic lessees making rent payment to foreign lessors in US dollars should the lease agreement establish this as the payment currency.

There are no exchange controls which could prevent rent payments under a lease, or any repatriation of realisation proceeds if the lease is enforced by a foreign lessor.

No fee is payable to RAN (Registo Aeronáutico Nacional – the national aircraft register) on the deposit (registration) of a lease and there are no duties, taxes or fees levied on the same or in order for a lease agreement to be enforced or relied on in Portugal. Furthermore, no stamp tax will be due on the lease.

A lessor need not be licensed or otherwise qualified in Portugal in order for it to do business with a domestic lessee.

There are no mandatory terms required to be in a lease or its ancillary documents that is/are governed by either English or New York law that would not typically already be included. However, the signature of the lease agreement must be recognised attesting the capacity and powers of the signatories to bind the company, if it is the case that the entity is a party to such agreements. 

It is permitted to establish tax and other withholding gross-up provisions under Portuguese law.

A lease may cover parts that are installed or replaced on an aircraft or engine after its execution so long as such parts are separable. In this case, it would be necessary to sign an addendum to the initial lease agreement.

The aircraft engines installed on an airframe should be indicated and legally separated from the aircraft itself should one wish to avoid the risk of title annexation, otherwise the engines will not be regarded as a separate asset from the aircraft itself from a legal point of view.

Under Portuguese Law the concept of a trust (and therefore the role of an owner trustee) in its proper sense does not exist. Notwithstanding this, it is possible for a party to act on behalf and representation of itself and another party, so long as power of attorney for such a purpose exists. In fact, although ANAC does not recognise the concept of a trust in its proper sense (as it is understood in Anglo-American law), it has been possible to register a lease in favour of an owner trustee, even if it has not been common to proceed before this authority for civil aircraft registration to carry out the registration of the transfer of the beneficial interest. It is therefore suggested that such registration should be carried out before ANAC, or at least that an attempt is should be made to attach this document to the aircraft registration.

It is possible to record the interests of the owner or of the lessor of an aircraft within the Aircraft Registry. Such registration would confer publicity and effectiveness. 

An aircraft can be registered in Portugal in the name of the airport operator if the operator is not also the owner and has a legal title to operate it (eg, a lease agreement), but the registration of the ownership should also be filed in the name of the owner; consequently, it is mandatory to register an aircraft in the name of the owner even if the owner is not also the operator.

Leases concerning aircraft or engines should be registered with RAN, which is administered by ANAC.

Leases should be registered in the Aircraft Registry. Leases are not subject to any consent from government authorities, notably ANAC, responsible for the administration of the registry.

The following documents are required for the registration of leases with ANAC (following the registration of ownership):

  • A notarised (or consularised/appostilled, where required) power of attorney which grants a Portuguese resident the power to register the lease in the registry, since foreign owners or lessors of the aircraft (individuals or companies) must appoint either a Portuguese individual or company permanently domiciled in Portugal to act as attorney-in-fact in order to carry out the registration of such aircraft.
  • The lease agreement, duly executed, notarised and (and if granted abroad) apostilled.

Other licences that will be required in respect of the aircraft for its registration in the registry and operation in Portugal include a certificate of airworthiness, a noise certificate, a radio licence, the air navigation logbook and an import certificate. The import certificate is not necessary if the aircraft is from another EU member state, in which case it is sufficient to complete a traffic form if the aircraft is imported though a Portuguese airport. The Portuguese customs authorities will then seal this traffic form.

So long as all documents are duly legalised, the registration procedure is carried out immediately by ANAC.

No government applications or consents are required as a pre-requisite to the execution and delivery of an aircraft and/or engine lease in relation to an aircraft registered in Portugal.

Lease agreements should have the signatories of the representatives of the parties authenticated by a Portuguese lawyer or a notary and, if executed abroad, by a notary and bearing the Hague Apostille. The Portuguese Registry accepts documents written in Portuguese as well as in English.

The registering of a lease will not imply the payment of charges before ANAC. In Portugal the lease agreement is not subject to stamp tax duties.

The Portuguese Registry accepts documents written either in Portuguese or in English.

If the lessor is incorporated in Portugal, payment of income taxes will be due; if the lessor is not incorporated therein, the withholding tax may be due. However, the withholding tax should be paid (retained) by the lessee, for which reason a gross-up clause should be inserted into the lease agreements.

The withholding charge is 25% of the rent, in relation to which the lessee, to the best of our knowledge, has usually been exempt under Article 28 of the Tax Benefits Statute (Estatuto dos Benefícios Fiscais), subject to the appropriate request by the lessee to the Ministry of Finances.

A foreign lessor could not, as a result of being a party to or of enforcing a lease, be deemed to be resident or domiciled in Portugal. However, as a result of being a party to the lease agreement and therefore the beneficiary of income, it would be subject to taxes in accordance with the terms explained in Tax Requirements for a Foreign Lessor, above.

In principle, the lessee/operator is liable for the operation and maintenance of an aircraft or engine. The fact that a lessor is registered as such with the ANAC does not ipso facto impose any liability on it with respect to operation and maintenance or even insurance of the equipment, the responsibility for which falls to the lessee.

The law classifies three kinds of entities:

  • the owner, ie, the registered owner of the aircraft (in this particular case the lessor);
  • the operator, ie, the entity using the aircraft;
  • the air transporter, ie, the entity authorised to process the air transportation of individuals, luggage, cargo or mail in the aircraft.

The owner or operator (where the owner is also the operator) of the aircraft shall be liable, regardless of fault or negligence:

  • for all damages sustained by third parties at ground level caused by the flight of the aircraft or by any debris falling therefrom, including cargo dropouts caused by force majeure circumstances; and
  • for any damages caused by the aircraft when moving on the ground or when immobile.

It is not possible for the lessor, as owner (but not operator) to be held responsible for the operation of the aircraft unless damage is suffered and can be attributed to an act or default of the lessor/owner, or if the liability results as described above, namely in the case of an accident, drug trafficking, etc. Portuguese law distinguishes between strict liability that may arise for the operator of the aircraft (as lessee) and any potential fault based on liability of the lessor or owner arising from the ownership of the aircraft. Consequently, it is vital that the owner adequately insures the aircraft against the aforementioned risks. In Portugal, locally registered aircraft have an implicit obligation to be adequately insured.

See Engine Maintenance and Operations, above.

It would not be possible for creditors of a domestic lessee to attach an aircraft leased to it but owned by a different entity.

The right of the beneficiary of a mortgage over an aircraft or engine lease, whether or not such lease/lessor is registered in the national aircraft registry, would take precedence over the lessor's under such lease.

It is possible to effect insurances and reinsurances with non-domestic insurance companies.

Under the terms set forth by EU Regulation No 785/2004 of 21 April, 2004, airlines and aircraft operators must have insurance covering their liability towards passengers, luggage, cargo and third parties regarding acts of war, terrorism, hijacking of aircraft, acts of sabotage, illicit apprehension of aircraft and civil turmoil.

The minimum coverage requirements are set out in Article 4, paragraph 2 of the regulation.The financial thresholds and limits (per occurrence/in aggregate) are:

  • for passengers' liability, the minimum coverage is DSE250,000 (special withdrawal rights) as defined by the International Monetary Fund by passenger;
  • for luggage, the minimum is DSE1,000 per passenger;
  • for cargo, the minimum is DSE17 per kilo; and
  • for third parties, it varies from DSE0.75 million to DSE700 million.

It is possible to place reinsurances outside of Portugal up to 100% coverage.

Under the General Law of Insurance in Portugal it is possible for rights (and their exercise) belonging to the insurer and which were conferred to the insurer under the reinsurance agreement to be conferred to third parties whenever permitted by the general law. In light of this, we are of the opinion that cut-though clauses or endorsements are valid and enforceable under Portuguese law.

It is permitted to carry out assignments of insurances/reinsurances.

There are no restrictions on the ability of a lessor to terminate an aircraft lease and sell the aircraft following such termination, except for any eventual limitations that would be established in this regard in the lease agreement signed by the parties. The aircraft does not need to be physically located in Portugal for such termination and sale to take place, but in any case the consent/authorisation of the lessee for the deregistration of the aircraft in virtue of the termination of the lease agreement is required; such consent/authorisation shall, however, not be required if the deregistration of the aircraft is a result of an event of default.

With regard to the possibility for the lessor to re-export the aircraft in the circumstances of a lease termination, it is important to mention that Portugal has ratified the 1933 Rome Convention on the Unification of Certain Rules relating to the Precautionary Arrest of Aircraft, which precludes the arrest of aircraft in various circumstances where it would seriously disrupt commercial traffic or interfere with public services such as air transportation.

A lessor may repossess an aircraft following the occurrence of an event of default by the counterparty without the need to pursue its claim through judicial proceedings if a deregistration power of attorney (DPOA)/irrevocable power of attorney has been granted by the lessee to them.

There are no specific courts that are competent to decide aviation disputes. Such cases are therefore disputed before the general judicial system established in Portugal.

It is possible for a lessor to obtain a summary judgment, equitable or other injunctive relief pending final resolution of judicial proceedings to enforce an aircraft lease if the following conditions are met:

  • the applicant party proves the existence of a grounded fear that the counterparty will cause a serious or barely repairable action to its rights (eg, selling of all its assets in order not to pay any indemnities due), the urgency of which matter is not compatible with the delay of the parallel main judicial proceedings (periculum in mora), and gives summary evidence of the existence of its rights (fumus bonus iuris); and
  • the court should not consider that the harm caused to the counterparty does not considerably supersede the damage that such an injunction is envisaged to avoid.

The estimated period to obtain such a court order once the proceedings have been filed with the court could be immediate or up to 30 days, depending on the specific injunctive relief requested of the court.

Portuguese courts would uphold a foreign law as the governing law of an aircraft lease, as well as the submission to a foreign jurisdiction, if the parties in question express this as their wish, as well as a waiver of immunity by the parties to such lease if the issues in dispute were to be regarded as non-disposable rights or inalienable rights (eg, preclusion in the lease agreement of the right of the lessor to go to the court in order to claim the payment of its rent).

Portuguese courts would recognise and enforce a final judgment of a foreign court or an arbitral award without re-examination of the matter.

It is possible for a lessor under an aircraft lease to obtain a judgment in a foreign currency if the agreement in question establishes this.

It would be possible for a lessor to recover default interest (or the compounding thereof), but after termination of the lease for default, including in cases where the lessee fails to return the aircraft, it would not be possible to charge additional rent, although it would be possible to claim the repossession of the aircraft as well as a compensation for the damages incurred by the lessor due to the lessee's failure to return the aircraft.

The lessor under a aircraft lease is not required to pay taxes or fees in a significant (ie, non-nominal) amount in connection with the enforcement of an aircraft lease in Portugal, although it would be required to pay court fees in the case of judicial enforcement of such a lease.

The lessor is only obliged to comply with the mandatory notice periods for termination of the aircraft lease established in the lease agreement.

The lessee is not entitled to claim sovereign or other immunity from suit.

Portugal is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) and domestic courts would recognise and enforce a foreign arbitral decision.

There are no other relevant issues in relation to the enforcement of lessors' rights.

Portuguese Law recognises the concepts of contractual assignment and novation.

Agreements governed by New York or English law would be held valid by a Portuguese court, whether or not the consent of the lessee would be required depends on the law governing the lease agreement and the assignment or novation agreement. In any event, in order to avoid any unnecessary legal controversies it would be advisable to have such consent, since in accordance with Portuguese Law such consent is required and for registration purposes the consent is mandatory.

It is advisable for an aircraft and/or engine lease assignment and assumption/novation to be notarised/authenticated in order for it to be enforceable against a domestic party. Moreover, should such enforcement be carried out via the judicial courts in Portugal, a certified translation thereof by a Portuguese lawyer or notary would also be required.

It is necessary to register and file an aircraft and/or engine lease assignment and assumption/novation with the Portuguese aircraft registry in order for it to be enforceable within the Portuguese jurisdiction. Notwithstanding this, they are not subject to any consent from a government entity.

For the formalities concerning registration or filing of governmental consent, see Taxes/Duties Payable for Registering a Lease, above.

There are no government applications or consents required as a prerequisite to the execution and delivery of an aircraft and/or engine lease assignment and assumption/novation in relation to an aircraft registered domestically.

The withholding charge is 25% of the rent, in relation to which the lessee is, to the best of our knowledge, usually exempted under Article 28 of the Tax Benefits Statute (Estatuto dos Benefícios Fiscais), approved by Decree-Law No 215/89 of July 1989 and amended by Decree-Law No 108/2008 of 26 June 2008, subject to the appropriate request by the lessee to the Ministry of Finance. Thus, if the lessor is replaced as well as the rights being assigned, the lessee should proceed with a new request before the Ministry of Finance.

Stamp duty is levied on all acts, contracts, documents, titles, books, papers and similar documents as per the General Tariff Table, and includes the free transfer of assets. Assignment and assumption/novation agreements are not subject to stamp duty since they are not referred to in the General Tarif Table. However, any document considered a guarantee will be subject to stamp duty, as in the case of all guarantees executed in Portugal or presented in Portugal for any legal effect.

In accordance with Article 14 (1) (g) – the Portuguese VAT Code, the transfer of aircraft may be exempted from VAT if the aircraft/engines that are the object of the lease are intended to be used by an airline operating on international routes evidenced by a certificate issued by Portuguese authorities.

Deregistration of an aircraft should be carried out by its owner filing the relevant application.

The consent of the lessee or operator would be required for deregistration. Deregistration power of attorney should be delivered at the same time as the aircraft.

The power of attorney for the deregistration, as well as a deed of release in the case of a mortgage, will be required as well as the statement of non-opposition duly executed by the lessee.

If all the documents required for the deregistration are in good order and filed with ANAC, the deregistration process would typically take up to a maximum of one week.

A duly notarised and apostilled POA is required.

Authorisation/consent from the lessee (if an event of default is not the reason for the deregistration of the aircraft) will be mandatory.

An export licence (Cof Exp) will be required when the aircraft is exported to non-EU member state.

All liens registered regarding the aircraft should be deregistered in advance.

The fees to be payable for the deregistration of an aircraft will be the following:

  • Certificate of deregistration: EUR38.91.
  • As per Ordinance No 869-A/94, for the deregistration of a mortgage ANAC requires the payment of a rate equivalent to 1/200,000 of the value of the mortgage.

A power of attorney for deregistration should be granted before a notary and registered with the Portuguese Irrevocable Power-of-Attorney Registry.

ANAC accepts documents written in Portuguese as well as in English.

However, a deregistration power of attorney that is written in a foreign language should be translated into Portuguese in order for it to be enforceable before a Portuguese court.

No additional documents apart from the ones mentioned above are necessary to enforce a deregistration power of attorney.

A deregistration power of attorney should be governed by Portuguese Law.

Under Portuguese Law it is not possible to revoke irrevocable power of attorney if the beneficiary thereof (attorney or a third party) does not give its consent, except if just cause for revocation exists (eg, abuse of the granted powers). For revocation purposes the consent of the beneficiary, in written form, is always mandatory.

An aircraft may only be exported if it is free of any liens or encumbrances.

Thus:

  • the lessee’s consent is necessary for deregistration of the lease; and
  • the mortgagee may not export the aircraft without the owner’s or lessor’s consent.

DPoAs or IPoAs are instruments by which owners/lessors and mortgagees should require of the lessee (in the case of the owner/lessor/mortgagee) and of the owner/lessor (in the case of the mortgagee) in order to facilitate the export of an aircraft without the lessee’s or owner/lessor’s consent.

For deregistration purposes, an aircraft should be located in Portugal for inspection purposes in order to be issued a Cof Exp.

It is possible to obtain an export licence. Upon the departure/export of an aircraft, for the issuing of the deregistration certificate the following documents must be filed: the certificate of airworthiness, the certificate of registration, noise certification, aircraft station licence and tech log must be returned to the ANAC.

The requirements for a certificate of airworthiness for export purposes are the certificate of airworthiness, the certificate of registration, noise certificate, aircraft station licence, aircraft, engines and APU logbooks, maintenance status report, Ads/SBs list, STCs/MODs applied and the last maintenance report (carried out within a maximum of 30 days). 

It is not possible to obtain an export permit in advance. This certificate is only issued at the moment of the exportation or a few days before.

For deregistration purposes and subsequent export it is necessary to pay to ANAC the relevant fees, as stated above.

Apart from the requirement to have a deregistration power of attorney and assuming that the parties are acting in good faith, the deregistration procedure is not difficult, unless the deregistration is being carried out as a result of an event of default and the lessor needs to resort to ANAC or a court to have the aircraft back (if the lessee does not allow the physical repossession of the asset).

Irrevocable powers of attorney regarding the assets which integrate the patrimony of the insolvent party will not survive its insolvency. However, and considering that the aircraft is not owned by the lessee/insolvent party, the aircraft is not part of the patrimony of the insolvency, for which reason the deregistration power of attorney will survive. If the amounts regarding the lease agreement are not paid, the lessor may invoke an event of default to terminate the agreement, requesting the repossession (if necessary applying to the court) and deregistration of the aircraft through a deregistration power of attorney.

According to the Insolvency Code, the declaration of the insolvency of a lessee does not suspend a lease agreement, notwithstanding the possibility that the insolvency administrator may terminate the lease with 60 days' prior notice. The only exception to this rule is in paragraph 5 of the said article of the Portuguese Insolvency Code, according to which if the leased asset has not yet been delivered to the lessee upon the date of the declaration of insolvency, either the lessor or the insolvency administrator may terminate the lease agreement, either party being allowed to establish to the counterparty a reasonable term for such purpose, at the end of which the right to terminate the agreement ends.

The lessor is obviously not subject to bankruptcy proceedings affecting the lessee. Therefore, they may apply such deposited funds under their own discretion against amounts due from the counterparty in accordance with the applicable legal limits.

If the lessor is allowed by the insolvency administrator to revoke and cancel the lease agreement (and repossess the aircraft), the question of how and when the lessor will be paid will be determined by the status of the lessor, notably if the lessor is a secured creditor or not. If not, chances are that payments to the lessor (if any) in respect of any arrears or other losses that may have arisen as a result of the breach/termination of the lease agreement will be made at a later stage and together, on a pro rata basis, with the other unsecured creditors. Other losses (such as loss of profits, etc) will not be automatically included, requiring a previous court decision.

However, if the insolvency administrator decides to continue the lease agreement despite the lessee's insolvency, the administrator is likely to file a petition with the court asking for authorisation from the latter to pay to the lessor the relevant amounts related to the lease payments.

The administrator could not continue the lease without paying the contractual amounts.

In the final stages of the lease, in the course of time or on the initiative of the lessee or its representative, the lessor has the right to proceed to the deregistration of the aircraft.

The insolvency proceedings may cause some delay in the repossession of the aircraft, which will probably never take less than two months.

If an aircraft is not owned by the lessee then, in the case of winding-up, the title of the aircraft will not be affected. The only exception would be regarding the right of retention in the very specific case where the lessee would somehow have a credit against the owner/lessor as result of expenses arising because of the asset in question or damages caused by it; such expenses and damages would be within the scope of owner/lessor’s liability (eg, if established in the lease agreement) and the lessee is obliged to deliver the asset in question to the owner/lessor. Apart from this very specific case, no liens or encumbrances may be created by the counterparty as lessee to the lease agreement.

However, there is the possibility that due to a debt of the lessee to a third party regarding the aircraft (eg, debt to an airport for local taxes) this third party may use its retention right, which will be valid.

The owner of an aircraft has the legal right to go to court in order to preclude any third party from executing against the asset within its ownership.

The owner is protected, but in certain circumstances it may have to take action and seek the protection of the courts, which will be granted except in cases in which the aircraft has been utilised in drug trafficking offences. In this case, the ownership of the aircraft and its components and parts will be vested in the state without compensation. Obviously, the owner will not be prevented from seeking indemnity from the operator in such a situation.

In the case of rentals, when the winding-up of a lessee takes place, the right of the owner/lessor to receive the rentals will remain valid. However, it will be necessary to respect the priority of the existing credits up to the date of the winding-up of the company, as in the case of insolvency.

With a deregistration power of attorney the owner, in the case of an event of default, may proceed to the deregistration of the aircraft and export it outside Portugal.

Lastly, the administrator would impose the rights of other creditors such as the tax authorities, the employees and the courts (in regard to court costs credits) in priority to the lessor’s.

The main risks are the non-existence of assets sufficient to provide for the payment of all the insolvent party's debts, including to the lender, which if not having a guarantee of its own (eg, a mortgage) will be deemed the same as any other common creditor which should be equally paid accordingly with the existing assets of the debtor.

No moratorium or similar stay is imposed in connection with insolvency proceedings. Moreover, the declaration of the lessee's insolvency does not suspend the execution of the lease agreement, but the insolvency administrator can always terminate the agreement by undertaking to pay the retributions corresponding to the existing period between the date of the production of its effects and the end of the term established in the agreement, or the date on which termination by the insolvent party would have been possible.

Under Portuguese law, a request for the declaration of a company’s insolvency may be made by the person legally responsible for the payment of its debts, any creditor and the Public Prosecutor in the case of:

  • general suspension of payment of due obligations;
  • non-payment of one or more obligations which, by virtue of its amount or the circumstances of default, reveals the inability of the debtor to punctually comply with the generality of its obligations;
  • resignation of the owner of the company or of its directors or abandonment of its headquarters related to lack of solvability of the debtor and without the designation of a proper substitute;
  • dissipation, abandonment, rush or ruinous liquidation of assets and the fictitious constitution of credits;
  • lack of assets to be subject of attachment for the payment of the credit of the creditor within the scope of execution proceedings;
  • non-compliance with the obligations established in the insolvency plan or in the payment plan;
  • general default, during the last six months, on tax and social security debts, debts arising from employment agreements, rents resulting from lease agreements or of the loan secured by a mortgage; and
  • manifest superiority of the liabilities over the assets established by the last balance sheet of the company of the company in question.

Thus, once the court states the insolvency status of a company, the insolvency administrator has to issue a report.

See Other Effects of Lessee's Insolvency, above.

See Other Effects of Lessee's Insolvency, above.

Portugal is not a party to the Cape Town Convention on International Interests in Mobile Equipment or the related protocol on matters specific to aircraft equipment.

See Conventions in Force, above.

See Conventions in Force, above.

See Conventions in Force, above.

Portugal is a party to the 1948 Geneva Convention on the International Recognition of Rights in Aircraft, as well as to the 1933 Rome Convention on the Unification of Certain Rules relating to the Precautionary Arrest of Aircraft.

There are no restrictions on foreign lenders financing an aircraft locally, or on borrowers using the loan proceeds.

There are no exchanges controls or government consents that would be material to any financing or repatriation of realisation proceeds under a loan, guarantee or security document.

Borrowers may grant security to foreign lenders.

Downstream, upstream and cross-stream guarantees are permitted.

However, in accordance with Article 6 of the Companies Commercial Code:

  • The rendering of real or personal guarantees to debts of other/third entities is considered contrary to the object/purposes of the company, except if there is a justified interest of the company which renders the guarantee or if there is a dominant or group relationship between the guarantor company and the debtor company.
  • Portuguese jurisprudence has accepted guarantees rendered by companies in the interest of third parties, whenever the company has a justified interest in rendering such a guarantee.

It is not advisable for a lender to take share security over a domestic special purpose vehicle which owns a financed aircraft. A pledge of shares is possible.

This is not applicable under Portuguese Law.

There are no material restrictions or requirements imposed on intercreditor arrangements.

This is not applicable under Portuguese law, since the figure of the agent does not exist. The concept of an agent and its role can, however, be carried out by an attorney with a power of attorney granting the powers intended for the specific purposes envisaged.

It is not possible under Portuguese law to rank creditors, meaning that favouring of particular creditors is not permitted.

It is permissible and recognised to transfer or assign all or part of an outstanding debt under an English or New York law-governed loan.

There are limitation laws in regard to so-called usury interests, that is annual interests that supersede legal interests (in the case of civil interests, 4%, and regarding commercial interests applicable to commercial companies, 8%) above 3% or 5% if an in rem security (a security applicable to any third parties to it and not only to its subscribers or parties) exists or not, respectively. Such usury interests are reduced to the maximum legal amount.

The typical forms of securities and recourse granted in a domestic aviation finance transaction are mortgages and guarantees.

Under Portuguese law it is not possible to establish pledges over aircraft or related moveable assets such as engines, since they are only subject to mortgages and their legal framework.

Under Portuguese law the concept of a trust and of the security trustee in its proper sense does not exist. Notwithstanding this, it is possible for a party to act on behalf and representation of itself and another party, in this case, so long as it has power of attorney for such purpose. ANAC has not recognised the concept of a trust but it has been possible to register aircraft in favour of the owner trustee, although it has not been common to proceed before this authority for civil aircraft registration to carry out the registration of the transfer of the beneficial interest. It is therefore also suggested to carry out such registration before ANAC or at least endeavour to attach this document to the aircraft registration.

It is possible for a borrower to assign to a third party, including a security trustee, its rights to the aircraft or under an aircraft lease pursuant to a security assignment or a mortgage.

Under Portuguese law it is possible to assign a credit that one owns, including the credits that a lessor is entitled to under an aircraft lease, such as the rents resulting from such agreement, but it is not possible to assign only the rights and benefits without also assigning the attendant obligations of the lessor under such agreements, since when a party assigns its contractual position it also assigns its rights, benefits, duties and obligations.

It is possible for a security assignment or guarantee governed by English or New York law to be fully enforceable.

In order to create and perfect a security assignment it is required to have a written contract or document duly authenticated. The registration of such assignment is also advisable.

Considering that under Portuguese law rights may only be fully enforced against parties via a judicial proceedings or procedure and according to the Portuguese Code of Civil Procedure, all documents on which a party bases its case are required to be translated into Portuguese.

If an English or New York law-governed security assignment were to be taken in respect of an aircraft registered domestically, there is no specific domestic law security instrument that a financier should take in addition. Moreover, Portugal is not a party to the Cape Town Convention.

It is possible to register an English or New York law-governed security assignment or a domestic law security instrument domestically.

The transfer of security interests over an aircraft and/or engines is recognised under Portuguese law and within the Portuguese jurisdiction.

If the identity of the secured parties under a security assignment changes after its execution, the security interests are not jeopardised so long as this change is documented.

See Assignment of Rights and Benefits Without Attendant Obligations, above.

A secured party under a security assignment would not be deemed to be resident or domiciled in Portugal and would only be subject to taxes if it received any income in Portugal, eg, if the secured party were also the lessor.

It is necessary to file a domestic law mortgage over an aircraft or engine with the registry in order for it to be perfected; otherwise it will not produce legal effects.

There are no differences between the form of security (or perfection) taken over an aircraft and that taken over spare engines.

The typical security taken over a bank account is an on-first-demand bank guarantee, by which the bank, at the request of its beneficiary, should immediately make payment of the secured amount or a pledge account.

Portuguese Law expressly gives a right of retention (direito de retenção) to airport authorities in regard to unpaid airport fees owed by the operator of an aircraft. This right, a possessory lien, will arise as a result of the operator's behaviour and not the owner of the aircraft. It does not affect any changes in the ownership of an aircraft, nor the owner's rights to dispose of its assets, including any aircraft. 

The lien only covers work done on the actual secured asset for the value of the work actually done and cannot cover the value of work done on other assets.

A feet lien would be recognised if it were established in the corresponding contract and under the general principle of contractual freedom (the parties are free to establish agreements and clauses as they deem fit, so long as no law is broken) and considering that, to the best of our knowledge, such liens would not breach any existing law in Portugal. Third parties that could detain the aircraft include any creditor in favour of which such a lien would be established. Such a third party could enforce the lien by, for example, retaining the aircraft until compliance by the debtor.

There is no specific timeframe to discharge a lien or mortgage over an aircraft. The timeframe would depend on the actual lien or mortgage to be discharged. However, we estimate that as soon as all documentation is provided, the average timeframe will not be higher than seven days.

The RAN is the registry for mortgages in Portugal, within which the interests of an aircraft mortgagee or even a security trustee may be filed. The effect of such registration is to give publicity and effectiveness to such interests. Mortgages should be mandatorily registered in order for them to be valid and legally binding.

Statutory rights of detention or non-consensual preferential liens resulting from the non-payment of airport fees would prevail over consensual liens.

A potential purchaser of an aircraft should check the Portuguese Aircraft Registry (RAN) to verify that the aircraft is free of encumbrances.

There are no relevant differences between enforcing a security assignment and enforcing a loan or guarantee.

It would be possible for a third party, such as a security trustee, to enforce its rights under a security assignment, by which a security is granted to it by a lessor in respect of its rights under an aircraft lease pursuant to a notice and acknowledgment executed by the lessor and the lessee respectively in connection with such security assignment. This will depend, however, on the actual terms set forth in the security and security assignment in question, as well as the specific rights in question, since in accordance with Portuguese Law it is only possible to enforce certain rights via a judicial order (eg, payment of compensations).

Portuguese courts would uphold a foreign law as the governing law of a finance or security document and the submission to a foreign jurisdiction. However, the contract in question must be an international agreement (ie, connecting more than one jurisdiction) accepted by the designated jurisdiction, and the submission to the foreign jurisdiction must be justified by a serious interest of at least one of the parties and not cause grave inconvenience to the counterparty. The clause concerning the submission to a foreign jurisdiction should also be established in writing.

Portuguese courts would recognise and enforce a final judgment of a foreign court or an arbitral award without re-examination of the matter, with some exceptions.

It would be possible for a secured party to take physical possession of an aircraft to enforce a security agreement/aircraft mortgage without the lessee or operator's consent. However, considering that the aircraft would remain in the custody of the court until final decision and/or execution thereof, it may not do this directly.

There is no specific court to uphold proceedings concerning security agreements/aircraft mortgages, which are therefore subject to the general court system within the Portuguese judicial court system. It would, however, fall to the so-called Court for Executions to enforce security agreements/aircraft mortgages should such security agreements/aircraft mortgages have been granted before a public notary, which would mean that they were considered as a writ of execution and therefore immediately executable and enforceable upon the debtor in question via, for example, seizure and judicial sale of the assets of such debtor.

It is possible for a secured party to obtain an injunction or a protective or precautionary measure pending a final resolution of judicial proceedings to enforce a security agreement/aircraft mortgage if the following conditions are met:

  • the applicant party proves the existence of a grounded fear that the counterparty will cause a serious or hardly repairable action to its rights (eg, selling of all its assets in order to avoid payment of any due indemnities), the urgency of which is not compatible with the delay of the parallel main judicial proceedings (periculum in mora),
  • the applicant party gives summary evidence of the existence of its rights (fumus bonus iuris); and
  • the court does not consider that the harm caused to the counterparty does not considerably supersede the damage that such an injunction is intended to avoid.

It is possible for a secured party under a security agreement/aircraft mortgage to obtain a judgment in a foreign currency so long as it has initially requested this in its initial complaint.

Although the secured party is liable to pay court fees in order to enforce its claim before a court, such fees are always nominal, and there is no requirement for it to pay any non-nominal amount in this regard.

We are not aware of any other relevant issues that a lender should take into consideration in relation to the enforcement of its rights.

We are not aware of any 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.

We are not aware of any current pending relevant proposals before the legislative body relating to the foregoing items. The information contained in this booklet is for guidance only and it is always necessary to analyse specific cases.

CSBA & Associados Sociedade de Advogados, SP, RL.

Rua Castilho nº 44
8º Piso 1250-071 Lisboa
Portugal

+351 213 846 200

+351 213 861 735

csba@csba-advogados.pt www.csba-advogados.pt
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Law and Practice

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CSBA & Associados Sociedade de Advogados, SP, RL. is a leading boutique law firm located in Lisbon, with local advisers in other Portuguese-speaking jurisdictions such as Angola, Mozambique and Cape Verde. The firm works in practice areas including aviation, aircraft finance and maritime, corporate, real estate and labour law. Its clients include banks, aircraft manufacturers, aircraft leasing finance companies, airlines and international leasing companies.

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