Aviation Finance & Leasing 2020

Last Updated July 30, 2020

Austria

Law and Practice

Authors



Freshfields Bruckhaus Deringer LLP is a leading international, globally integrated, law firm offering clients dedicated and seamless legal advice across all legal fields and industry sectors in all important economic regions. Specialising in complex, legal and cross-border matters, the firm has over 2,800 lawyers in 28 offices in 16 countries across Europe, Asia and the USA. In the finance sector the firm’s advice covers real estate finance, private equity and leveraged finance, distressed debt, equity and debt capital markets, securitisation, and project and asset finance. Freshfields Bruckhaus Deringer advises in corporate, M&A, finance, insolvency and tax matters in the aviation industry. The aviation practice revolves around its hubs in Frankfurt and Vienna.

The execution of an aircraft or engine sale agreement in and of itself (including the sale of an ownership interest in an entity owning an aircraft or engine) is generally not subject to any taxes or duties, irrespective of the location of the aircraft or the engine, or the seller’s domicile. The transfer of economic ownership of the aircraft or engine is relevant for (corporate) income tax and VAT purposes.

It is not required for an aircraft or engine sale agreement to be translated, certified, notarised or apostilled/legalised to be enforceable against an Austrian party.

Austrian courts may require a certified German translation of the sale agreement if it is submitted in the course of legal proceedings.

A transfer of title to an aircraft or engine under Austrian property law requires a title agreement (eg, a bill of sale) as well as an act of transfer, ie:

  • physical delivery of the asset;
  • an agreement between the parties that the transferor shall hold possession of the asset to the instruction of the transferee or, if the asset is already with the transferee, that the transferee shall hold it as legal owner going forward; or
  • an instruction to a third party to hold possession of the asset to the instruction of the transferee.

The title transfer would normally:

  • extend to all “dependant” components (unselbständige Bestandteile) of the aircraft; and
  • subject to a different agreement, extend to all “independent” components (selbständige Bestandteile) and all “accessories” (Zubehör) which have been installed on or dedicated to the aircraft at the time of the title agreement - engines or auxiliary power units would usually qualify as independent components or accessories.

The sale of a legal entity which owns an aircraft is not considered to be a sale of the aircraft (or any of its components/accessories) under Austrian law.

Austrian conflict of laws rules would determine the validity of a title transfer in an aircraft in accordance with:

  • the law of the state of registration, if the aircraft is registered in a public register; or
  • in all other cases, the lex rei sitae of the aircraft (or other tangible asset, such as a separate engine) at the time of completion of the (alleged) transfer.

If these rules point to Austrian law, the title transfer would be recognised under Austrian law, if and to the extent it satisfies the requirements for a valid title transfer under Austrian property law (ie, title agreement and act of transfer – see 1.2.1 Transferring Title).

The title agreement (eg, bill of sale) itself may be governed by a foreign law and an Austrian court would look to that foreign law to determine the obligations of the parties thereunder (in accordance with and subject to the limitations of Regulation (EC) No 593/2008). An Austrian court may, however, test the foreign law governed title agreement against the minimum requirements applicable to title agreements under Austrian law (eg, the relevant asset and consideration should be determined in or capable of being determined based on the title agreement).

In addition, the court would test any act of transfer provided for in the title agreement against the requirements under Austrian property law (see 1.2.1 Transferring Title). If an English or New York law governed bill of sale does not provide for such an act of transfer or if the act of transfer falls short of such requirements, the title transfer would not be recognised in Austria on the basis of such bill of sale. Where Austrian conflict of laws rules point to a foreign law as the governing law for title transfers (and the relevant foreign conflict of laws rules neither refer back to Austrian law (renvoir) nor to another law), an Austrian court would test the relevant bill of sale against the requirements for title transfers under that foreign law.

It is not required for a bill of sale to be translated, certified, notarised or apostilled/legalised in order to be enforceable against an Austrian party (see 1.1.2 Enforceability against Domestic Parties regarding translations in legal proceedings).

It is not required to register or file a bill of sale with or to obtain consent from any government authority in Austria in order for the bill of sale to be enforceable.

An application for registration with the Austrian aircraft register (Luftfahrzeugregister) requires submission of proof of ownership which can be established by way of (a chain of) bills of sale. The Austrian regulator (Austro Control GmbH - ACG) further requires submission of a specific ownership transfer form which is available on their website and must be signed by the transferor and the transferee.

The disposal of an aircraft or an engine by a corporate entity having its seat or place of management in Austria (unlimited tax liability) generally triggers Austrian corporate income tax on any capital gain from the sale, irrespective of where the aircraft or the engine is located.

A corporate entity having neither its seat nor its place of management in Austria (limited tax liability) disposing of an aircraft or engine is – subject to the application of relevant double tax treaties – only subject to Austrian corporate income tax on any capital gain from the sale, if it has sufficient nexus to Austria (eg, a permanent establishment to which the sale is attributable or if a permanent representative in Austria is involved). In such case it is not relevant where the asset is located.

Such sale should be exempt from VAT if the aircraft is designated to be used by airlines mainly providing international flights or flights entirely outside of Austria in return for payment. The taxation of the sale of an ownership interest in an entity that owns an aircraft or an engine depends in particular on the type of entity (eg, partnership or corporation) and the individual structure of the sale.

Operating leases, wet leases, finance leases and leases concerning only engines or components are generally permissible and recognised under Austrian law.

The parties to a lease agreement are generally free to choose the governing law in accordance with and subject to the limitations of Regulation (EC) No 593/2008 (Rome Regulation).

In a purely domestic context (ie, all parties and place of performance are in the same country) an Austrian court may apply the mandatory provisions of the law of that country, even if the parties have chosen a different law to govern the lease.

In any event, Austrian courts may refuse to uphold a choice of law, if its application would be manifestly incompatible with Austrian public policy (ordre public), or apply any overriding mandatory provisions of Austrian law, or the law of the place of performance, if performance of the lease agreement would be unlawful under such law.

There are no material restrictions imposed on an Austrian lessee making lease payments to a foreign lessor in US dollars.

There are no exchange controls under Austrian law which would prevent payments or the repatriation of realisation proceeds under a lease out of Austria. Austrian law may, however, give effect to foreign exchange control provisions of a member state of the International Monetary Fund (IMF) by reason of Section 2(b) of Article VIII of the IMF Agreement.

Further, parties may be subject to anti-money laundering or counter-terrorism regulations and payments to foreign entities may be restricted under (international) sanctions.

Some cross-border transactions (including loans or leases subject to certain thresholds) have to be reported to the Austrian central bank (Oesterreichische Nationalbank) for statistical purposes. If the transaction is handled by an Austrian bank, it would usually take care of the reporting.

The execution of a lease agreement in Austria or the transfer of a lease agreement executed abroad is subject to 1% Austrian stamp duty on the basis of the total amount of rent paid under the lease agreement (capped at a maximum of 18 times the annual rent) or, if the lease is for an indefinite period, on the aggregate value of three-year rentals. Stamp duties are, however, triggered only if a document is physically or electronically signed in Austria and written references to such lease agreements are produced or sent in, to or from Austria. There are several common methods to mitigate Austrian stamp duty, relying on the Austrian Stamp Duty Act’s form over substance approach.

Austrian leasing providers would usually require a business licence (Gewerbeberechtigung) for which no specific qualification is required. Leasing providers from the EU may instead be able to rely on a relevant business licence in their home country. Providers from outside the EU would normally be required to establish an Austrian branch office and obtain a licence.

Austrian leasing providers are subject to several supervisory laws, including with respect to AML compliance, controlling, confidentiality and reporting. Certain qualifying providers from the EU (“CRR-financial institutions”) may be exempted from most Austrian supervisory laws under the EU-passporting regime.

Aircraft rental services (Luftfahrzeug-Vermietungsunternehmen) are required to obtain permission from the relevant regional governor (Landeshauptmann) in accordance with the Austrian Aviation Act (Luftfahrtgesetz). The distinction between an operating lease and a rental is not entirely clear; the latter term arguably refers to short term operating leases (with many lessees during the lifetime of the asset and where each lessee bears no risk in relation to and does not benefit from the economic value of the asset and assumes no obligation in respect of its maintenance).

We are not aware of any mandatory terms under Austrian law that would have to be included in a lease and which are not typically already included in an English or New York law governed lease agreement.

Subject to the particular facts, the parties may wish to reflect the specifics of Austrian law in respect of the perfection of security; administrative requirements (eg, as to registration, insurance, licensing, regulation and continuing airworthiness); stamp duty; release from duties of confidentiality and banking secrecy (if applicable) and include appropriate sanctions language.

Gross-up provisions with regard to any withholding tax levied on payments by a party to a lease agreement are permissible and enforceable under Austrian law.

A lease agreement may cover parts that are installed or replaced on an aircraft (and the parties may agree on whether the lessor or the lessee is obliged to replace components). As regards the property right in such components, the rules on transfer of title of the law applicable in accordance with the conflict of laws rules (see 1.2.2 Sales Governed by English or New York Law) would have to be observed.

Without a title agreement, the title to an engine would not automatically pass to the owner of the airframe merely because the engine is installed on the airframe.

Austrian law would test the validity and enforceability of a trust against the law of the state of registration (if an aircraft is registered) or the lex rei sitae in case of any other tangible asset.

In principle, Austrian law recognises that the title to an asset may be split into legal and beneficial ownership (Treuhand) as well as the right of a beneficial owner to segregate trust property in an insolvency of the legal owner. It is also recognised, that an owner may retain legal title to an asset which is sold and delivered to a purchaser until full satisfaction of the purchase price (Eigentumsvorbehalt).

Conversely, Austrian law would not normally give effect to a split of legal from beneficial ownership, if such split is used to circumvent the (strict) rules on the perfection of security interests under Austrian law (see 3.2.14 Perfection of Domestic Law Mortgages). Thus, if the legal title to an aircraft is transferred to a lender for the purposes of securing a loan (Sicherungsübereignung), the (legal) title of the lender will not be recognised, unless the perfection requirements applicable to Austrian law pledges are observed. Similarly, an Austrian court may require satisfaction of security perfection requirements in “sale and lease back” transactions on terms economically amounting to a secured loan.

Both the owner (Eigentümer) and the operator (Halter) of the aircraft must be notified to the ACG when registering an aircraft with the Austrian aircraft register. However, it is only the operator who is listed in the (publicly available) aircraft register.

An aircraft will always be registered in the name of the operator in the Austrian aircraft register, irrespective of whether the operator is also the owner of the aircraft or not.

There is no register for leases concerning aircraft or engines in Austria.

Leases and the lessor’s interest therein cannot be registered with the Austrian aircraft register.

Without prejudice to the above, aircraft lease agreements which involve an Austrian air operator require the prior approval of the ACG (or a notification in case of a wet lease-out agreement). For wet lease-in agreements, the ACG provides a specific form on its website. Engine leases are not subject to a specific approval or filing requirement in Austria.

Aircraft lease agreements are not subject to specific formal requirements in Austria and no certification, notarisation or legalisation is required for the lease agreement to be enforceable.

For the purposes of submitting the lease agreement to the ACG for its approval, a simple copy would usually suffice (see 2.3.8 Requirements for Documents Concerning Registration on language requirements).

As an aircraft or engine lease cannot be registered in Austria, no taxes/duties apply (see 2.1.5 Taxes/Duties Payable for Physical Execution of a Lease for stamp duties payable on the lease itself).

Commercial aircraft operated by Austrian carriers are commonly registered in Austria. Alternative countries occasionally used for the registration of corporate jets and general aviation aircraft are Germany and the USA.

Documents submitted to the ACG are generally not required to be certified, notarised or authenticated. The authority provides specific forms on its website which should be used when registering an aircraft with the Austrian aircraft register. The forms (including the supporting documents) may be submitted by e-mail, fax or post.

If documents are provided in a language other than German, the ACG may request a (certified) German translation of the document or parts thereof. In practice, ACG appears to accept documents in German and English.

A corporate lessor having neither its seat nor its place of management in Austria may – subject to the application of relevant double tax treaties – be subject to Austrian corporate income tax, if it has a sufficient nexus to Austria (eg, a permanent establishment in Austria to which the aircraft or engine is attributable or an Austrian permanent representative).

A non-Austrian lessor is not generally subject to (corporate) income taxation in Austria as a result of its being a party to or its enforcement or a lease agreement.

The parties to an aircraft lease under Austrian law are generally free to allocate the responsibility for maintenance of the aircraft between them.

The default position for operating leases under the Austrian Civil Code (ABGB) is that the lessor is responsible to maintain the aircraft or engine fit for purpose. Austrian operating leases would typically either derogate from or clarify this position (eg, distinguish between major overhauls and ongoing maintenance).

Under certain circumstances Austrian law imposes strict liability on the operator (Halter) and the carrier (Beförderer) for damage caused by an aircraft to persons or property.

Neither an owner (who is not also the operator and/or carrier), nor a lessor nor a finance provider would typically be liable for damage caused by the asset, except to the extent such damage was caused by their negligence (eg, failure to maintain the asset in accordance with the agreed terms of a lease).

If a third-party creditor of an Austrian lessee attempts to attach an aircraft leased to the Austrian lessee which the lessee does not own, the owner of the aircraft could raise a claim against such attachment (Exszindierungsklage).

A person who has paid expenses with respect to an aircraft or other asset on behalf of the owner is generally permitted under Austrian law to retain the asset until reimbursement of the expenses by the owner. The retention right would not apply if a third party is liable for the expenses. Thus, third party in rem rights would not normally take priority over the owner’s interest in an aircraft or engine, unless the owner/lessor is itself liable to such third party (eg, owner’s liability for ATC charges in the event that the operator is unknown; liability for maintenance work assumed by the owner under the terms of the lease).

Further, Austrian law recognises that a third party may under certain limited circumstances acquire an in rem (security) interest in good faith from a person (eg, the lessee) who does not hold title to and is not otherwise permitted to dispose of such asset (gutgläubiger Erwerb/Pfandrechtserwerb). Such a risk can to some extent be mitigated by affixing signs and notices to the aircraft and advertising the title holder.

Austrian law does not require that all or part of the insurance for the operation of an aircraft is placed with Austrian insurance companies.

The operator of an aircraft is obliged to maintain liability insurance that covers death and injury of passengers, damage to, and destruction and loss of, transported goods, death and injury of third parties and damage and destruction of third parties’ property. The minimum insurance amounts depend on the maximum take-off weight of the aircraft as provided for by European and Austrian laws. Proof of sufficient insurance cover is a prerequisite for the operating licence.

Austrian law does not restrict the placement of reinsurances outside of Austria up to 100% coverage.

Austrian law generally does not prohibit “cut-through” clauses in insurance/reinsurance documents and such clauses should be enforceable.

Austrian law generally allows assignments of insurances/reinsurances. In practice, assignments of insurances are typical in aviation leasing and financing transactions, whereas assignments of reinsurances are not.

Prior to a lessee’s insolvency, the lessor may freely terminate an Austrian law governed lease in accordance with its terms. In addition, a lessor would be permitted to terminate the lease at any time for cause (aus wichtigem Grund), such as a non-payment or a material breach.

If insolvency proceedings have been commenced with respect to the lessee, a lessor may – if the administrator intends to continue the operations – be prevented from terminating an aircraft lease for a period of six months, unless the operator/administrator defaults on lease payments due after the commencement of insolvency proceedings or otherwise commits a material breach. Similar restrictions may apply to the repossession of an aircraft. Even if the lessor’s termination right is temporarily restricted, the lessor would not normally be prevented from selling its ownership-interest in the aircraft to a third party.

Without prejudice to the above, there are no generally applicable export restrictions regarding Austrian registered aircraft, other than:

  • export and sanctions control legislation (eg, with respect to military aircraft or dual-use goods); and
  • deregistration (and reregistration, respectively) of the aircraft with the ACG.

Austrian registered aircraft need not be physically present in Austria for the purposes of a termination of the lease or, as a matter of Austrian law, for a sale of the aircraft. Given that the conflict of laws rules at the place of the actual transfer may point to a law other than Austrian law for the purposes of determining the validity of the title transfer, physical presence of the aircraft at the time of title transfer is recommended. Unregistered aircraft sold under an Austrian law governed title agreement should in any event be present in Austria at the time of the title transfer.

The parties to a lease are generally free to agree on certain events which allow the lessor to re-possess the aircraft (eg, an event of default under the lease). The agreement may be supported by a deregistration power of attorney.

Nevertheless, it should be noted that Austrian law recognises a right of self-help only in very limited circumstances when judicial relief would not be available in time (eg, imminent risk that the lessee will transfer the aircraft to a country where the lessor will not be able to enforce its rights due to lack of due process or rule of law). Thus, if an Austrian lessee attempts to frustrate the re-possession (eg, by revoking powers of attorney or by way of blocking access to the aircraft) the lessor would normally have to re-possess the aircraft by way of enforcement proceedings.

Lease disputes would typically fall within the jurisdiction of the commercial courts (i.e. a specialised sub-division of the civil law courts). There are, however, no specific panels for aviation related disputes.

Where a claim is for payment only, an Austrian court may issue a payment order to an Austrian defendant without going into the merits (Mahnverfahren). Unless the defendant objects within four weeks, the payment order becomes immediately enforceable. This instrument is available for claims up to EUR75,000. EU law offers a similar (uncapped) instrument for cross-border claims. Where a claim relates to a bill of exchange, a court may issue an uncapped payment order to an Austrian defendant (Wechselmandatsverfahren) which can be challenged within fourteen days.

It is possible to apply for a preliminary injunction (einstweilige Verfügung) under Austrian law, if the applicant demonstrates a prima facie claim as well as an imminent threat to its legal position. The court may ask the applicant to provide a bond or security to cover costs and potential damages, if the claim ultimately fails.

In practice, injunctions are not frequently used or granted in Austrian commercial disputes.

Austrian courts will normally uphold a choice of law in accordance with and subject to the limitations of the Rome Regulation (see 2.1.2 Application of Foreign Laws for details and limitations). Further, courts in Austria would uphold a jurisdiction clause in favour of the courts of an EU member state and certain other countries (eg, England, Iceland, Liechtenstein, Norway and Switzerland) in accordance with and subject to the limitations of Regulation (EU) No 1215/2012 (Judgment Regulation), the Lugano Convention or the Hague Convention.

Forum clauses in favour of the courts of other countries are usually upheld only, if there is a bilateral treaty on the recognition and enforcement of judgments between the relevant forum state and Austria (see 2.6.6 Domestic Courts' Recognition of Foreign Judgments/Awards). In the absence of such treaty between Austria and the USA, Austrian courts have accepted jurisdiction despite an exclusive choice of court clause in favour of New York courts.

A waiver of (sovereign) immunity granted by the competent person or body will generally be recognised by Austrian courts. A lack of waiver cannot normally be remedied implicitly by pleading on the merits without raising any objections.

Austrian law would recognise and enforce judgments from EU member states and certain other countries (eg, England, Iceland, Liechtenstein, Norway and Switzerland) under either the Judgment Regulation, the Lugano Convention or the Hague Convention. Final and binding judgements from other countries not covered by these laws or treaties are recognised in Austria based on reciprocity provided in a bilateral treaty with such country.

Importantly, no bilateral treaty on the recognition and enforcement of judgments currently exists between Austria and the USA. Thus, a judgment rendered by a New York court is prima facie not enforceable in Austria.

Austrian courts may refuse to recognise and/or enforce a foreign judgment inter alia if:

  • recognition would be contrary to public policy in Austria;
  • the defendant has not been duly served with the claim and has made use of any appeal available; or
  • the judgment is irreconcilable with another (conflicting) judgment.

Austrian courts may give a judgment in a currency other than euro. Such judgments may be required to be converted into euro for enforcement purposes.

The parties to a lease are generally free to agree on default interest (including compounded interest). In addition, a lessor could claim damages from the lessee for failure to return the aircraft after termination in accordance with the lease.

A grossly imbalanced default or compounded interest clause may be unenforceable (sittenwidrig) under Austrian law (eg, if the interest exceeds the principal amount).

Subject to the application of relevant double tax treaties, a lessor under an aircraft lease agreement is liable to pay Austrian (corporate) income tax in connection with the performance or enforcement of such lease agreement if the lessor is subject to unlimited income taxation or limited income taxation (such as lessors having a sufficient nexus to Austria, eg, a permanent establishment in Austria or an Austrian permanent representative).

A termination for cause (aus wichtigem Grund) does not normally require any prior notice. In other cases, the parties are generally free to agree on specific notice periods in the relevant lease.

The lessor should comply with any mandatory notice periods under Austrian law (eg, a “reasonable” period if no notice period has been agreed; one week prior notice when enforcing security).

Sovereign immunity may prevent an Austrian court from rendering a judgment, even if the beneficiary of immunity has taken part in the proceedings. A waiver of immunity will be accepted, if it has been granted by the competent authority or person.

Austria has ratified the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "NY Convention") and final and binding foreign arbitral awards are generally recognised and enforced in Austria in accordance with the NY Convention.

There is no current awareness of any other relevant issues that lessors should be aware of in relation to the enforcement of their rights and which are specific to Austria.

Austrian law recognises an assignment of rights or claims (Zession) as well as a transfer of the contractual position of a creditor (comprising rights and obligations) to a third party with the consent of the debtor (Vertragsübernahme).

The term “novation” in Austrian law is usually used to describe the agreed replacement of an existing obligation with a new one between the same parties.

An Austrian court would look to the law governing the lease in order to determine if the rights thereunder can be assigned or transferred and if a consent of the lessor is required (see 2.1.2 Application of Foreign Laws for details and limitations).

It should be noted that any transfer of title to the leased assets would have to be tested separately against the law applicable to property rights under Austrian conflicts of laws rules (ie, Austrian law in case of an aircraft registered in Austria – see 1.2.2 Sales Governed by English or New York Law).

It is not required for an aircraft and/or engine lease assignment or transfer agreement to be translated, certified, notarised or apostilled/legalised in order to be recognised or enforceable as a matter of Austrian law (see 1.1.2 Enforceability against Domestic Parties on language requirements in legal proceedings).

It is not required to file an aircraft (or engine) lease assignment or transfer agreement with the Austrian aircraft register. An Austrian operator would be required to submit a copy of the assigned or transferred lease agreement to the ACG.

A transfer of the ownership interest in the entity owning an aircraft would not have any direct effect on lease agreements entered into by such entity or assets owned by such entity under Austrian law.

A transfer of the ownership interest in the entity owning an aircraft would not have any direct effect on lease agreements entered into by such entity or assets owned by such entity under Austrian law.

The Austrian aircraft register is an operator-based register. The operator is in principal responsible and competent to apply for the deregistration of an aircraft. An application form must be duly completed, signed and submitted to the ACG together with certain ancillary documents.

Apart from certain specific situations (eg, in the event of a court order) the operator requires the co-operation and consent of the owner for the deregistration of an aircraft.

For the deregistration of an aircraft, the operator must submit a duly completed and signed form to the ACG, together with evidence of the owner’s consent, as well as originals of the certificate of airworthiness (Lufttüchtigkeitszeugnis), the certificate of use (Verwendungsbescheinigung), the certificate of registration (Eintragungsschein) and the noise certificate (Lärmzeugnis).

If the documents submitted to the ACG are complete and in the appropriate form, the deregistration of an aircraft should only take one to two weeks, or less, if discussed in advance with the ACG.

The ACG will not provide advance assurances to the operator applying for the deregistration of the aircraft.

Fees charged by the ACG for the deregistration of an aircraft range from EUR53 to EUR1,419, depending on the weight of the aircraft. There should be no other significant costs/fees/taxes charged in respect of the deregistration of an aircraft.

A deregistration power of attorney by the operator is generally recognised, provided that it has been translated into German and notarised, and (if executed outside of Austria) apostilled/legalised.

The person using the deregistration power of attorney should be able to demonstrate (by way of acceptable documentation, such as certified and, if applicable, apostilled/legalised excerpts from the commercial register) that the signatory of the power of attorney was duly authorised and that the owner of the aircraft is duly incorporated and validly existing.

A deregistration power of attorney does not necessarily have to be governed by Austrian law. However, an Austrian law governed deregistration power of attorney may be accepted more easily by the ACG.

If a power of attorney is expressly granted as an “irrevocable” power of attorney and for the purposes of enforcing a security interest or otherwise for the benefit of the addressee, it is accepted under Austrian law that the grantor may not freely revoke it other than for cause (aus wichtigem Grund). A power of attorney will, however, lapse in the event of the insolvency of the grantor.

The lessee’s consent is usually required for obtaining an export certificate of airworthiness (see 2.8.12 Aircraft Export Permits/Licences). The owner as well as the mortgagee or lessor typically request a deregistration power of attorney from the operator so that the operator cannot block the deregistration of an aircraft.

Austrian law does not generally restrict the export of an aircraft. However, an export certificate of airworthiness (Lufttüchtigkeitszeugnis für die Ausfuhr) is required for the export of an aircraft to certain countries. If the respective application to the ACG is submitted completely and in appropriate form, the issuance of the export certificate of airworthiness should only take one to two weeks, or less if discussed in advance with the ACG. An export certificate of airworthiness can be obtained in advance.

Fees charged by the ACG for obtaining an export certificate of airworthiness range from EUR236 to EUR7,564, depending on the weight of the aircraft. There should be no other significant costs/fees/taxes charged in respect of the export of an aircraft.

Although the operator is responsible for the deregistration of the aircraft, both the operator and the lessor have the right to apply to the ACG for a deregistration certificate. The ACG will only issue a deregistration certificate if identification badge, livery colours and coat of arms of the Republic of Austria have been removed from the aircraft.

Any power of attorney granted by an Austrian debtor would lapse upon the commencement of insolvency proceedings over its assets. This would also apply to any deregistration power of attorney granted by an Austrian operator (Halter).

Irrevocable deregistration and export request authorisations (IDERAs) are not recognised as such under Austrian law because Austria has not ratified the Cape Town Convention.

A lease agreement with an Austrian lessee will not automatically be set aside as a result of the lessee’s insolvency. The insolvency administrator may terminate the lease in accordance with the lease agreement or as provided under statutory law. If the administrator does not terminate the lease, any payments which fall due after the commencement of insolvency proceedings would qualify as preferential claims (Masseforderungen).

If the relevant asset is essential for the continuation of the business of the lessee, the lessor cannot terminate the lease for a period of six months other than for cause (aus wichtigem Grund) or if termination would be required due to an imminent grave economic disadvantage of the lessor. During a six-month period, the lessor would not be permitted to terminate the lease based on an alleged material adverse change in the lessee’s financial condition or based on a default prior to insolvency. If, however, the administrator defaults on lease payments after the insolvency, the lessor could terminate for cause. The lessor would also be prevented from re-possessing the aircraft during the six-month period if the aircraft is essential for the continuation of the lessee’s business.

If the lessor holds ownership in the leased aircraft, it will be possible to segregate (aussondern) the aircraft from the insolvency estate subject to the moratorium described above. Other unsecured creditors will not have any rights to such asset.

The central aim of a lender in the borrower’s insolvency will be the protection of its security interest. Holders of collateral (eg, pledges) will generally have a preferred claim on enforcement proceeds relating to the collateral (Absonderungsrecht).

The administrator would be responsible for the enforcement of collateral within its control (eg, by way of having the asset sold in an auction under the supervision of the court). The same would arguably apply if the asset is in the control of a third party. If the asset is in the control of the lender/pledgee, it may enforce the security interest itself in accordance with its terms. Enforcement proceeds will first be applied towards payment of the enforcement costs, second towards settlement of the secured claim and third towards other insolvency claims.

With effect from the beginning of insolvency proceedings, creditors will not be able to file claims against a debtor for non-payment until the administrator has had a chance to review and acknowledge the claim (Prüftagsatzung) and all pending proceedings will be suspended automatically. Austrian law does not, however, provide for a moratorium on payments as such.

If an Austrian lessee is technically insolvent (zahlungsunfähig) or over-indebted and likely to become insolvent in the future (überschuldet), any of its creditors may commence insolvency proceedings against the Austrian lessee (irrespective of whether the claim of the creditor is due or not). The managing directors of the lessee would be obliged to file for insolvency in such a situation without undue delay and in any event within 60 days.

Depending on the circumstances, the insolvency proceedings may take different forms (eg, ranging from a reorganisation of the business under the direction of the existing management with a maximum haircut of 70% to bankruptcy proceedings aimed at the liquidation of the debtor company).

Termination clauses which allow one party to terminate a lease or loan agreement solely based on the commencement of insolvency proceedings over the assets of the other party are not permitted under Austrian law.

The commencement of insolvency proceedings would not affect the interest of the owner in the aircraft, who would retain its right of segregation (Aussonderungsrecht).

The lessee would, however, be prevented from making any lease payments to the lessor without the consent of the insolvency administrator. In addition, the insolvency administrator could avoid certain lease payments (eg, payments received by the lessor during the last six months prior to the insolvency, if the lessor was or should have been aware of the lessee’s insolvency or insolvency filing).

If the insolvency administrator intends to continue the operations of the lessee (eg, with a view to selling a part of the business during the insolvency proceedings) the ability of the lessor to terminate the lease will be restricted to termination for cause (see 2.9.2 Other Effects of a Lessee's Insolvency). In that case, lease payments which fall due after the insolvency would constitute preferred claims.

Any lease security deposit would normally be kept on an account of the lessor. It would thus not form part of the insolvency estate and remain available to the lessor to cover outstanding claims. The same would normally apply to maintenance reserves.

Austria has not ratified the Convention on International Interests in Mobile Equipment or the related Protocol on Matters specific to Aircraft Equipment, and consequently neither the Convention or the Protocol are in force in Austria.

See 2.10.1 Conventions in Force.

See 2.10.1 Conventions in Force.

See 2.10.1 Conventions in Force.

See 2.10.1 Conventions in Force.

Commercial lending to an Austrian borrower qualifies as a banking business under Austrian law and requires a banking licence.

Credit institutions from within the EU may rely on their EU-passport to lend to Austrian borrowers, if they have obtained the relevant licence in their home member state.

A banking licence would not be required in Austria if all elements of the loan are kept abroad, noting however that Austrian authorities have taken a strict view in the past as to what constitutes a sufficient nexus to Austria.

There is no current awareness of any restrictions under Austrian law which would prevent a borrower from borrowing funds from a foreign lender.

There are no exchange control restrictions under Austrian law, though Austrian law may give effect to foreign exchange control provision of a member state of the IMF by reason of Section 2(b) of Article VIII of the IMF Agreement.

While loan transactions are not subject to government consent or approval, such transactions may have to be reported to the Austrian National Bank (Oesterreichische Nationalbank) for statistical purposes.

Austrian borrowers are permitted to grant security to foreign lenders.

Austrian borrowers are generally free to provide security for the benefit of their direct or indirect subsidiaries (“downstream security”).

Companies (and partnerships which do not have any natural person as an unlimited partner) are subject to capital maintenance rules under Austrian law which prevent them from granting a security for the benefit of their direct or indirect shareholders (“upstream”) or sister-companies (“cross-stream”), unless such security is provided on arm’s length terms or, in some cases, where they receive another form of corporate benefit. In any event, there must not be any doubt about the borrower’s solvency.

If the test referred to above is not satisfied, the relevant security would prima facie breach capital maintenance rules. In practice, this would be mitigated by incorporating into the security documents limitation language essentially limiting the economic value of the security interest to an amount equal to the distributable profits of the security provider.

Share pledges or pledges over partnership interests are recognised under Austrian law. Lenders frequently request security over the shares in borrower-SPVs, which allows the lender to enforce its security interest either by way of a share or an asset deal, as appropriate. In addition, Austrian law share pledges commonly permit the pledgee to exercise voting rights on behalf of the pledgor following an event of default under the loan, which increases the control of the lender in a default scenario.

Negative pledge undertakings are frequently included in loan agreements involving Austrian parties. If the borrower grants a pledge to a third party despite such undertaking, this would constitute a breach of contract but would not normally invalidate the security interest granted to the third party.

There is no current awareness of any material restrictions or requirements imposed on intercreditor arrangements under Austrian law or involving Austrian parties.

The concept of agency and the role of an agent under syndicated loan transactions are recognised and frequently used in the Austrian market.

Parties are generally free to agree on a contractual subordination of a claim. In practice, a distinction is sometimes made between “normal” and “deep” subordination, with the latter term referring to a waiver of the relevant creditor to consider the deeply subordinated debt for the purposes of determining whether a company is over-indebted. Further, a deeply subordinated creditor undertakes not to file for insolvency of the debtor as a result of a default under such debt.

In addition to contractual subordination, structural subordination is sometimes used in financing transactions.

Austrian law also recognises a concept of equitable subordination, with respect to certain loans provided by or on behalf of a qualifying shareholder during a time of economic “crisis” (Krise) in accordance with the Austrian Equity Substitution Act (EKEG).

An Austrian court would look to the law applicable to the loan in order to determine whether the contractual rights thereunder can be assigned and if the consent of the debtor is required for a transfer of the contractual position (see 2.1.2 Application of Foreign Laws for details and limitations). If an assignment or transfer is permissible under applicable law, it would normally be recognised by an Austrian court.

An agreement which “must appear manifestly imbalanced to every reasonable and just person” would be contrary to public policy (sittenwidrig) under Austrian law end therefore void. This concept puts an upper limit on interest which can be claimed.

Compounded interest is generally permitted under Austrian law, subject to an express agreement between the parties.

Due to the (strict) perfection requirements in respect of Austrian pledges over tangible assets, parties often aim for structures where the finance provider remains the owner of the aircraft and leases it to the operator. If, however, the aircraft is already owned by the borrower at the time of the loan, any transfer of title to the finance provider may be subject to a re-characterisation risk (see 2.2.5 Recognition of the Concepts of Trust/Trustee).

If the owner and the operator are different persons, a pledge could be perfected by instructing the operator to hold possession in the aircraft to the instruction of the pledgee. This structure is also used in the market.

Further, a typical security package in an Austrian aircraft finance transaction would include a share pledge agreement, receivables pledges (over lease receivables, insurance receivables, etc), account pledges, guarantees, airframe warranties agreement, engine warranties agreement, a security deposit and a deregistration power of attorney.

Austrian law does not recognise the concept of an aircraft mortgage which is registered in a public register. Rather, the only form of security interest which can be created in tangible assets is a pledge (Pfandrecht), which must be perfected in accordance with Austrian (property) law requirements (see 3.2.14 Perfection of Domestic Law Mortgages). Further, where the debtor does not already own the aircraft, the seller/finance provider may retain the title to the aircraft until satisfaction of the outstanding purchase price.

Austrian law does not normally permit a person to enforce another person’s claim in court. Nevertheless, the concept of a security trustee is widely used in syndicated loan transactions in the Austrian market. In order to put the security trustee in a position to enforce the security interest, parties would normally use parallel debt language.

Austrian law recognises the concept of a transfer of ownership in an asset for security purposes (Sicherungsübereignung), provided that Austrian courts would apply the same perfection requirements which are required for the valid creation of a pledge (see 3.2.14 Perfection of Domestic Law Mortgages).

(Contractual) rights under a lease agreement or an insurance policy may be pledged or assigned for security purposes, provided that perfection requirements (eg, notification of the relevant third-party debtor and/or recording the security interest in the books of the pledgor) would apply.

Subject to any contractual prohibitions, an assignment of rights would result in an assignment from the assignor to the assignee of the assignor’s rights only. The obligations under the underlying agreement would generally remain with the assignor. If it is intended to transfer the entire contractual position (rights and obligations) of a party, this would have to be done by way of a transfer (Vertragsübernahme) which requires the consent of the debtor.

Austrian conflict of laws rules would look to the law applicable to the underlying agreement in order to determine whether an assignment or pledge of the receivables created thereunder is valid. It is therefore recommended that a receivables assignment or pledge agreement follows the law of the underlying agreement. If that is not the case (eg, because receivables from different jurisdictions are pledged under a master security agreement), the perfection mechanism in that master agreement should also be tested against the minimum requirements applicable in the jurisdiction of the underlying receivables.

The perfection requirements applicable to Austrian law governed security assignments (Sicherungszessionen) and receivables pledges (Forderungspfandverträge) may take the form of:

  • a notification to the debtor of the receivables (Drittschuldnerverständigung); and/or
  • recording the security interest in the books and accounts of the pledgor by way of a book-entry referring to the assignment or pledge.

It is not required that an Austrian law governed security assignment/receivables pledge be translated, certified, notarised or apostilled/legalised in order to be enforceable (see 1.1.2 Enforceability against Domestic Parties for language requirements in legal proceedings).

Austrian law security assignments should specify the assigned receivables (ie, they must be determined or capable of being determined based on the agreement) and describe the secured obligation. In addition, the security document would commonly include provisions allowing for out-of-court enforcement by the pledgee.

If the parties enter into an English or New York law governed security document with respect to an aircraft registered in Austria, an Austrian court would test the perfection of such security interest against the requirements imposed under Austrian law (see 1.2.1 Transferring Title). If there is any doubt as to the compliance of the foreign law document with such requirements, the lenders may wish to consider taking an Austrian law governed pledge over the aircraft in addition to the foreign law security document.

The Austrian law governed aircraft pledge can be prepared at relatively low cost and there are no specific formal or registration requirements. The parties need to comply with perfection requirements imposed by Austrian (property) law.

There is no public register for security assignments or receivables pledges in Austria, neither for Austrian nor for foreign security interests.

Engines would usually be considered either as “independent” components (selbständige Bestandteile) of an aircraft or as an accessory (Zubehör). Either way, engines would be capable of being subject to a security interest separate from the aircraft.

Any security interest created over the engines would also have to comply with perfection requirements for security interests under Austrian (property) law.

Depending on the circumstances, a change in the identity of the secured parties may have an impact on the security interest. In practice, the concept of a security trustee is used to mitigate the consequences of such a change.

Parallel debt structures are commonly used in Austria to put the security trustee in a position where it may enforce a claim on behalf of the entire syndicate of creditors.

A non-Austrian secured party would not generally be deemed to be resident, domiciled, carrying on business or being subject to (corporate) income taxation in Austria as a result of its being a party to, or its enforcement of, a security assignment.

As stated above, Austrian law does not recognise the concept of a registered aircraft mortgage, but the parties may create a pledge over moveable assets (Fahrnispfandrecht).

Traditionally, the following perfection requirements have been recognised in Austria:

  • physical delivery of the pledged asset to the pledgee;
  • otherwise removing the asset from the control of the pledgor (eg, by locking it up and restricting access);
  • if the asset is already with the pledgee, an agreement that the pledgee shall hold the asset as pledgee going forward; or
  • an instruction to a third party to hold possession of the asset to the instruction of the transferee.

In practice, perfection by way of instruction to the operator to hold possession in the aircraft to the instruction of the pledgee is the only commercially reasonable means for perfection of a pledge in the context of aircraft finance transactions. Usually, perfection is supplemented by affixing signs or notices evidencing the pledge to the aircraft which makes it more difficult for a third party to argue that it has bona fide acquired a security or ownership interest in the aircraft ranking prior to the interest of the pledgee.

Moreover, it is recognised under Austrian law that the security interest under a pledge will not immediately lapse if – after perfection of the security interest, eg, by way of physical delivery to the pledge – the asset is temporarily returned into the possession of the pledgor.

The security interest available in respect of an aircraft and spare engines is the same (ie, pledge over moveable assets) and so are the perfection requirements.

A security interest over bank accounts in Austria would typically be created in the form of an account pledge (Kontopfandrecht). An account pledge may qualify as financial security under Austrian law, which allows for quick enforcement by way of appropriation or set-off.

Austrian law account pledges are generally perfected by way of notification to the account bank as well as recording the security interests in the books and accounts of the pledgor.

Third-party creditors of the owner of the aircraft may attempt to enforce their claims against the aircraft by way of obtaining a statutory pledge (Pfändungspfandrecht) in enforcement proceedings, followed by a sale of the aircraft by a court bailiff.

A contractually agreed and validly perfected pledge is normally discharged automatically upon payment of the secured obligation (Akzessorietät), although in practice it is commonly agreed that the pledgee will issue a release (confirmation) letter.

There is no register of mortgages or charges over aircraft available in Austria and neither are the interests of a pledgee or security trustee in an aircraft registered in the Austrian aircraft register.

Austrian law generally recognises a retention right (Zurückbehaltungsrecht) of a creditor in respect of assets of the debtor. Thus, an airport may retain an aircraft operated by the owner for unpaid charges and a maintenance facility for unpaid work, in each case followed by enforcement proceedings against the owner and its aircraft – see 3.3.1 Third-party Liens). The retention right does not normally extend to assets of third parties.

Further, Austrian tax or customs authorities may seize and take enforcement measures against an aircraft to enforce tax liabilities of the owner.

In case of (alleged) involvement of the aircraft and/or its owner in criminal activity, the police or public prosecution service may seize and/or confiscate an aircraft.

There is no public register available in Austria which provides conclusive evidence that an aircraft is free of encumbrances.

Austrian security assignments typically permit the assignee to enforce upon a default without the involvement of a court by way of instructing the third-party debtor to make payment to the assignee or by way of a sale or auction of the assigned rights.

Loans or guarantees are contractual obligations. If a dispute arises, the lender/beneficiary would have to obtain a judgment against the debtor, which could then be enforced against the assets of the creditor in enforcement proceedings.

If a lessor assigns the rights in a lease (ie, receipt of lease payments) to a security trustee under a market standard Austrian law security assignment, the security trustee could usually enforce the security interest by way of giving notice to the lessee and without involvement of the courts.

Austrian courts would generally uphold a choice of law in a finance document or a security document in accordance with and subject to the limitations of the Rome Regulation. Any property rights created under a security document (and the relevant perfection requirements, respectively) would however be tested against the law applicable to property rights under Austrian conflict of laws rules (see 1.2.2 Sales Governed by English or New York Law).

Austrian courts would enforce foreign judgments from other EU member states and certain other countries (including England) without re-examining the merits on the basis and subject to the limitations of applicable EU law or international treaties (see 2.6.5 Domestic Courts' Approach to Foreign Laws and Judgments and 2.6.6 Domestic Courts' Recognition of Foreign Judgments/Awards). Arbitral awards may be enforced on the basis of the NY Convention (see 2.6.12 Enforcement of Foreign Arbitral Decisions).

A secured party may not normally take possession of an aircraft without the consent of the operator (see 2.6.2 Lessor Taking Possession of the Aircraft) and any unlawful attempt to take control could result in a claim for trespass (Besitzstörungsklage) against the secured party.

The district court (Bezirksgericht) of the place where a tangible asset is located when enforcement begins would be competent for enforcement action against an aircraft. It should be noted that market standard pledge agreements frequently allow for out-of-court enforcement by way of private sale or public auction following an appraisal of the asset.

Summary judgments are available for monetary claims up to EUR75,000 (or without a limit in case of claims relating to a bill of exchange or certain cross-border claims under EU law). Injunctions may be available as stand-alone instrument or as a preliminary measure (see 2.6.4 Summary Judgment or Other Relief).

Austrian courts may give judgment in a currency other than euro (see 2.6.7 Judgments in Foreign Currencies).

A secured party is required to pay court fees upfront, when enforcing a security agreement in Austrian legal proceedings. Court filing fees depend on the sum in dispute and might amount to a nominal amount.

This is not applicable.

The factual, legal and tax background of each purchase, sale, lease or debt financing of an aircraft registered in Austria and/or involving an Austrian party needs to be assessed on a case-by-case basis in order to be able to render conclusive legal advice.

As of 3 July 2020 we are not aware of any proposed Austrian legislation specifically addressing purchase, sale, lease or debt financing of a an aircraft registered in Austria and/or involving an Austrian party.

Freshfields Bruckhaus Deringer LLP (Vienna)

Seilergasse 16
1010 Vienna
Austria

+43 1 515 15 0

+43 1 512 63 94

farid.sigari@freshfields.com www.freshfields.com
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Law and Practice

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Freshfields Bruckhaus Deringer LLP is a leading international, globally integrated, law firm offering clients dedicated and seamless legal advice across all legal fields and industry sectors in all important economic regions. Specialising in complex, legal and cross-border matters, the firm has over 2,800 lawyers in 28 offices in 16 countries across Europe, Asia and the USA. In the finance sector the firm’s advice covers real estate finance, private equity and leveraged finance, distressed debt, equity and debt capital markets, securitisation, and project and asset finance. Freshfields Bruckhaus Deringer advises in corporate, M&A, finance, insolvency and tax matters in the aviation industry. The aviation practice revolves around its hubs in Frankfurt and Vienna.

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