Aviation Finance & Leasing 2020

Last Updated July 30, 2020

Portugal

Law and Practice

Authors



CSBA & Associados Sociedade de Advogados, SP, RL is a leading law firm in Portugal which takes the interests of its customers as a priority, designing and planning the most suitable strategy so that customers achieve their intended purposes. CSBA is proud to work for the benefit of its clients with the best law firms in the world. The firm's daily commitment is to ensure the most effective legal framework for development strategies, or for the constraints of clients, as well as to contribute to their success, increasing value in their activity by allowing a better positioning in the markets in which they operate. The pursuit of the interests of CSBA’s customers is based on excellence. CSBA is attentive to markets in which clients act to ensure sustained and rapid responses to the challenges they face. CSBA guides its activity for the accuracy and development of a spirit of partnership and transparency.

VAT may be due on aircraft or engine sales agreements. However, in accordance with the Portuguese VAT Code, the sale of an aircraft or engine as addressed may be exempt from VAT if the aircraft/engines are intended to be used by an airline operating on international routes. Therefore, if an aircraft or an engine is subject to a sale agreement being used by a company that is exempt for VAT purposes, no difficulties are anticipated.

A sale agreement written in a foreign language should be accompanied by a translation certified by a Portuguese notary or lawyer to be enforceable against a domestic party.

In order for it to be enforced as a writ of execution, a sale agreement should be authenticated before a Portuguese lawyer or notary; if executed abroad, the sale agreement should be authenticated at a Portuguese consulate or before a foreign notary but bearing the Hague Apostille.

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

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

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

The document evidencing the transfer must be signed and the signatures duly recognised by attestations of the signatories' capacity and power to bind. The bill of sale should be signed/authenticated before a Portuguese lawyer or notary or, if executed abroad, should be authenticated at a Portuguese consulate or before a notary with the addition of the Hague Apostille.

A bill of sale written in a foreign language should be accompanied by a translation certified by a Portuguese notary or lawyer to be enforceable against a domestic party. In order to be enforced as a writ of execution, if that were to be the case, the document should be authenticated before a Portuguese lawyer or notary or, if executed abroad, be authenticated at a Portuguese consulate or before a foreign notary with the Hague Apostille.

Bills of sale should be registered with the Portuguese Authority for Civil Aviation (ANAC).

The bill of sale should be signed/authenticated before a Portuguese lawyer or notary or, if executed abroad, should be authenticated at a Portuguese consulate or before a notary with the Hague Apostille. If documents are filed as addressed, the registration with the ANAC is complete with immediate effect.

Transfer taxes, VAT (if applicable) or fees associated with the recording in Portugal of the transfer of aircraft or beneficiary interests within the airspace of Portugal may be payable. Such taxes or charges are not payable in Portugal if the transfer does not occur within Portuguese territory. VAT is payable on the transfer of an aircraft into Portugal, unless any of the exemptions provided in the VAT Code applies. The legislation exempts any transfer of an aircraft (eg, by way of sale) as well as any transformation, repair or any lease of an aircraft used by an air carrier whose business involves international flights. These exemptions also apply to any transfer, repair, maintenance and lease of objects incorporated in such an aircraft or as part of its use (eg, engines and spare parts).

It is possible to conclude operating/wet/finance leases concerning only engines or parts.

It is permitted for a lease involving either a domestic party or an asset to be governed by a foreign law in terms of its obligations. However, with respect to its property and register aspects where in rem rights are at stake, the governing law will be Portuguese law.

As long as it is established in the lease agreement, there are no material restrictions imposed on domestic lessees making rent payments to foreign lessors in US dollars.

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

No fee is payable to the RAN (Registo Aeronáutico Nacional – the national aircraft register) on execution and registration of a lease and there are no duties/taxes on it so that a lease agreement would be enforced or relied on in Portugal. No stamp tax will be due on the lease either.

A lessor does need to be licensed or otherwise qualified in Portugal to do business with a domestic lessee.

No such requirement is applicable.

Such provisions are accepted under Portuguese Law.

A lease may cover parts that are installed or replaced on an aircraft or engine after its execution, but only if those parts are separable. For this purpose, it is necessary to sign an addendum to the initial lease agreement.

The aircraft engines installed on an airframe should be indicated and legally separated from the aircraft if it is intended to avoid the risk of title annexation, otherwise the engines will not be considered as separate assets from the aircraft, legally speaking.

Under Portuguese law, such concepts in their proper sense do not exist. However, it is possible for a party to act on behalf and representation of itself or/and of another party if a power of attorney has been granted in such terms. Although the ANAC does not recognise such concepts as they are understood under Anglo-American law, it has been possible to register a lease in which an owner trustee would be the beneficiary, even if it has not been common to do so. It is therefore suggested that a registration in such terms should made with the ANAC.

It is possible to note such interests on the Aircraft Registry. This notation would confer publicity and effectiveness upon them.

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

The so-called RAN, which is run by the ANAC, is a specific register for leases concerning aircraft or engines.

Leases should be registered in the RAN but are not subject to any consent from government authorities, particularly the ANAC.

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

  • a notarised (or consularised/apostilled, where required) power of attorney granting a Portuguese resident the power to register the lease, since foreign owners or lessors of aircrafts must appoint an individual or company permanently domiciled in Portugal to act as attorney-in-fact to carry out the registration of the aircraft;
  • the lease agreement, notarised and, if granted abroad, apostilled;
  • a certificate of airworthiness, noise certificate, a radio licence, the air navigation logbook and an import certificate. The latter is not necessary if the aircraft comes from another EU Member State, in which case a filed traffic form is sufficient if the aircraft is imported via a Portuguese airport.

Furthermore, if all documents are duly legalised, the registration is carried out immediately by the ANAC. No government applications or consents are required as a prerequisite for the purposes in question.

Lease agreements should have the signatories of the parties authenticated by a Portuguese lawyer or a notary. If executed abroad, this authentication should be conducted by a notary and bear the Hague Apostille. The RAN accepts documents written in Portuguese and in English.

The registration of a lease does not require the payment of any taxes/duties.

This is not applicable in Portugal. There are not really any other alternative countries for such purposes.

See 2.3.5 Requirements for a Lease to be Valid and Registrable.

If the lessor is incorporated in Portugal, payment of income taxes will be due, but if the lessor is not incorporated in the country the withholding tax may be due. The withholding tax should be paid (retained) by the lessee, for which reason a gross-up clause should be included in lease agreements. The withholding charge is 25% of the rent, regarding which the lessee is usually exempt according to the Tax Benefits Statute, if it is requested from the Ministry of Finances.

In such circumstances, a foreign lessor would not be deemed to be resident or domiciled in Portugal, notwithstanding the fact that as a party to the lease agreement and thus a beneficiary of income, it would be subject to taxes as previously explained.

In principle, the lessee/operator is liable for the operation and maintenance of an aircraft or engine. If the lessor is registered with the ANAC, that does not impose per se any liability with respect to operation and maintenance.

The law considers three kinds of entities: the registered owner of the aircraft (in this case the lessor), the operator, and the air transporter, ie, the entity authorised to process the transportation in the aircraft. The owner or operator (where the owner is also the operator) of the aircraft shall be liable, regardless of fault or negligence:

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

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

See 2.4.3 Engine Maintenance and Operations.

Creditors of a domestic lessee are not permitted to attach an aircraft leased to it but owned by a different entity.

The right of the beneficiary of a mortgage over an aircraft or engine lease, regardless if that lease/lessor is registered or not in the RAN, has precedence over the lessor's rights under that lease.

It is not mandatory that either all or part of the insurances be placed with domestic insurance companies, so it is possible to carry out insurances with foreign insurance companies.

According to EU Law, airlines and aircraft operators must have insurance covering their liability towards passengers, luggage, cargo and third parties regarding acts of war, terrorism, hijacking of aircraft, acts of sabotage, illicit apprehension of aircraft and civil turmoil.

The minimum coverage requirements are set out in EU Regulation 785/2004, of the Parliament and of the Council of 21/04/2004, andthe financial thresholds and limits (per occurrence/in aggregate) are:

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

Reinsurances of up to 100% coverage can indeed be placed outside Portugal.

According to the Portuguese General Law of Insurance, it is possible for rights belonging to the insurer, and which were conferred to this party under the reinsurance agreement, to be conferred to third parties whenever permitted by general law. In view of this, it follows that cut-through clauses in such documents are enforceable under Portuguese law.

Assignments of insurances/reinsurances are permitted.

There are no restrictions on the lessor's ability to terminate an aircraft lease and sell the aircraft following that termination, except if any limitations were established in the lease agreement in this regard. The aircraft does not need to be physically located in Portugal for such a termination and sale to take place, but the consent of the lessee to carry out the deregistration of the aircraft, given the termination of the agreement, is required. This consent is not required if the deregistration of the aircraft is a result of an event of default.

With regard to the re-export of the aircraft in such circumstances, it should be mentioned that Portugal has ratified the 1933 Rome Convention on the Unification of Certain Rules relating to the Precautionary Arrest of Aircraft, which precludes the arrest of aircraft in several cases where it would seriously disrupt commercial traffic or interfere with public services such as air transportation.

If a deregistration power of attorney (DPOA)/irrevocable power of attorney has been granted by the lessee to the lessor, neither the consent of the former nor a court order is required.

Aviation disputes should be resolved before the general judicial system set up in Portugal.

It is possible for a lessor to obtain a summary judgment, or equitable or other injunctive relief pending final resolution of judicial proceedings for such purposes if the following conditions are met, where the applicant party proves:

  • the existence of a grounded fear that the counterparty will cause a serious or barely repairable action to its rights;
  • the urgency of the matter which is not compatible with the delay of the main judicial proceedings;
  • gives summary evidence of its rights; and
  • the court should not consider that the harm caused to the other party does not considerably supersede the damage that the injunctive relief is envisaged to avoid. The estimated period to obtain such a court order could be immediate or up to 30 days, depending on the specific injunctive relief requested to the court.

Portuguese courts would uphold a foreign law as the governing law of an aircraft lease, as well as the submission to foreign jurisdictions if the parties so choose (choice of law and of jurisdiction clauses or agreements), and also a waiver of immunity by the parties to that lease if the issues in dispute were to be regarded as non-disposable rights or inalienable rights.

Portuguese courts would recognise and enforce a final judgment of a foreign court or an arbitral award without carrying out any such re-examination.

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

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

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

If the document to be subject to the Portuguese Court contains guarantees, the payment of the amount of stamp duty may be requested.

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

The lessee is not entitled to claim sovereign or other immunity from suit and this cannot be waived.

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

There are no other relevant issues of which a lessor should be aware in relation to the enforcement of its rights.

Portugal recognises the concepts of contractual assignment and novation.

Agreements governed by New York or English Law would be held valid by a Portuguese court. Whether the consent of the lessee would be required or not would depend on the law governing the lease agreement and the assignment or novation agreement. In any case, under Portuguese Law such consent is required and for registration purposes the consent is mandatory.

It is advisable for these assignments and assumption/novation to be notarised/authenticated to be enforceable against a domestic party. In addition, should such enforcement be carried out via the Portuguese judicial courts, a certified translation thereof by a Portuguese lawyer or notary would also be required.

It is necessary to register and file an aircraft and/or engine lease assignment and assumption/novation with the Portuguese aircraft registry to be enforceable in Portugal. However, they are not subject to any consent from a government entity.

For the formalities concerning registration or filing of governmental consent, see 2.3.4 Registration of Leases with the Domestic Aircraft Registry and 2.3.5 Requirements for a Lease to be Valid and Registrable.

The withholding charge is 25% of the rent, in relation to which the lessee is exempted under the Tax Benefits Statute, subject to the request to the Ministry of Finance. Thus, if the lessor is replaced as well as the rights being assigned, the lessee should file a new request.

Assignment and assumption/novation agreements are not subject to stamp duty since they are not referred to in the General Tariff Table.

Any such transfer would not be considered per se as a transfer of ownership of the aircraft.

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

The consent of the lessee or operator would be required for the deregistration of the aircraft without the lessee’s or operator’s consent. A deregistration power of attorney should be delivered at the same time as the aircraft.

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

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

A duly notarised and apostilled POA is required.

Consent from the lessee (if an event of default is not the reason for the deregistration of the aircraft) will be mandatory and an export licence (Cof Exp) will be required when the aircraft is exported to a non-EU member state.

The fees to be paid for the deregistration of an aircraft will be a certificate of deregistration (EUR38.91).

A power of attorney for deregistration will be recognised and should be granted before a notary and registered with the Portuguese Irrevocable Power-of-Attorney Registry. The ANAC accepts documents written in Portuguese as well as in English, but a deregistration power of attorney that is written in a foreign language should be translated into Portuguese to be enforceable before a Portuguese court.

See 2.8.7 Deregistration Power of Attorney.

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

It is not possible to revoke an irrevocable power of attorney if the beneficiary (the attorney or a third party) does not give its consent, except if just cause for revocation exists (eg, abuse of the granted powers). For revocation purposes the written consent of the beneficiary is mandatory.

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

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

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

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

It is possible to obtain an export licence. Upon the departure/export of an aircraft, with regard to the issuing of the deregistration certificate the following documents are required: the certificate of airworthiness, the certificate of registration, noise certification, aircraft station licence and tech log.

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

It is not possible to obtain an export permit in advance since it is only issued at the time of the exportation, or a few days earlier.

See the preceding answers in this section.

No relevant comments are applicable.

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

In Portugal, the declaration of the insolvency of a lessee does not suspend a lease agreement, albeit there may be a possibility that the insolvency administrator has to terminate the lease with 60 days' prior notice. The only exception to this is the provision according to which, if the leased asset has not yet been delivered to the lessee upon the date of the declaration of insolvency, either the lessor or the insolvency administrator may terminate the lease agreement, with either party being allowed to establish to the other a reasonable term for that purpose at the end of which the right to terminate the agreement ends. The lessor is obviously not subject to bankruptcy proceedings affecting the lessee. Therefore, they may apply such deposited funds under their own discretion against amounts due from the counterparty in accordance with the applicable legal limits. If the lessor is allowed by the insolvency administrator to revoke the lease agreement (and repossess the aircraft), the question of how and when the lessor will be paid will be determined by the status of the lessor, notably if the lessor is a secured creditor. If not, the chances are that payments to the lessor in respect of any arrears or other losses that may have arisen as a result of the breach/termination of the lease agreement will be made at a later stage and together, on a pro rata basis, with the remaining unsecured creditors. Other losses (such as loss of profits, etc) will not be automatically included, and will require a court decision. Notwithstanding, if the insolvency administrator decides to continue the lease agreement despite the lessee's insolvency, the administrator is likely to file a petition with the court asking for authorisation from the latter to pay to the lessor the amounts concerning the lease payments. The administrator cannot continue the lease without paying the contractual amounts.

In the final stages of the lease, in the course of time or on the initiative of the lessee or its representative, the lessor has the right to proceed to the deregistration of the aircraft. The insolvency proceedings may cause some delay in the repossession of the aircraft, which will probably never take less than two months. If an aircraft is not owned by the lessee, then, in the case of winding-up, the title of the aircraft will not be affected. The only exception would be regarding the right of retention in the very specific case where the lessee would somehow have a credit against the owner/lessor as result of expenses arising because of the asset in question or damages caused by it. These expenses and losses would be within the scope of owner/lessor’s liability and the lessee is obliged to deliver the asset to the owner/lessor. Apart from in this case, no liens or encumbrances may be created by the counterparty as lessee to the lease agreement. However, there is the possibility that, due to a debt of the lessee to a third party regarding the aircraft, this third party may use its retention right, which will be valid.

The owner of an aircraft has the legal right to go to court to preclude any third party from executing against the asset within its ownership. The owner is protected, but in certain circumstances it may have to take action and seek the protection of the courts, which will be granted except in cases in which the aircraft has been utilised in drug-trafficking offences. In this case, the ownership of the aircraft and its components and parts will be vested in the state without compensation. Obviously, the owner will not be prevented from seeking indemnity from the operator in such a situation. In the case of rentals, when the winding-up of a lessee occurs, the right of the owner/lessor to receive the rentals will remain valid, but it will be necessary to respect the priority of the existing credits up to the date of the winding-up of the company, as in the case of insolvency.

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

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

The inexistence of enough assets to provide for the payment of the insolvent creditors, including the lender, which if not having a guarantee of its own (eg, a mortgage) will be deemed as any other common creditor which should be equally paid accordingly with the debtor's existing assets.

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

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

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

See 2.9.2 Other Effects of a Lessee's Insolvency.

See 2.9.2 Other Effects of a Lessee's Insolvency.

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

See 2.10.1 Conventions in Force.

See 2.10.1 Conventions in Force.

See 2.10.1 Conventions in Force.

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

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

There are no exchanges controls or government consents required in respect of financing or repatriation of realisation proceeds under a loan, guarantee or security document.

Borrowers are permitted to grant security to foreign lenders.

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

It is not advisable for a lender to take share security over a domestic special-purpose vehicle that owns the financed aircraft. Pledge of shares are permitted.

Negative pledges are not applicable under Portuguese law.

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

It is not possible to rank creditors and therefore no methods of debt subordination in this regard are allowed.

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

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

The typical forms of security and recourse that would be granted in an aviation finance transaction domestically are mortgages and guarantees.

It is not possible to set up pledges over aircraft or related moveable assets such as engines, as they are only subject to mortgages.

Under Portuguese law, the concept of a trust and of the security trustee proper does not exist. However, it is possible for a party to act on behalf and representation of itself or another party as long as it has a power of attorney in this regard. The ANAC has not recognised the concept of a trust but it has been possible to register aircraft in favour of the owner trustee, although it has not been common to proceed before this authority for civil aircraft registration to carry out the registration of the transfer of the beneficial interest. It is thus suggested that such a registration be carried out before the ANAC.

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

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

It is permitted and enforceable for security assignments or guarantees to be governed by English or New York law.

It is a requirement to have a written contract or document that is duly authenticated. The registration of such an assignment is also advisable in order to be enforceable. Taking into account that, under Portuguese law, rights may only be fully enforced against parties via judicial proceedings and that according to the Portuguese Code of Civil Procedure all documents filed with courts should have a translation to the official language of the country, in such a circumstance it is necessary to file a translation of those documents.

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

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

The transfer of such security interests is permitted.

Under such circumstances the security interests are not jeopardised as long as this change is documented.

See 3.2.5 Assignment of Rights and Benefits without Attendant Obligations.

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

It is necessary to file  a domestic law mortgage over an aircraft or engine with the registry to produce legal effects.

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

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

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

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

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

There is no specific timeframe to carry out a discharge a lien or mortgage over an aircraft. The timeframe would depend on the lien or mortgage to be discharged. As long as all documentation is provided, the average timeframe is not expected to exceed seven days.

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

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

A potential purchaser of an aircraft should check the RAN to verify that an aircraft is free of encumbrances.

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

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

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

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

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

The deregistration powers-of-attorney in favour of the secured party may be an instrument for repossession purposes.

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

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

  • the applicant party proves the existence of a grounded fear that the counterparty will cause a serious or hardly repairable action to its rights, the urgency of which is not compatible with the delay of the parallel main judicial proceedings;
  • the applicant party gives summary evidence of the existence of its rights; and
  • the court does not consider that the harm caused to the counterparty does not considerably supersede the damage that such an injunction is intended to avoid.

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

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

The payment of stamp duty may be requested.

There are no other relevant issues of which a lender should be aware in relation to the enforcement of its rights.

There are no other relevant issues or court judgments that are relevant to these matters.

No current proposals before the legislative are worth mentioning in respect of the matters referred to in 4.1 Issues Relevant to Domestic Purchase, Sale, Lease or Debt Finance of Aircraft.

CSBA & Associados Sociedade de Advogados, SP, RL

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

+ 351 213 846 200

+ 351 213 861 735

csba@csba-advogados.pt www.csba-advogados.pt
Author Business Card

Trends and Developments


Authors



CSBA & Associados Sociedade de Advogados, SP, RL is a leading law firm in Portugal which takes the interests of its customers as a priority, designing and planning the most suitable strategy so that customers achieve their intended purposes. CSBA is proud to work for the benefit of its clients with the best law firms in the world. The firm's daily commitment is to ensure the most effective legal framework for development strategies, or for the constraints of clients, as well as to contribute to their success, increasing value in their activity by allowing a better positioning in the markets in which they operate. The pursuit of the interests of CSBA’s customers is based on excellence. CSBA is attentive to markets in which clients act to ensure sustained and rapid responses to the challenges they face. CSBA guides its activity for the accuracy and development of a spirit of partnership and transparency.

The Portuguese Aeronautical Cluster

The Portuguese aeronautical cluster has in the last few years been emerging as a highly qualified, competitive and technologically advanced economic sector and, as a consequence, has been attracting international recognition and increasing demand.

AICEP, the Portuguese Agency for Investment and Foreign Trade, in particular, has been deeply involved in and committed to supporting the growth and internationalisation of this cluster, which generates a turnover of around EUR1.7 billion. Of its output, 87% is intended for export and represents about 1.4% of the Portuguese GDP. The aim is to attain 3% of GDP by 2023.

The cluster includes more than 200 companies, nine public institutions and eight universities, providing jobs for roughly 18,500 people in Portugal. The main activities being developed are the production of aeronautical structures, aeronautical maintenance, sets for civil and military aircraft, mechatronic systems, simulation devices, space testing and testing devices, industry-supporting industrial technologies and tools and the design and manufacture of cabin interiors.

This cluster is also extremely important as a means of  direct foreign investment funding in Portugal, and key multi-national players in the sector, such as Embraer, Lauak and Mechachrome, have established themselves in the country. More recently, as a further example, STELIA Aerospace has made a 40-million euro investment in the northern city of Santo Tirso by setting up a new factory for the assembly of aeronautical structures, with a view to exporting them to Europe and the rest of the world.

For investors in this area, Portugal appears to be very well-placed, strategically located in western Europe, integrated in the European Union and its single market, with strong ties to other continents such as America, both North and South), Africa and even Asia. In South America is Brazil, a Portuguese-speaking country of some 211 million people, home of the aforementioned important aeronautical company Embraer. Portugal is politically stable and is one of the top secure countries in world, not only with high internal security rates, and low crime rates, but also from an international security point of view, with no relevant security issues or disputes with other countries or nations, also taking into account that the country has been a member of the North Atlantic Treaty Organization (NATO) since its foundation in 1949. In the 2019 and 2020 editions of the Global Peace Index (GPI), for instance, Portugal was rated as the third most peaceful nation worldwide, ranking behind only New Zealand and Iceland. A clear sign of this stability and security is the increasing number of tourists that have been visiting Portugal in the last few years: 27 million in 2019, as well as a significant increase in the number of foreign nationals becoming resident in Portugal. Last year, that figure was the highest ever since the creation of the so-called SEF (Portuguese Aliens and Borders Service) in 1976, reaching a total of 590,348 foreign citizens residing in the country in an overall native population of 10,280,000 people.

Furthermore, in recent years, this area of business in Portugal has become increasingly attractive to foreign investors, given the generally recognised skills and flexibility of Portuguese workers, their relevant qualifications in areas such as engineering and others, their linguistic capabilities, and for the quality of the country's research centres and infrastructure.

In this respect, important examples are the so-called BlueBiz: the Parque Empresarial da Península de Setúbal and ZILS: the Zona Industrial e Logística de Sines. The former is located in the Setúbal area, 40 kilometres from Lisbon, and consists of an industrial park area in which is possible to set up factories and companies and in which are established, for instance, LAUAK and Mecahers. The latter is also an industrial park, the largest in the Iberia Peninsula, covering more than 2,000 hectares, which is also an area dedicated to industrial activity such as the aeronautical industry. Both infrastructures belong to AICEP Global Parques, an entity owned by the AICEP, which manages and rents such places to companies that wish to invest in Portugal, allowing a close connection and collaboration with other important local stakeholders and players. These include the local municipalities, the ports of Setúbal and Sines, the local “Instituto de Emprego e Formação Profissional" (IEFP) institutions (employment and vocational training institutes, which provide specific training adjusted to the needs of the sector), in addition to research and learning centres such as the polytechnic institute of Setúbal “Instituto Politécnico de Setúbal”, among others.

Another important competitive advantage that Portugal shows in this regard is the fact that, as Portugal is an EU Member State, many projects in this area, particularly I&D projects, may apply to the EU for funds and financing or simply for support.

The establishment of Embraer in Portugal in 2008 was, in retrospect, in fact decisive to the positioning of Portugal as an option for the placing and development of projects and investments in the aeronautical sector and since, to date, this cluster has seen a continuous increase in importance and turnover, up to the target figures previously addressed.

It is also worth mentioning that this cluster has been taking part in important international aeronautical fairs and showrooms, such as Le Bourget, in France, and Farnborough, in the UK, and has been increasing its participation in research and development projects of high added value to the economy. A good example can be seen in the case of AED Cluster Portugal, the Portuguese Cluster for Aeronautics, Space and Defence Industries created in 2016 as a private not-for-profit organisation that in 2017 received the title of “Strategic National Competitiveness Cluster for Aeronautics, Space and Defence” from the Portuguese Government and was awarded a European research project worth EUR5.5 million.

Moreover, Portuguese companies belonging to this cluster have taken part in the last few years in several consortiums and projects such as “Projeto Alice”, “Passaro”, “Flexcraft” and others. The first of these comprises the design of the future generation of electrical regional aircraft, the second one carries out research, development, integration and testing of an interface between pilots, crew, environment and equipment within the cockpit and the third addresses the development of aerial urban and regional mobility solutions, in which has been carried out the setting-up of demonstrators of each one of the themes of the project, notably equipment to test flight and operation, a mock-up on a scale of 1:1 of the cockpit module to test its versatility and usability and to demonstrate the material and production process. This last project, in particular, aims to establish the concept of a modular and flexible aircraft, improving its global performance, efficiency and sustainability. A demonstration was carried out in early 2020 where it was possible to confirm in loco the modularity of the aircraft by means of the full-scale mock-up exhibiting the fuselage and cockpit, thus illustrating possible reconfigurations of the cockpit for different missions or operating contexts such as, for example, the carriage of people or goods, or rescue and support operations. Totally electric, the structure of this prototype was produced using different manufacturing processes and materials.

In this instance, the project was jointly carried out by INEGI, Instituto de Engenharia e Inovação em Engenharia Mecânica e Industrial, the biggest centre for mechanical engineering in Portugal, by SET, Sociedade de Engenharia e Transformação, S.A., an important company in this field, with relevant expertise and experience, by Embraer Portugal, by Almadesign, a company acting in the area of design, including innovative design for the aviation sector, and by Instituto Superior Técnico de Lisboa, one of the most prominent faculties in the field of engineering in the country, and was co-financed by the COMPETE 2020 programme, supported by EU funds.

The Portuguese aeronautical cluster is regarded as being of significant importance to the country, not only for the direct economic benefits that it generates, such as jobs, exports and fiscal revenues, but also for the innovation, highly developed skills, competitiveness and added-value characteristics that clearly emerge from this sector and the positive cumulative effect that these same qualities bring to other fields of the Portuguese economy as a whole, including its close interconnection with other relevant industrial areas that are strong in the country, such as the car industry and even the textile manufacturing sector. 

Furthermore, also making an impact in this cluster, given the increasing struggle for sufficient capacity at Lisbon Airport, Aeroporto Humberto Delgado, to accommodate the growing demand for air passengers in the Portuguese capital, the Government has approved the project to build a new airport, notably for low-cost companies, in the city of Montijo, on the south bank of the Tagus river. This is estimated to cost EUR1.3 billion and is predicted to double the capacity of the two combined airports in the Lisbon area, thus receiving up to 50 million passengers on an annual basis.

Challenges

Nevertheless, despite such strong points favouring the Portuguese aeronautical cluster, this promising economic sector also faces challenges, such as the difficulty of retaining a skilled workforce, given the appeal of higher wages in certain other European aeronautical clusters, the emergence of new clusters of this kind, for instance, in North Africa, as well as the price gap reduced by automation.

Aircraft and Parts Registration

Alongside this cluster and still in the field of aviation, it should be pointed out that Portugal is also a competitive country with regard to the registration of aircraft and aircraft parts such as engines and others, including leasing and financing connected to aviation matters.

Space and Defence Sectors

In addition to the aeronautical and aviation sector, special reference should also be made to the space and defence sectors, that with the aviation sector form the Portuguese aeronautical cluster.

In fact, in relation to the space sector, Portugal has set up a national agenda called “Portugal Espaço 2030”, that aims to increase economic growth and the creation of skilled jobs by promoting space-related markets, the generation of satellite data through new space technologies and infrastructures related to this sector throughout Portugal.

Indeed, given its privileged geographic positioning next to the Atlantic Ocean and including in its national land territory two archipelagos, namely, Madeira and the Azores, Portugal offers important features and a competitive advantage for this sector, notably by permitting the installation of key infrastructures for this sector, such as observation and measure outposts, and even space ports.

For these reasons, in 2019 the Portuguese agency for space or “Portugal Space” was created, currently headed by Ms Chiara Manfletti, an Italo-German expert in this field, and, with other important key players and stakeholders such as the Regional Government of the Azores, this agency will have the task of implementing the strategy established by “Portugal Espaço 2030”.

In April of 2020, for example, this agency launched a competition to strengthen the network of business incubators across the country in this sector. By using space exploration technologies and data, start-ups can develop critical services with an impact on energy, meteorology, forests, including forest fires, and agriculture, amongst other areas.

Moreover, it should be mentioned that a space port is already being set up on the island of Santa Maria in the Azores. This space port will have the capability to launch micro and mini satellites and will include at least two launching platforms and more than one type of launch vehicle, as well as an industrial and scientific cluster that will potentialise the local industry and research sectors. It is aimed to have this key infrastructure working by 2022.

It is important to highlight that, with regard to the sub-sector of air defence, the cluster in question also has a number of relevant projects that are being put in place, such as the recent model of the Embraer C-390 Millenium (formerly known as Embraer KC 390), which is a military light and medium carrier, that can also provide services such as in-flight refuelling or other civilian purposes, eg, in the area of fire-fighting. Within Portuguese territory, for instance, key parts of this aircraft are being developed, such as the central section of the fuselage, the main landing gear doors and the depth rudder.

Conclusion

Given the current pandemic caused by the new coronavirus SARS-COV-2, responsible for the so-called disease COVID-19, Portugal, like any other country in the world, is facing a challenging period, but nevertheless, despite this very worrying pandemic, considering the journey, pillars and results that the Portuguese Aeronautical cluster has put in place, it seems that it may have good reasons to remain fully confident for the future.

CSBA & Associados Sociedade de Advogados, SP, RL

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

+ 351 213 846 200

+ 351 213 861 735

csba@csba-advogados.pt www.csba-advogados.pt
Author Business Card

Law and Practice

Authors



CSBA & Associados Sociedade de Advogados, SP, RL is a leading law firm in Portugal which takes the interests of its customers as a priority, designing and planning the most suitable strategy so that customers achieve their intended purposes. CSBA is proud to work for the benefit of its clients with the best law firms in the world. The firm's daily commitment is to ensure the most effective legal framework for development strategies, or for the constraints of clients, as well as to contribute to their success, increasing value in their activity by allowing a better positioning in the markets in which they operate. The pursuit of the interests of CSBA’s customers is based on excellence. CSBA is attentive to markets in which clients act to ensure sustained and rapid responses to the challenges they face. CSBA guides its activity for the accuracy and development of a spirit of partnership and transparency.

Trends and Development

Authors



CSBA & Associados Sociedade de Advogados, SP, RL is a leading law firm in Portugal which takes the interests of its customers as a priority, designing and planning the most suitable strategy so that customers achieve their intended purposes. CSBA is proud to work for the benefit of its clients with the best law firms in the world. The firm's daily commitment is to ensure the most effective legal framework for development strategies, or for the constraints of clients, as well as to contribute to their success, increasing value in their activity by allowing a better positioning in the markets in which they operate. The pursuit of the interests of CSBA’s customers is based on excellence. CSBA is attentive to markets in which clients act to ensure sustained and rapid responses to the challenges they face. CSBA guides its activity for the accuracy and development of a spirit of partnership and transparency.

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