Aviation Finance & Leasing 2019

Last Updated August 01, 2019

South Africa

Law and Practice

Author



ENSafrica is an independent firm with over 200 years of experience. It has over 600 practitioners in 13 offices on the continent, in Ghana, Mauritius, Namibia, Rwanda, South Africa and Uganda. The firm provides legal and tax services across sub-Saharan Africa and is committed to ensuring work is done in the manner that best suits each client’s risk profile, preferences and pricing structures. Its specialist divisions include Africa regulatory and business intelligence, Asia, tax and IP. In addition, its artificial intelligence division is able to provide in-depth know-how, be it for purposes of corporate governance and information protection, due diligence, e-discovery, data analytics and/or market understanding. Through the financial services centre of Mauritius, ENSafrica also offers a unique possibility to integrate all aspects of structuring investments in relation to all commercial areas of law, tax, IP and fiduciary.

No taxes or duties will be payable as a consequence of the execution of an aircraft or engine sale agreement where the asset is located physically in South Africa or by a domestic party if the aircraft or engine is being exported from South Africa (ie, the sale is by a South African resident to a non-South African resident) or between South African non-residents. This position may be affected (i) by whether the aircraft or engine has been validly imported into South Africa and (ii) if the sale is between South African residents, in which event value-added tax (VAT) may be payable. No taxes are generally levied on the entry of any documents into South Africa. The transfer of shares in a South African entity may attract marketable securities tax based on the purchase consideration.

A sale agreement would generally only need to be translated, certified, notarised or legalised to be enforceable against a domestic party if the document was executed outside South Africa and was introduced into proceedings in South Africa.

Generally, title to parts is transferred by attaching same to an engine or airframe, as applicable, and title tracking would not apply to these items. Title tracking applies to larger components such as engines, auxiliary power units and landing gear, and thus title to those would generally be transferred by bill of sale or similar form of conveyance.

The sale of the ownership interest in an entity that owns an aircraft or engine is not effectively recognised as a sale of such aircraft or engine itself.

The transfer of title to an aircraft or engine physically delivered in South Africa would be recognised if the bill of sale is governed by English or New York law.

There are no formal minimum substantive requirements that must be satisfied for such bill of sale to be recognised in South Africa. In general terms, if the instrument would be recognised by the law of the jurisdiction by which it is expressed to be governed then it would be recognised by the laws of South Africa. If such a document was executed outside South Africa but was introduced into formal proceedings in South Africa then the document may require notarisation and authentication.

A bill of sale does not need to be translated, certified, notarised or legalised to be enforceable against a domestic party. However, if such a document was executed outside South Africa but was introduced into formal proceedings in South Africa then the document may require notarisation and authentication.

There is no requirement in South Africa to file register of file bills of sale in respect of aircraft, engines or other aircraft objects.

In terms of whether government applications or consents are required as a prerequisite to the execution and delivery of a bill of sale in relation to an aircraft or engine registered in South Africa, generally the answer would be no, although consideration should be given to exchange control regulations in force and compliance with export formalities if the aircraft or engine in question is being exported.

There are no duties or taxes payable on the execution or delivery of a bill of sale or the ownership interest in an entity that owns an aircraft, engine or other aircraft object save, in the latter case, for marketable securities tax, which may be payable on the transfer of an equity interest in such an entity. In addition, if the sale relates to one of the mentioned assets and is between South African residents, VAT may be levied on the sale. The absence of taxes on such a transaction also presupposes that, in relation to the sale of one of the mentioned assets, the asset in question was properly imported in the first instance. It should be noted in this regard that import VAT would be payable on the permanent import of an aircraft or engine into South Africa. It should also be noted that compliance with local exchange control regulations may be required in certain instances, such as where the acquirer of one of the mentioned assets is a South African resident. In such a case the local acquirer would require exchange control approval to discharge the purchase price of the asset in question, including where title to such aircraft or engine is transferred while it is (i) located in South Africa (which would not be affected by the location of the asset in question in South Africa at the time of the sale), (ii) over international waters (which would not be affected by the location of the asset in question over international waters at the time of the sale) or (iii) in transit to/from South Africa (which would not be affected by the location of the asset in question whilst in transit to or from South Africa at the time of the sale).

All types of leases, including leases concerning only engines and parts, are permissible and recognised in South Africa. It is important to note that compliance with local exchange control regulations may be required in certain instances, such as where the local lessee of an engine or part is a South African resident. In such a case, the local lessee would require exchange control approval to discharge the purchase price of the asset in question.

A lease involving a South African resident or an asset based in South Africa could be governed by the laws of South Africa.

Material restrictions are imposed on domestic lessees making rent payments to foreign lessors in US dollars, in the form of exchange control regulations that apply to payments by South African residents to non-South African residents. These regulations cover not only payments but also the giving of security by South African residents to South African non-residents; for example, assignments of insurances and other elements of the typical security package. Exchange control approval can take between four and six weeks to obtain. It should also be noted in this regard that depending on the nature of the lease in question, withholding taxes may apply to interest payments being made from South African residents to South African non-residents. This would also depend on the residence of the foreign lessor.

Local exchange control regulation applies, which could operate to prevent rent payments under a lease and/or the repatriation of realisation proceeds. In practice, therefore, the requisite approvals are always obtained upfront. At the very least these would need to be obtained as conditions precedent for the relevant transaction. Application for approval is usually made through the retail bankers of the local applicant. Most local retail banks are also 'authorised dealers' for exchange control purposes and certain of the required approvals could also be issued by the authorised dealers in question without having to approach the regulator. The absence of exchange control approval may affect the validity or enforceability on the underlying transaction and therefore these approvals are, as a matter of practice, never obtained as conditions subsequent.

No taxes or duties are payable for physically executing a lease in South Africa and/or by or to a domestic party, or as a consequence of an original or copy of a lease being brought into South Africa physically or electronically.

There is no requirement for a foreign lessor to be licensed or qualified in South Africa to enter into a lease with a domestic lessee. This assumes that the foreign lessor does not have other business interests in South Africa and would not be required, as a result, to register locally. Also, it must be noted that absent an exemption applied for by a foreign operating lessor and obtained from the local revenue services (SARS) in terms of Section 72 of the local Value Added Tax Act, a foreign operating lessor may be required to register locally as a vendor for VAT purposes. This would mean that the foreign operating lessor would need to account for VAT on the rentals and other payments received by it under the relevant lease documents.

There are no mandatory terms required to be in a lease (or ancillary documents thereto) governed by English or New York law. However, as mentioned before, account does need to be taken of local exchange control regulations, which may necessitate the inclusion of conditions precedent relating to the obtaining of the required approvals. Depending on the type of lease and the country of residence of the foreign lessor, tax gross-up provisions might be recommended. These inclusions would not, however, be termed as 'mandatory'. Foreign lease terms are also customarily updated to deal with other quirks of local law and the terminology used in local insolvency law parlance.

The types of provisions typically found in operating and other forms of leases would all be permissible and enforceable in South Africa.

Leases into South Africa typically contain provisions related to parts that are installed or replaced on an aircraft or engine after its execution and which steps should be taken to ensure that such parts are captured under the lease.

As a legal matter, there is very little risk of title annexation and the requirement for engine letters is de rigueur in South African lease transactions. If title to an engine were annexed, the owner could apply to court to have the engine released.

If the trust is regulated by, and enforceable under, foreign law then South African law will recognise and enforce the trust. South African law does not itself recognise owner trusts that are not part of the local law environment.

It is not possible under current law for a legal or beneficial owner to note its interests as such on the South African aircraft register. The only interest that may be noted is that of a mortgagee of the aircraft where its interests as such may be recorded on the Certificate of Registration for the aircraft.

The South African Civil Aviation Authority maintains an operators’ registry and therefore the aircraft will be registered in the name of the operator, which may also be the owner of the aircraft. There is a local ownership requirement for aircraft registration, which is that the local registered owner must be owned by at least 75% local interests.

There is currently no specific register for leases affecting aircraft or engines.

There is currently no requirement for a lease or a lessor’s interest therein to be registered or filed in South Africa. There is no specific consent required from any local government entity in relation to the entry or performance of a lease, although, as mentioned above, specific attention needs to be paid to local exchange control regulation, the application of VAT rules that may require foreign operating lessors to register locally as vendors for VAT purposes and local withholding taxes. Also, the South African Civil Aviation Authority has recently adopted the practice of requiring the filing of deregistration powers of attorney and irrevocable deregistration and export request authorisations (IDERAs).

There are currently no formalities required for the registration or filing or the obtaining of government consent for an aircraft and/or engine lease. Reference should, however, be made to the comments above relating to the requirement for compliance with exchange control requirements.

There are currently no government applications or consents required as a prerequisite to the execution and delivery of an aircraft and/or engine lease in relation to an aircraft registered in South Africa. Notwithstanding the foregoing, account needs to be taken of local exchange control regulation, VAT rules and local withholding taxes. These aspects have been canvassed in some detail above.

There is currently no requirement for a lease to be in a specific form or translated, served, certified, notarised or legalised to be valid and registrable in South Africa. Notarisation may, however, be required if the relevant lease document was executed outside South Africa and was introduced into proceedings in South Africa.

There are no taxes or duties payable for registering a lease in South Africa. Registration of leases in South Africa is not currently possible.

Generally, all aircrafts operated in South Africa need to be registered locally.

Supporting documents executed outside South Africa may need to be in original form, translated, notarised and/or authenticated before they will be accepted and processed for the registration of an aircraft. As mentioned above, aircraft registered in South Africa need to be directly or indirectly owned at least 75% by South African residents and thus these forms are generally executed in South Africa.

Generally, a foreign lessor would not be required to pay any income or capital gains or other taxes upon leasing an aircraft or engine to a domestic lessee, including where the lessee was to have withheld and remitted withholding tax but failed to. This assumes, however, that the lessor does not have other business interests in South Africa that may trigger the payment of these types of taxes. Withholding taxes of the nature being referred to here would typically only be payable in relation to finance leases or instalment sale transactions but not operating leases. As mentioned above, foreign lessors may need to register as a vendor for local VAT purposes, although an exemption would typically be applied for.

In general a foreign lessor would not be deemed to be resident, domiciled, carrying on business or subject to any taxes in South Africa as a result of its being a party to, or its enforcement of, a lease. This assumes again, however, that the lessor does not have other business interests in South Africa that may trigger the payment of these types of taxes. As mentioned above, foreign lessors may need to register as a vendor for local VAT purposes, although an exemption would typically be applied for.

No liabilities in respect of aircraft or engine maintenance and operations would be imposed on a foreign lessor under a lease solely as a result of its being a party to such lease. It is important to mention, however, that strict liability may attach to the registered owner of an aircraft due to damage caused by that aircraft.

Under local aviation rules, strict liability would only attach to the local registered owner of an aircraft in respect of any damage caused by that aircraft.

Legally speaking, creditors of a domestic lessee should not attach an aircraft leased to it but owned by a different entity. Having said that, practically this could occur where, for example, the local creditors had sought an order attaching all assets of the local lessee and the aircraft was attached in error in the milieu. If that did happen, the owner could apply to court to have the asset released from attachment.

The laws of South Africa would generally respect the rights of ownership of a lessor in the aircraft or engine.

It is not mandatory that either all or part of the insurances be placed with domestic insurance companies.

There are currently no mandatory insurance coverage requirements imposed.

Reinsurances can be placed outside South Africa with up to 100% coverage.

'Cut-through' clauses in the insurance/reinsurance documents are enforceable.

Assignments of insurances/reinsurances is permitted, subject to local exchange control requirements mentioned above that would require a local lessee or borrower to obtain exchange control approval to enter into and perform such security.

There are no restrictions on a lessor’s ability to (i) terminate an aircraft lease, other than in the case of insolvency, where the lessor’s right to terminate a lease might be subject to a liquidator’s election as to whether the leasing of the aircraft should continue or not; (ii) export the aircraft following the termination of the leasing of the aircraft and return of the aircraft to the lessor subject only to compliance with local deregistration and export formalities; or (iii) sell the aircraft following the termination of the leasing of the aircraft and return of the aircraft to the lessor, subject only to compliance with local deregistration and export formalities. The aircraft does not of necessity need to be in South Africa at the time of any such action.

A lessor may not physically depossess a lessee without the authority of a court order. This does not deal with circumstances in which the lessee consents to repossession.

Generally, aviation disputes would be heard in the South African High Courts. There are no specific courts that would hear aviation disputes. This firm is not aware of any specific reported precedents where the courts have adjudicated on these matters.

Injunctive relief may be applied for and obtained fairly quickly if there are grounds for the relief in question and for the urgency associated with the application.

The South African courts will uphold a foreign law as the governing law of an aircraft lease. From a South African law perspective, the submission to the jurisdiction of a foreign court would be enforceable. Whether the courts would uphold a waiver of immunity would depend on all the facts and circumstances, and in particular the source of the immunity.

Domestic courts will generally recognise and enforce a final judgment of a foreign court or an arbitral award without re-examination of the matter subject to certain restrictions, such as that the judgment must not conflict with public policy.

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

There are no limitations on a lessor’s ability to recover default interest (or the compounding thereof) or to charge additional rent following termination of the lease for default, including where the lessee fails to return the aircraft, although the application of exchange control regulations might limit the interest recoverable in certain circumstances, such as under a secured lending transaction.

There would be no taxes or fees payable in a significant amount in connection with the enforcement of such lease in South Africa, other than the usual costs of enforcement; for example, legal fees.

No mandatory notice periods apply if a lessor terminates an aircraft lease (regardless of its terms) that (i) relates to an aircraft operated domestically or (ii) is leased by a domestic operator.

Immunity from suit for a lessee would generally not exist in the context of South African transactions. If such immunity was in force, the question as to whether it could be waived would need to be ascertained based on all the attendant circumstances and in particular the source of the immunity in question.

South Africa has adopted the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) and its domestic courts recognise and enforce arbitral decisions.

There are no other relevant issues that a lessor should be aware of in relation to the enforcement of its rights, save to say that the ease of enforcement may be to some extent dependent on the co-operation of the local lessee or borrower.

South Africa would recognise the concepts of contractual assignment and novation if they were recognised by the foreign law by which the documents are expressed to be governed. The local forms of transfer differ slightly in form and these concepts do not exist under South African law in this form.

If the foreign law document in question is enforceable under the laws by which it is expressed to be governed, it would generally be recognised and enforced in South Africa. In principle the lessee’s consent to the assignment and assumption or novation would not be required but as the terms of any such assignment and assumption or novation would typically entail or require direct undertakings to the new parties by the lessee or amendments to the underlying documents, this would require the involvement of the local lessee. No such mandatory provisions would apply to agreements of this nature.

The translation, certification, notarisation or legalisation of documents of this nature would generally only be required if the relevant documents were executed outside South Africa and were to be submitted in evidence in South African proceedings.

There is no requirement nor mechanism currently in place for an aircraft or engine lease assignment to be registered or filed in South Africa. Only updates that affect the identity of the local registered owner would require an update on the register for aircraft. No consent from a governmental entity would apply. If there were a change in lessor, however, the practice is to notify the local exchange control authorities of the change in the identity of the lessor and updated account details for payments. This is merely a notification and not a new application to the exchange control authorities.

There are no formalities required for such registration or filing or government consent.

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, but see above with regard to local exchange control regulations, rules applicable to local VAT registrations and local withholding taxes.

No taxes/duties are payable in respect of such assignment and assumption/novation agreement, or as a consequence of an original or a copy of it being brought into South Africa physically or electronically.

South African law would recognise the transfer of the interest in the foreign entity or trust, which would not be treated as the sale of the asset itself if this was also the position under the foreign law.

Deregistration would generally be applied for by the local registered owner by the submission of the required forms (CAR47-2A) and supporting documents to the South African Civil Aviation Authority.

An aircraft owner, mortgagee or lessor cannot apply for the deregistration of the aircraft without the lessee’s or operator’s consent. As is typical for these transactions, use is commonly made of deregistration powers of attorney to achieve deregistration without the consent of the registered owner. These documents should be enforceable, although this firm is not aware of any specific instances where a document of this nature has been successfully used to achieve deregistration of an aircraft absent registered owner consent and co-operation. In addition, although these documents are expressed to be irrevocable, they may be revoked by the grantor under certain circumstances, including insolvency of the grantor.

The owner, mortgagee or lessor would not generally be able to achieve deregistration of an aircraft without the co-operation of the local registered owner. Use is commonly made of deregistration powers of attorney to achieve deregistration without the consent of the registered owner. These documents should be enforceable, although this firm is not aware of any specific instances where a document of this nature has been successfully used to achieve deregistration of an aircraft absent registered owner consent and co-operation. In addition, although these documents are expressed to be irrevocable, they may be revoked by the grantor under certain circumstances, including insolvency of the grantor.

The deregistration process could take up to ten business days to complete or longer if there are complications or backlogs.

No assurances to an aircraft owner, mortgagee or lessor as to the prompt deregistration of the aircraft are customarily provided by the local regulator, although there have been assurances of this nature provided in limited instances in certain export credit agency-supported transactions.

No significant costs, fees or taxes are chargeable in respect of the deregistration of an aircraft.

Use is commonly made of deregistration powers of attorney to achieve deregistration without the consent of the registered owner. These documents should be enforceable, although this firm is not aware of any specific instances where a document of this nature has been successfully used to achieve deregistration of an aircraft absent registered owner consent and co-operation. In addition, although these documents are expressed to be irrevocable, they may be revoked by the grantor under certain circumstances, including insolvency of the grantor. If a deregistration power of attorney was executed outside South Africa and was to be used in proceedings in South Africa, it may require authentication.

Supporting documents may well be required to enforce deregistration powers of attorney, which would include authorising resolutions.

A deregistration power of attorney would have to be governed by the laws of South Africa as the document relates to the registration of the aircraft locally.

As mentioned above, although these documents are expressed to be irrevocable, they may be revoked in certain circumstances; for example, the insolvency of the grantor.

An aircraft owner, mortgagee or lessor could export the aircraft without the lessee’s consent, but it would require repossession of the aircraft, which in turn would require court proceedings. A mortgagee export could export the aircraft without the owner’s or lessor’s consent, but it would require repossession of the aircraft, which in turn would require court proceedings. There are really no contractual protections (other than the inclusion of the customary repossession provisions and related rights) that can be included to enhance the lessor’s ability to repossess the aircraft as ultimately this would require litigation unless done with the lessee's consent. The asset does not need to be located in South Africa at the time of deregistration and/or export.

Export permissions are required but if the aircraft was properly imported and VAT paid in South Africa then, subject to the completion of certain formalities, the aircraft could be exported. Once the aircraft is deregistered and subject to the above, it can be exported within a relatively short period absent complications. Permission to export cannot be issued in advance.

If the aircraft was properly imported and VAT paid in South Africa at the time of importation then export of the aircraft could be achieved without significant costs, fees or taxes being incurred.

This firm is not aware of any significant practical issues that an aircraft owner or mortgagee or lessor should be aware of in respect to the deregistration of aircraft in South Africa, save as highlighted herein.

If a lessee has granted a deregistration power of attorney or an IDERA to a lessor, owner or mortgagee of an aircraft, liquidation of the lessee may make such power of attorney void. As is the case with deregistration powers of attorney, although they are expressed to be irrevocable, they may be revoked in certain circumstances and this firm is not aware of any specific precedent in South Africa where documents of this nature have been successfully used to deregister and export an aircraft. The point at which they would cease to operate would largely be in the discretion of the liquidator of the lessee as the liquidator would enjoy the election as to whether to abide by this document or to set it aside.

Assuming that a lessee has possession of the aircraft and is put into liquidation, the liquidator would have an election to abide by the lease, in which case the lessee would need to perform all obligations thereunder, or to terminate the lease, in which case the liquidator would need to return the aircraft in accordance with the provisions of the lease agreement. The onset of liquidation proceedings may well cause delays in the return of the aircraft. As mentioned, the liquidator, once appointed, will need to exercise his election as to whether to abide by the leasing of the aircraft. Pending that election, the lessor will not be entitled to repossess the aircraft. The aircraft will not be deemed part of the lessee’s property; as mentioned above, South African law will respect the lessor’s rights in the asset. Only claims that are secured or preferential will be preferred to the lessor’s claims. Presumably there will be no security over the aircraft other than lessor-created liens. Lessor claims for rental, supplemental rent and other like claims will rank concurrently in the estate of the lessee.

The main risk would be that the lessee is not able to place the aircraft into the required return condition. Any lessor claims against the lessee or guarantor would rank as concurrent with other creditors and thus rank behind secured and other preferential creditors.

A moratorium (or similar stay) is not imposed in connection with insolvency proceedings, although in business rescue proceedings a lessor may be prevented from formally enforcing its rights under the lease until a business rescue plan has been approved by the creditors.

Generally, a domestic lessee can be liquidated or placed in administration or receivership through an application by the creditors of the lessee or by a voluntary winding-up by the lessee.

All defaults would be recognised subject to the liquidator’s election referred to above.

If a domestic lessee is wound-up by a court or administration proceeding, (i) the liquidator would have an election to abide by the lease, in which case the lessee would need to perform all obligations thereunder, or to terminate the lease, in which case the liquidator would need to return the aircraft in accordance with the provisions of the lease agreement; (ii) if the liquidator elects to abide by the lease, the lessee will need to pay the stipulated rental and other lease payments in accordance with the provisions of the lease agreement; (iii) practically the lessor could apply the lease security deposit against outstandings if the deposit was held offshore; and (iv) if the liquidator elects to abide by the lease, the lessee will need to pay the stipulated rental and other lease payments in accordance with the provisions of the lease agreement.   

The Convention on International Interests in Mobile Equipment (the Convention) and the related Protocol on Matters specific to Aircraft Equipment (the Protocol) are in force in South Africa. It is not necessary to obtain 'authorised entry point' (AEP) codes for registering international interests. AEP codes do not apply in South Africa.

South Africa has made the following declarations under the Convention or the Protocol: Article 39(1)(a), Article 39(1)(b), Article 40 and Article 54(2).

Article XIII of the Protocol does apply in South Africa. An IDERA can be submitted and recorded with the domestic aircraft register through the auspices of the South African Civil Aviation Authority.

This firm is not aware of the courts having any experience in relation to parties enforcing the Convention or the Protocol.

South Africa is a party to the 1948 Geneva Convention on the International Recognition of Rights in Aircraft but not 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, other than exchange control regulations that restrict the flow of capital from South Africa. As mentioned above, before a South African resident incurs an obligation to a non-resident, exchange control approval for the relevant payments and the granting of any security need to be obtained.

Exchange control approvals apply to all cross-border payments and granting of security. Please see above, where this is addressed in greater detail.

The granting of security would be permitted subject to all required local exchange control approvals having been obtained.

Downstream, upstream and/or cross-stream guarantees are permitted in favour of lenders, subject to compliance with local financial assistance rules and rules relating to the payment of distributions. Guarantees need to be established to be for the benefit of the guarantor. There are, however, no registration requirements.

It is advisable for a lender to take share security over a domestic SPV that owns the financed aircraft, which would provide options on enforcement. A pledge of shares is recognised and is a very common type of security in South African financings generally.

The use of negative pledges is very common in South African financings.

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

The concept of agency and the role of an agent (such as the facility agent) under a syndicated loan are customary in South African financings.

Contractual and structural forms of subordination would be recognised and enforced in South Africa.

The transfer or assignment of all or part of an outstanding debt under an English or New York law-governed loan would be recognised and enforced. The South African forms of transfer differ somewhat.

There are no usury or interest limitation laws, although the exchange control laws discussed above may restrict the rate of interest charged on foreign loans.

The typical forms of security and recourse granted in an aviation finance transaction domestically are security over insurances, aircraft mortgages, deregistration powers of attorney, IDERAs and airframe and engine warranty assignments. In general, the typical aircraft financing security package would apply equally in South Africa subject to what is explained herein in regard to the recognition of security trust arrangements.

There are no types of security that cannot be taken over an aircraft or related collateral such as engines, warranties or insurances.

South Africa does not recognise security trusts, particularly in the context of registered security.

In these circumstances the lenders could be secured directly, a debt guarantor structure could be used (this structure approximates the use of a security trust) or foreign parallel debt obligations could be secured by the local security.

A borrower can assign to a security trustee pursuant to a security assignment or a mortgage its rights to the aircraft or under an aircraft lease (including in relation to insurances), which would be done under the auspices of a security assignment, though, rather than a mortgage.

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

A security assignment or guarantee could be governed by English or New York law and it would be fully enforceable in South Africa subject to certain limited exceptions, such as where the document was contrary to public policy.

No formalities or mandatory terms are required to create and perfect such security assignment, but it may be necessary to have the document authenticated if it is being submitted into proceedings in South Africa and was executed outside South Africa. It would only be necessary for a security assignment to be translated, certified, notarised or legalised to be enforceable against a domestic party if the document was signed outside South Africa and was required to be submitted in evidence in proceedings in South Africa. Again, the taking of such security would require local exchange control approval.

If an English or New York law-governed security assignment were to be taken in respect of an aircraft registered domestically, a local aircraft mortgage could be considered depending on the circumstances. Please also see the comments above regarding local security packages in general. There are no domestic law security instruments and/or local law filings mandatorily required in order to make Cape Town filings. The average costs of executing a domestic law security instrument and completing local law filings would be between USD1,500 and USD10,000, although, again, this would heavily depend on the circumstances at hand.

It is not currently possible for an English or New York law-governed security assignment or a domestic law security instrument to be registered domestically.

The transfer of security interests over an aircraft and/or engines is recognised under South African law.

If the identity of the secured parties under a security assignment changes after its execution, the security interests are not automatically jeopardised. Usually documents of this nature contain mechanisms to deal with this type of eventuality.

Foreign parallel debt obligations could be secured using local security. Domestically, parallel debt structures have been used but not widely and not, to this firm's knowledge, in the context of aircraft financing or leasing.

A secured party under a security assignment would not be deemed to be resident, domiciled, carrying on business or subject to any taxes in South Africa solely as a result of its being a party to, or its enforcement of, such security assignment in South Africa.

A local law aircraft mortgage is registered with the South African Civil Aviation Authority and this would also comprise its perfection. It is not possible to mortgage a standalone engine through this mechanism. Enforcement of the mortgage and the taking possession of the aircraft would require court proceedings and an appropriate court order.

There is a difference between the form of security (or perfection) taken over an aircraft and that taken over spare engines (see above). If specific security is required over an engine, this would need to be taken by notarial security.

A bank account would be secured through a local law 'security cession'. Perfection would occur in part through obtaining an acknowledgement from the account bank of the security interest.

A third party can take or register a lien over an aircraft or engine (for instance, in relation to unpaid airport fees, navigation charges, customs duties, repairers’ costs, crews’ salaries). Any such lien would be unlikely to be registered and perfection would most likely occur through the seizing of possession of the aircraft.

In the case of repairers’ costs and similar liens, the lien would cover outstanding sums and the value of work done on other assets, if these amounts were comprised of actual outstanding sums.

A fleet lien is not a generally recognised concept in the local environment.

In terms of the remedies available to a third party in enforcing the lien, the asset could be sold and the realisation proceeds applied to repay the debt. Alternatively, possession of the asset could be released against payment of the outstanding sums.

The average timeframe to discharge a lien or mortgage over an aircraft is between seven and ten working days, which could vary widely based on the workloads of the local regulator.

There is no separate register of mortgages and charges per se but mortgages are filed against the registration of the aircraft and a registered mortgage will be noted on the certificate of registration of the aircraft.

Possessory liens are recognised under South African law and these may fall into this category.

The register that a potential purchaser of an aircraft can search to verify that an aircraft is free of encumbrances is maintained by the South African Civil Aviation Authority.

Save for practical differences caused by the different nature of the instruments in principle, there are no relevant differences in enforcing a security assignment as opposed to a loan or a guarantee.

If, under a security assignment, security is granted to a security trustee by a lessor in respect of its rights under an aircraft lease, that security trustee can enforce its rights under the security assignment pursuant only to a notice and acknowledgement executed by that lessor and the relevant lessee respectively in connection with such security assignment. Local enforcement would need to comply with enforcement procedures in South Africa.

Domestic courts will uphold (i) a foreign law as the governing law of a finance or security document and (ii) the submission to a foreign jurisdiction.

Domestic courts will recognise and enforce a final judgment of a foreign court or an arbitral award without re-examination of the matter, subject to certain limited exceptions, such as the judgment not being contrary to public policy.

A secured party cannot take physical possession of the aircraft to enforce a security agreement/aircraft mortgage without the lessee’s or operator’s consent. In this instance, a court order would be required, as explained above.

Enforcement actions under a security agreement/aircraft mortgage would typically be heard before the High Courts in South Africa; there are no specific courts dedicated to this activity.

A secured party cannot obtain a summary judgment, equitable or other injunctive relief pending final resolution of judicial proceedings to enforce a security agreement/aircraft mortgage.

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

A secured party is not required to pay taxes or fees in a non-nominal amount in connection with the enforcement of a security agreement/aircraft mortgage, other than in respect of legal fees.

There are no current legislative proposals relating to the foregoing items that may alter same.

ENSafrica

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Law and Practice

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ENSafrica is an independent firm with over 200 years of experience. It has over 600 practitioners in 13 offices on the continent, in Ghana, Mauritius, Namibia, Rwanda, South Africa and Uganda. The firm provides legal and tax services across sub-Saharan Africa and is committed to ensuring work is done in the manner that best suits each client’s risk profile, preferences and pricing structures. Its specialist divisions include Africa regulatory and business intelligence, Asia, tax and IP. In addition, its artificial intelligence division is able to provide in-depth know-how, be it for purposes of corporate governance and information protection, due diligence, e-discovery, data analytics and/or market understanding. Through the financial services centre of Mauritius, ENSafrica also offers a unique possibility to integrate all aspects of structuring investments in relation to all commercial areas of law, tax, IP and fiduciary.

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