The execution of an aircraft or engine sale agreement itself (including the sale of an ownership interest in an entity owning an aircraft or engine) does not generally result in taxation, irrespective of the location of the aircraft or engine and the seller’s domicile. Generally, the transfer of ownership upon completion of the sale agreement is relevant for income tax and VAT purposes.

It is not necessary for an aircraft sale agreement to be translated, certified, notarised or apostilled/legalised to be enforceable against a domestic party. However, if legal proceedings are instigated before a German court, upon its request, foreign language documents must be translated into German to be admissible in evidence in such proceedings.

In order to transfer title, the owner must (i) declare that it transfers its title to the aircraft or engine and (ii) surrender possession thereof; the acquirer must declare that it accepts such title and must establish possession over the aircraft or engine. Transfer of title to an aircraft pursuant to German property law:

• includes any essential part (wesentlicher Bestandteil) – ie, any part that cannot be removed without the destruction of either the aircraft or the essential part;
• extends to any non-essential component (nicht wesentlicher Bestandteil) which, in the parties’ understanding, forms part of the aircraft; and
• comprises by way of rebuttable presumption any accessory (Zubehör).

Non-essential components and accessories include engines, auxiliary power units or removable parts. There is no conclusive view on whether an engine constitutes a non-essential component or an accessory.

Under German law, the sale of the ownership interest in an entity that owns an aircraft or engine is not recognised as a sale of such aircraft or engine itself.

Under German conflict of law rules, the transfer of title to an aircraft registered in a national aircraft register of a member state of the International Civil Aviation Organization (ICAO) will generally be governed by the law of the jurisdiction of the registration of such aircraft (Article 45, paragraph 1 of the German Introductory Code to the Civil Code (EGBGB)), unless there is – in exceptional cases – a substantially closer nexus to the laws of another jurisdiction, or if the laws of the jurisdiction of registration, in turn, refer to the laws of Germany (renvoi). The recognition of obligatory provisions in a bill of sale which are not related to the title transfer must be assessed independently. If the bill of sale is expressed to be governed by a law not applicable pursuant to the above, German law can vet whether such title transfer de facto abides by mandatory German law. If the aircraft is not registered in a contracting state of the ICAO, and in the case of separate engines, the transfer of title is governed by the lex situs (Article 43 of the EGBGB).

If German law does not govern the transfer of title, German conflict of law rules will look at the laws applicable to the title transfer to determine if the bill of sale is sufficient. German law does not specify minimum substantive requirements applicable to bills of sale. However, a bill of sale should:

• sufficiently determine the aircraft, the engines, and any other part as well as the aircraft documentation; and
• contain suitable wording regarding the transfer of title in accordance with the applicable domestic law.

The German Civil Aviation Authority (Luftfahrt-Bundesamt) requires proof of ownership to register the aircraft or a change in ownership in the German aircraft register (Luftfahrzeugrolle), which can be established by a bill of sale.

It is not necessary for a bill of sale to be translated, certified, notarised or apostilled/legalised to be enforceable against a domestic party. However, upon request of the competent German court, foreign language documents must be translated into German to be admissible in evidence in proceedings before such court.

A bill of sale cannot be registered or filed and is not subject to any consent from any government entity. However, the application for registration of an owner in the German aircraft register (Luftfahrzeugrolle) requires, amongst other things, the submission of proof of ownership, which in practice can be established by a bill of sale (with back-to-birth traceability, if applicable).

In general, the disposal of an aircraft or engine by a party that is tax resident in Germany triggers income taxation of any capital gain from the sale – so-called unlimited income tax liability. Also, the disposal of an aircraft registered in the German aircraft register (Luftfahrzeugrolle) by a non-German tax resident results in a capital gains taxation in Germany, irrespective of where the asset is located – so-called limited income tax liability, but subject to double taxation treaties.

VAT should not be payable if the aircraft is designated to be used by airlines predominantly providing international commercial air transport. The taxation of the sale of an ownership interest in an entity that owns an aircraft or engine depends particularly on the type of entity sold (eg, partnership or corporation) and the individual structure of the sale.

No stamp duties or transfer taxes are triggered by the disposal of an aircraft or an ownership interest in an entity that owns an aircraft in Germany.

Operating leases, wet/damp leases, finance leases and leases concerning only engines or parts are permissible and generally recognised in Germany.

A lease involving either a domestic party or an asset situated in Germany can generally be governed by foreign law, provided that a German court may give effect to German public policy and overriding mandatory provisions of either German law or of the laws of any other country pursuant to Regulation (EC) No 593/2008 (the “Rome I Regulation”), and must give effect to foreign exchange regulations pursuant to Article VIII 2(b) of the Articles of Agreement of the International Monetary Fund.

Except for reporting requirements relating to inbound or outbound payments in excess of EUR12,500 (or the equivalent in any foreign currency) from or to a foreign lessor pursuant to the German Foreign Trade Ordinance (Außenwirtschaftsverordnung), there are no restrictions imposed on domestic lessees making rent payments to foreign lessors in US dollars.

In the EU, exchange controls between member states and between member states and third countries are prohibited. However, for statistical purposes, all inbound or outbound cross-border payments in excess of EUR12,500 (or the equivalent in any foreign currency) have to be reported by German residents (Inländer) to the German Federal Bank (Deutsche Bundesbank) within a period of seven calendar days of such inbound or outbound payment pursuant to the German Foreign Trade Ordinance (Außenwirtschaftsverordnung). German law will give effect to foreign exchange regulations pursuant to Article VIII 2(b) of the Articles of Agreement of the International Monetary Fund.

The mere physical execution of a lease agreement in Germany or the transportation of an executed lease agreement into Germany does not result in any taxation. However, income resulting from a lease is subject to taxation in the case of a German tax resident lessor or, otherwise, if the aircraft is registered in the German aircraft register (Luftfahrzeugrolle) – subject to double taxation treaties – irrespective of an original or copy of a lease agreement being brought into Germany either physically or electronically. Leasing of an aircraft designated to be used by airlines predominantly providing international commercial air transport is usually exempt from VAT.

Generally, operating leasing by a German lessor does not require any regulatory approval or licence from German authorities. The provision of financing leasing (Finanzierungsleasing) within the meaning of the German Banking Act (Kreditwesengesetz or KWG) within or into Germany can be subject to regulation under the KWG. Such financing leasing of an aircraft under a financing lease will require a permit under the KWG subject to certain exemptions. The features of a German financing leasing (Finanzierungsleasing) differ from those of finance leases pursuant to International Financial Reporting Standards (IFRS) and may deviate from comparable tax rules. For other roles in aircraft financing (eg, the lender), further regulatory approvals may be required (eg, a bank licence).

We are not aware of any aspects of German law requiring the inclusion of specific provisions in a foreign law-governed lease agreement not typically already included, except for certain restrictions to sanctions provisions predicated on the anti-boycott rules in the German Foreign Trade Ordinance (Außenwirtschaftsverordnung) and Regulation (EC) No 2271/96 (the EU Blocking Regulation), which should be included if a German and/or European resident is a party to the lease agreement.

Gross-up provisions with regard to any withholding tax levied on payments by a party to a lease agreement are not prohibited by German (tax) law. Aircraft lease agreements usually allocate such risks to the lessee and contain a gross-up provision to that effect.

Aircraft or engine leases typically contain provisions relating to the replacement of parts, the alteration and modification of, and additions to, the aircraft, as well as to the corresponding title transfers. Under German conflict of law rules, the choice of law is excluded for in rem rights. As regards ownership, German law provides for mandatory provisions.

Title to an engine does not vest in the person holding title to an airframe merely by installing the engine on the airframe. However, if the same person holds title to the airframe and the engine, and the engine is on-wing or temporarily off-wing, the German aircraft mortgage (Registerpfandrecht) granted over the airframe may extend to that engine. The regime applicable to aircraft parts upon their installation depends on whether the specific part is classified as a part (Bestandteil), an essential part (wesentlicher Bestandteil) or an accessory (Zubehör). Automatic title transfer upon installation is only conceivable with respect to essential parts and only if additional requirements are fulfilled. As regards parts and accessories, an anticipated agreement to transfer title upon installation in the respective transaction document is conceivable.

The concepts of a common law trust and an owner trustee of a common law trust are not recognised under German property law because the separation of legal title from equitable title is not compatible with the German concept of title. Germany has not ratified the Hague Convention on the Law Applicable to Trusts and on their Recognition. However, a statutory trust with its own legal personality and an owner trustee of such trust are recognised in such capacities. The German Civil Aviation Authority (Luftfahrt-Bundesamt) is likely to disregard a common law trust arrangement and has occasionally registered the trustee as an unrestricted owner in the past.

The purpose of the German aircraft register (Luftfahrzeugrolle) is to implement the rules of Part 1 – Chapter III of the Convention on International Aviation (the “Chicago Convention”), which is devised to maintain the safety of navigation of civil aircraft, but not to constitute or allocate in rem rights in aircraft. The aircraft register records the ownership interest of the holder of legal title to the aircraft as notified to the German Civil Aviation Authority (Luftfahrt-Bundesamt) but does not prove ownership, and the registration of a person as owner in the aircraft register does not establish any ownership interests. The interest of a lessor of an aircraft is not recorded in the aircraft register.

An aircraft cannot be registered in the name of the aircraft operator if the operator is not the owner of the aircraft. An aircraft must be registered in the name of the owner.

Engines (whether installed on an airframe or not) are not registered in the German aircraft register (Luftfahrzeugrolle).

Neither a lease nor a lessor’s interest in or under an aircraft lease can be registered or recorded in the German aircraft register (Luftfahrzeugrolle). However, an aircraft lease to which a German operator is a party requires approval by the German Civil Aviation Authority (Luftfahrt-Bundesamt) prior to the commencement of the services. In a multi-tier lease structure, this rule applies to the entire chain of leases.

It is not necessary for a lease to be translated, certified, notarised or apostilled/legalised to be enforceable against a domestic party. As a matter of practice, the German Civil Aviation Authority (Luftfahrt-Bundesamtor LBA) accepts leases in German or English. If the lease is in any other language, the LBA may require that the lease, or excerpts, be translated and such translations certified by a registered translator.

As an aircraft or engine lease cannot be registered, there are no taxes/duties.

Generally, an aircraft is registered in the state in which its operator is domiciled, unless international treaties on the basis of Article 83bis of the Chicago Convention permit otherwise. As a practical observation, private and corporate jets operated in Germany are often registered in the USA. Commercial aircraft operated by German airlines and habitually based in Germany are typically registered in Germany.

Generally, any document submitted to the German Civil Aviation Authority (Luftfahrt-Bundesamt or LBA) needs to be an original or a notarised (and, if and as applicable, apostilled or legalised) copy of such document, and any document in a foreign language needs to be accompanied by a certified translation into German. As a general observation, registration processes with the LBA are more voluminous than in other jurisdictions.

Generally, a non-German tax resident lessor is subject to limited income taxation in Germany if the leased aircraft is registered in the German aircraft register (Luftfahrzeugrolle) irrespective of whether the lessee is domestic or not (subject to, and often reversed by, double taxation treaties).

A foreign lessor being a party to a lease agreement or its enforcement does not generally result in limited income taxation in Germany. The mere leasing of an aircraft or engine does not result in a foreign lessor being deemed to be a tax resident, domiciled or carrying on a business in Germany. Rather, a foreign lessor’s income from a lease is subject to income taxation in Germany if the aircraft is registered in the German aircraft register (Luftfahrzeugrolle), subject to, and often reversed by, double taxation treaties.

German law does not impose a general liability for the maintenance or operation of an aircraft or aircraft engine on the owner (unless it is also the operator) or lessor (if different from the owner). This can be different if the owner or lessor assumes control over the aircraft or engine (eg, in the case of a repossession) or, for example, in the case of emission rights if the operator is unknown (which appears unlikely in the case of commercial aircraft). The owner can be obliged to provide information about the aircraft and its use – eg, in connection with the registration status or emission trading obligations.

German law does not impose strict liability on the owner of an aircraft that is not the operator, or on the lessor (if different from the owner). In exceptional circumstances, an owner can be held responsible for any hazard or danger caused by the aircraft under general rules of prevention of harm and damages (police laws).

German law generally respects the owner’s title to the aircraft and does not permit enforcement into the aircraft to discharge the liabilities of any person other than the owner – eg, the lessee. There is potential liability of an aircraft for Air Traffic Control charges or of the aircraft owner for emission charges if the operator is unknown.

If the aircraft is registered in the German aircraft register (Luftfahrzeugrolle), it cannot be encumbered with statutory liens such as a workman’s lien. The owner of an aircraft can potentially be held liable for Air Traffic Control charges if the operator is unknown. Different rules may apply to engines that are off wing.

German law does not require that all or a certain fraction of the insurance coverage taken out with respect to an aircraft is underwritten by domestic insurers. However, the insurer must be permitted to do business in Germany. Owners and lessors customarily require that internationally renowned insurers underwrite the insurance.

An aircraft operator is obliged to maintain liability insurance that covers death and injury of passengers and third parties, delayed transportation of passengers, damage to, and destruction and loss of, transported goods and the property of third parties. The minimum insurance amounts depend on the maximum take-off weight of the aircraft and are provided for by European and German laws. The German Civil Aviation Authority (Luftfahrt-Bundesamt) will only issue an operating permit for an aircraft upon, inter alia, proof of sufficient liability insurance coverage for it. No such minimum insurance requirements exist for property insurance with respect to an aircraft (or any part thereof).

German law does not restrict the portion of reinsurance coverage that can be taken out abroad. German operators usually do not take out reinsurance but rather place the primary insurance with established insurers permitted to conduct business in Germany.

As far as is known, whether cut-through clauses in German law-governed insurance contracts would be enforceable under German law has not been tested in courts. In particular, it is uncertain whether customary cut-through clauses would be upheld and honoured following the insolvency of the insurer.

Assignments of insurances and reinsurances are generally permitted under German law. However, payment claims under liability insurance contracts cannot be assigned by the insured party, as it is the purpose of liability insurance to cover the affected person’s damage and, therefore, the affected person is the creditor of the claim against the insurer.

The lessor (as owner) retains legal title to the aircraft. Pursuant to the lease agreement, the lessee has the right of use and quiet enjoyment of the aircraft, provided there is no default under the lease. During the lease term, the lessor’s repossession claim would be unjustified. If the lease is governed by German law, the lessor has a statutory right to terminate the lease without a notice period for good cause (wichtiger Grund), such as payment delays or a material breach of contract, and otherwise a contractual right to terminate according to the terms of the lease.

Pursuant to German insolvency law, the lessor may not terminate a lease after a petition for insolvency against the lessee has been filed with the insolvency court on the grounds of a payment default or a general deterioration of the commercial situation and creditworthiness of the lessee prior to the insolvency filing, and any such termination rights of the lessor in a lease would be unenforceable.

The aircraft does not have to be located in Germany at the time of the lease termination.

In general, there are no restrictions on a lessor′s ability to export an aircraft from Germany, except for exports to prohibited countries. However, for certain aircraft containing parts and specific technical components which could be used for military purposes (so-called dual-use goods), an export approval will be required pursuant to the German Foreign Trade Act (Außenwirtschaftsgesetz) in connection with the German Foreign Trade Ordinance (Außenwirtschaftsverordnung or AWV). Export requirements are tighter for countries outside the EU and especially restricted for certain countries listed in the AWV.

The lessor will usually obtain an export certificate of airworthiness to simplify the aircraft registration in the new jurisdiction. That certificate is obtained from the German Civil Aviation Authority (Luftfahrt-Bundesamt or LBA) and requires inspection of the aircraft. Additional consents, approvals or licences may be required from the LBA, and the LBA will have to approve the ferry flight out of Germany.

The termination of the lease is not a prerequisite for the sale of an aircraft. The aircraft is not required to be in Germany in case or at the time of its sale.

The lessor has no right to self-help under German law should the lessee not surrender possession of the aircraft following the termination of the leasing of the aircraft. So long as the aircraft is located in Germany, repossession must be accomplished by filing a suit in a court and the subsequent enforcement of the court ruling through a bailiff (Gerichtsvollzieher). No further permissions beyond an enforceable copy of the ruling of a German court are needed to repossess the aircraft in Germany, while all customary requirements will apply for operating the aircraft. Any party that otherwise legitimately believes itself to have an in rem or security interest may intervene in the repossession proceedings.

The lessor may utilise faster provisional judicial measures; however, this possibility is restricted if the aircraft is used for specific purposes such as state or postal services, public transportation on scheduled routes, or if the aircraft is ready for take-off to a flight constituting commercial transportation of people or goods. Approval by the German Civil Aviation Authority (Luftfahrt-Bundesamt) is required to fly the aircraft out of Germany. If the aircraft is located outside Germany, the applicable rules of the lex fori apply to any repossession.

There are no specific courts in Germany that are competent to decide disputes regarding sales or leases of aviation assets. The competent court is determined in accordance with general rules. In case of enforcement of a German registered aircraft mortgage (Registerpfandrecht), the local court (Amtsgericht) of Braunschweig is competent to hear the case.

In Germany, summary proceedings (summarische Verfahren) are generally available for the enforcement of pecuniary claims – the simplified document proceeding (Urkundenprozess) – but not for the enforcement of any other right. In the case of a simplified document proceeding (Urkundenprozess) in respect of payment obligations, the court decides based on the document(s) in question and the uncontested statements of the parties. A simplified judgment can be challenged by the defendant if the defendant prefers to rely on other evidence than the documents introduced during the simplified procedure.

By way of interim relief, the competent German court may order an injunctive relief (einstweilige Verfügung) against the respondent pending final judgment if, in the absence of such injunction, the right of the petitioner would be frustrated or the realisation of such right would be substantially aggravated. This remedy is not restricted to pecuniary claims. However, the competent German court would not grant ultimate relief before the case is decided on its merits. Exceptions may apply for ancillary items such as aircraft documents.

German courts would generally uphold a foreign law as the governing law of an aircraft lease, provided that a German court may give effect to German public policy and overriding mandatory provisions of either German law or of the laws of any other country pursuant to the Rome I Regulation, and must give effect to foreign exchange regulations pursuant to Article VIII 2(b) of the Articles of Agreement of the International Monetary Fund.

A submission to a foreign jurisdiction is generally accepted on the basis of, and subject to, Regulation (EU) No 1215/2012 (the “Brussels Recast Regulation”), the Hague Choice of Court Convention, and/or the German Civil Procedure Code (Zivilprozessordnung).

A party to a lease is entitled to waive sovereign immunity either explicitly in the lease or implicitly by engaging in the legal proceedings before the competent German court without objection (rügeloses Einlassen). A blanket waiver of sovereign immunity does not necessarily include a waiver of consular immunity. A waiver of immunity by a German public entity may not necessarily be enforceable.

German courts will recognise and enforce:

• a final judgment:
1. of a court within the EU without retrial or re-examination pursuant to the Brussels Recast Regulation; and
2. of a court outside the EU if the prerequisites of the German Civil Procedure Code (Zivilprozessordnung, ZPO) are fulfilled; and
• an arbitral award pursuant to the ZPO, which refers to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 (the “New York Convention”) (see 2.6.12. Enforcement of Foreign Arbitral Decisions for further detail).

A judgment can be obtained in any currency. A judgment for payment of money expressed in a foreign currency may be satisfied in euros at the exchange rate prevailing at the time of payment unless the enforcement court decides that specific performance of the obligation to effect payment in the judgment currency has been agreed.

General limitations under German law with respect to punitive damages, compound interest, contravention of good morals (Sittenwidrigkeit), general principles of equity (Treu and Glauben) or German public policy (ordre public) have to be observed, and provisions of a lease agreement in violation thereof may be unenforceable and actual remedial actions taken by a creditor in violation thereof may be held to be illegal.

A lessor under an aircraft lease has to pay regular income taxes on its income in Germany in connection with the performance or enforcement of such lease agreement if the lessor is subject to either unlimited (German tax residents) or limited income taxation (foreign lessors such as those having a permanent establishment in Germany or if the aircraft is registered in the German aircraft register (Luftfahrzeugrolle), subject to double taxation agreements).

Unless the relevant aircraft lease contains specific provisions, a lessor must comply with statutory notice periods under the laws governing the lease if it terminates an aircraft lease.

Commercial lessees would usually not be entitled to any immunity from suit, execution or attachment, subject to restrictions on the attachment of aircraft in scheduled service operated by a lessee.

Germany ratified the New York Convention, and German courts will recognise and enforce an arbitral decision if and to the extent it contains a final and binding decision which conclusively resolves the matter.

In an enforcement scenario safeguarding the legitimate interests of either party requires the examination of the underlying facts as well as the entire scale of legal areas affected, such as contract law, statutory law, insolvency law, aircraft regulations, etc. In an imminent enforcement scenario, a creditor is well advised to retain legal experts with in-depth knowledge of aviation law.

German law recognises legal concepts of assignment and novation. An assignment (Abtretung) is the transfer of the relevant rights, claims or receivables. In a novation (Novation), an existing right or claim is replaced by a new right or claim with the replacement right or claim having equal content as the replaced right or claim, except that the right or claim is established anew and any counterclaims, objections and the like arising from the relationship between the debtor and the (original) creditor would generally not be available against the replacing right or claim.

Due to the accessory nature of the German aircraft mortgage (Registerpfandrecht), upon novation of the claim secured by the mortgage, the mortgage lapses. Further steps are required to establish a new aircraft mortgage, potentially with negative effects on the ranking of the aircraft mortgage. Similar concerns will apply to other forms of accessorial collateral (akzessorische Sicherheiten) under German law, mainly all sorts of pledges (Verpfändungen).

German law will apply German and European conflict of law rules to any finance or security document. Subject to limitations in certain circumstances and compliance with ordre public, there is general freedom of choice of applicable law under contracts between commercial parties, including lease assignments and novations. In respect of security, the law governing the collateral (eg, a claim or tangible item) will typically determine the law applicable to any security interest over such asset. The submission to a foreign venue is generally permissible between commercial parties.

As regards in rem rights over aircraft, German conflict of law rules do not allow for a choice of law, but German law would generally apply to in rem rights over an aircraft registered in Germany. Therefore, the transfer of title to an aircraft registered in Germany to the new owner is governed by German law regardless of the chosen law in the documents.

It is not necessary for an aircraft or engine lease assignment or novation agreement to be translated, certified, notarised or apostilled/legalised to be enforceable against a domestic party. As a matter of practice, the German Civil Aviation Authority (Luftfahrt-Bundesamtor LBA) accepts leases in German or English. If the lease is not in German or English, the LBA may require that the lease or excerpts thereof be translated, and such translations certified by a registered translator. Upon request of the competent German court, foreign language documents have to be translated into German to be admissible in evidence in legal proceedings.

An aircraft or engine lease assignment and assumption/novation does not require registration in the German aircraft register (Luftfahrzeugrolle). The operator must submit a copy of the so transferred or novated aircraft lease agreement to the German Civil Aviation Authority (Luftfahrt-Bundesamt).

Depending on the specific circumstances, an assignment and assumption/novation agreement may result in income taxation if the lessor is tax resident in Germany or subject to limited income tax (subject to double taxation treaties). VAT is triggered if the assignment constitutes a VATable supply or service and if no exemption applies. Usually, subject to the specific circumstances at hand, a customary novation of an aircraft or engine lease upon the sale and transfer of the relevant aircraft or engine can be structured to the effect that the novation itself does not trigger any German transfer or income tax.

In Germany, the transfer of a legal entity does not require or involve a transfer of the legal title to the assets held by such legal entity.

The German aircraft register (Luftfahrzeugrolle) is an owner register. The owner is entitled to apply for the deregistration of the aircraft. A form must be completed, signed and submitted to the German Civil Aviation Authority (Luftfahrt-Bundesamt), which maintains the aircraft register, and certain ancillary documents.

The aircraft owner’s application for the deregistration of the aircraft does not require the lessee’s consent. It is untested, however, if a lessee could take preventive action to hinder deregistration in the case that that deregistration would constitute a breach of the owner’s obligations (eg, the quiet enjoyment undertaking in favour of the lessee under a lease). A lessee, operator or mortgagee on its own is not entitled to deregister the aircraft.

For the deregistration, the owner or the owner’s legal counsel (if acting under a notarised and apostilled power of attorney) will have to submit the completed deregistration application form, the original certificate of registration (Eintragungsschein), the certificate of airworthiness and the noise certificate (Lärmzeugnis). The Eintragungsschein is to be kept on board the aircraft. Therefore, taking possession of the aircraft or at least of the certificate of registration may be required for deregistration. If an aircraft mortgage is registered against the aircraft in Germany, the mortgagee’s written consent to the deregistration of the aircraft is required.

If the documents presented to the German Civil Aviation Authority (Luftfahrt-Bundesamt or LBA) are complete and in the appropriate form, registration should usually occur within one to two weeks. If the lease forming the basis for the use of the aircraft is terminated, and the authority is informed thereof, it may take action to prevent further operation of the aircraft.

The German Civil Aviation Authority (Luftfahrt-Bundesamt) will not assure in advance the prompt deregistration of an aircraft to the owner applying for its deregistration.

There are only minor fees chargeable in respect of the deregistration of an aircraft.

A deregistration power of attorney by the owner can generally be recognised. The power of attorney should be notarially certified, apostilled/legalised and translated (in certified form) into English or German. If substantive German insolvency law applies to the owner, the power of attorney lapses upon the owner’s insolvency.

The authority of the person acting for the owner when granting the deregistration power of attorney and the corporate existence of the owner (in case it is not a natural person) have to be demonstrated by acceptable documentation (including notarially certified and apostilled/legalised incumbency certificate, commercial register excerpt or other adequate proof).

A deregistration power of attorney to deregister an aircraft from the German aircraft register (Luftfahrzeugrolle) does not necessarily have to be governed by German law.

Under German law a power of attorney expressed to be irrevocable is generally irrevocable except where there is no appropriate reason for the irrevocable nature or there is good cause (wichtiger Grund) that justifies the revocation. Therefore, while irrevocability limits the right of revocation, it does not exclude it entirely.

In principle, the export of an aircraft by the owner does not require the lessee’s consent. However, if the aircraft is to be deregistered at the same time, a mortgagee will have to consent to the deregistration. As between the owner/lessor and the lessee, deregistration and subsequent export may not be permissible as long as the lessee’s right of quiet enjoyment under the lease subsists. A mortgagee is not entitled to export the aircraft but may only cause the sequestration and the forced sale by court procedure.

The certificate of airworthiness for export is issued by the German Civil Aviation Authority (Luftfahrt-Bundesamt). The documents required for the application depend on the target country as well as the status of the aircraft. Since a certificate of airworthiness for export is only required in extraordinary instances, the time necessary to obtain an export licence may vary. Such certificate cannot be obtained in advance (eg, at the inception of the lease or registration).

There are no significant costs/fees/taxes chargeable in Germany in connection with the export of an aircraft.

For deregistration, the owner must provide the original certificate of registration kept on board the aircraft. Access to and control over the aircraft may therefore be a prerequisite if the operator is not co-operative.

If a lease agreement is restructured consensually, the amendment is usually agreed upon under the law governing the relevant lease.

Restructurings under court supervision and insolvencies are governed by the German Insolvency Code (Insolvenzordnung), encompassing the insolvency plan and other rescue proceedings as well as outright bankruptcy, or by the Stabilisation and Restructuring Act (Gesetz über den Stabilisierungs- und Restrukturierungsrahmen für Unternehmen), which came into force on 1 January 2021.

If the lessor′s centre of main interest is in Germany, the lessor can be subject to the proceedings set out in the German Insolvency Code (Insolvenzordnung). This can either be a restructuring plan aimed at rehabilitation of the debtor or an outright bankruptcy proceeding with or without the rescue of the business.

In case of the lessor′s imminent inability to pay its debts (drohende Zahlungsunfähigkeit), the lessor′s management is at liberty to commence insolvency proceedings. The management is obliged to initiate insolvency proceedings in case of actual inability to pay the debts (Zahlungsunfähigkeit) or over-indebtedness (Überschuldung), each as defined in the Germany Insolvency Code (Insolvenzordnung). In these cases, the proceedings can also be commenced by any creditor, whereas the restructuring plan proceeding is only available in a voluntary insolvency commenced by the lessor’s management.

The Stabilisation and Restructuring Act (Gesetz über den Stabilisierungs- und Restrukturierungsrahmen für Unternehmen) provides a specific voluntary pre-insolvency restructuring procedure which is available to debtors who do not belong to the financial sector.

Within the EU, the recognition of foreign insolvency proceedings is governed by Regulation (EU) 2015/848 (the “Recast Insolvency Regulation”), which provides for broad recognition of insolvency proceedings (as listed in Annex A of the Recast Insolvency Regulation) opened by the courts of another EU member state. The Recast Insolvency Regulation is generally based on the principle of universality, which means that (in the absence of any domestic secondary proceeding) the insolvency law of the country where a proceeding first commences shall (subject to certain exemptions) apply to all matters and assets of the debtor (whether located in its home jurisdiction or abroad).

The Recast Insolvency Regulation does not apply (i) to certain enterprises from the financial and insurance industries and (ii) in Denmark. German conflicts of law rules apply to these and to cross-border cases beyond the EU. These rules are similar to the corresponding provisions of the Recast Insolvency Regulation; they do not strictly follow or enact the UNCITRAL Model Law on Cross-Border Insolvency.

Irrespective of the operator′s insolvency, the German Civil Aviation Authority (Luftfahrt-Bundesamt) would not honour an IDERA in favour of the owner or financier of an aircraft as Germany has not ratified the Cape Town Convention.

As the German aircraft register (Luftfahrzeugrolle) is an owner register and the operator’s consent is legally not necessary for aircraft deregistration, no deregistration power of attorney by the operator is necessary for the owner to deregister the aircraft from the aircraft register upon the operator’s insolvency.

A valid deregistration power of attorney from the owner to the operator or a financier would generally be honoured by the aircraft registry provided that it is submitted as an original or as a notarially certified copy (notariell beglaubigte Abschrift); it does not survive the insolvency of the German owner though.

Lease agreements concerning registered aircraft generally survive the opening of preliminary German insolvency proceedings and the formal opening of insolvency proceedings concerning the lessee. Once insolvency proceedings are formally opened, the insolvency administrator of the lessee has an extraordinary statutory termination right. The lessor is barred from terminating the lease agreement on the grounds of payment defaults or general deterioration of the lessee’s creditworthiness prior to the insolvency filing.

Upon termination of the lease agreement, the insolvency administrator generally has to surrender possession of the aircraft to the lessor. Factual circumstances such as engine replacements, or a lack of the necessary licences, insurance coverage or trained personnel may prevent or delay such redelivery.

During preliminary insolvency proceedings and provided that the insolvent lessee’s operations continue, the insolvency court can order – at the request of the preliminary insolvency administrator – that the aircraft shall temporarily remain with the lessee irrespective of the termination of the lease agreement if the aircraft is material for the lessee’s operations.

As a practical observation, insolvency administrators of airlines were generally co-operative in past cases, given the risk-adjacent nature of an aircraft and its operation.

The effects of the insolvency of the borrower under an aircraft financing depend on the collateral granted. While the right to realise an aircraft mortgage remains with the secured party, the realisation of any other collateral in possession of the administrator vests in the insolvency administrator, who deducts a percentage fee and VAT (if applicable) from the realisation proceeds before remitting them to the secured party. Access to the aircraft, the aircraft documentation and the (off-wing) engines may de facto be impeded in insolvency.

German law does not provide for a moratorium in connection with the insolvency of an entity that is not a financial institution or insurer. However, any enforcement measures taken against an insolvent borrower would cease automatically upon the opening of insolvency proceedings against the borrower, as the right to realise collateral would generally vest in the insolvency administrator, who would then have to turn over the net realisation proceeds (minus a percentage fee and VAT, if any) to the secured creditor. The enforcement of in rem security over registered aircraft is exempt from this rule and may continue unless the insolvency administrator applies for its discontinuation.

Airlines can be subject to German insolvency proceedings if their centre of main interest is in Germany. Each third-party creditor can apply for insolvency proceedings upon the debtor’s illiquidity (Zahlungsunfähigkeit) or over-indebtedness (Überschuldung) (ie, balance sheet insolvency together with a negative continuation prognosis for the operations). The directors of a company generally have to apply for insolvency in these circumstances as well (subject to a relatively short grace period) and may file for insolvency upon the company’s imminent illiquidity (drohende Zahlungsunfähigkeit).

Solvent liquidation of a company outside insolvency requires a shareholder resolution. Subject to certain requirements, secondary insolvency proceedings can be opened over branches or assets of foreign airlines in Germany.

In the insolvency of a lessee of an aircraft, the lessor may repossess the aircraft upon the termination of the underlying lease agreement. Also, during preliminary insolvency proceedings and following the opening of insolvency proceedings, the aircraft lease agreement can generally be terminated by the lessor in accordance with its terms and the aircraft can be repossessed as a consequence of such termination, provided that:

• during preliminary insolvency proceedings and irrespective of the termination of the lease agreement, the competent insolvency court can order, upon the insolvency administrator’s application, that the aircraft shall remain with the insolvency estate against compensation in case it is material for the continuation of the insolvent lessee’s operations; and
• the lessor is barred from terminating the lease agreement on the grounds of payment defaults or general deterioration of the lessee’s creditworthiness prior to the insolvency filing or on the grounds of the insolvency itself.

In the insolvency of an aircraft lessee, and despite the continuation of the aircraft lease agreement (see 2.9.5 Other Effects of a Lessee’s Insolvency), the insolvent lessee often lacks the liquidity necessary to fund the contractually agreed maintenance of the aircraft.

During preliminary insolvency proceedings, lease rentals might not necessarily be paid (in full). If the lease agreement continues beyond the formal opening of insolvency proceeding, claims for lease rentals incurred following the formal opening of insolvency proceedings constitute preferred claims against the insolvency estate. The lease security deposit would be available to the lessor to cover outstanding claims, but the insolvent lessee will very likely not replenish the security deposit.

Maintenance reserves would usually remain with the lessor. The treatment of the maintenance reserves will very much depend on the underlying contractual arrangements.

The exercise of set-off and retention rights against the insolvent party is widely restricted as a matter of statutory German insolvency law.

Germany has not ratified the 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.

See 2.10.1 Conventions in Force.

Lenders who offer loans in Germany are subject to German banking supervision by the German Banking Regulator (Bundesanstalt für Finanzdienstleistungsaufsicht) and to the German Banking Act (Kreditwesengesetz).

There are no particular statutory restrictions on borrowers in conjunction with the use of the loan proceeds. However, borrowers have to abide by rules that generally apply to the use of monies (eg, compliance with sanctions) and with the applicable contractual use of proceeds provisions.

Exchange controls between member states and between member states and third countries are prohibited in the EU. For statistical purposes, all inbound and outbound cross-border payments in excess of EUR12,500 (or the equivalent in any foreign currency) have to be reported by German residents (Inländer) to the German Federal Bank (Deutsche Bundesbank) within a period of seven calendar days of such inbound or outbound payment pursuant to the German Foreign Trade Ordinance (Außenwirtschaftsverordnung). Also, a German court must give effect to foreign exchange regulations pursuant to Article VIII 2(b) of the Articles of Agreement of the International Monetary Fund.

Borrowers may grant security to foreign lenders. Depending on the legal form of the corporate borrower, certain statutory restrictions exist if the lender is a direct or indirect affiliate or if security is granted for the liabilities of an affiliated person (upstream or side-stream collateral). The details depend on the specific corporate set-up.

In the case of a German limited liability company (Gesellschaft mit beschränkter Haftung, GmbH) an upstream and/or cross-stream guarantee can expose its directors to personal civil liability unless it is ensured that the assets required for maintaining the registered capital are not distributed to the GmbH’s direct or indirect shareholders or any of their respective subsidiaries. The same test applies to the general partner of a limited liability partnership (GmbH & Co. KG). Even stricter restrictions exist for German stock corporations (Aktiengesellschaften) and Societates Europaea (established under German law).

It would not be unusual in aviation finance transactions for a lender to take share security over a domestic special purpose vehicle which owns the aircraft. German law generally recognises share pledge agreements. Share pledges over German limited liability companies require notarisation with relatively high notarial fees.

A negative pledge obliging the pledgor not to grant security to a third party is generally recognised as an obligatory arrangement but would not restrict the grantor’s ability to dispose of its assets.

There is no material restriction or requirement imposed on intercreditor arrangements. Creditors can be considered to form a civil law partnership with regard to any collateral held jointly in Germany or if the intercreditor arrangements are governed by German law.

Syndication is generally permissible under German law. The role of an agent (such as the facility agent) under a syndicated loan is generally recognised in Germany and well established in the German lending market, including the aviation finance market.

Generally, debt can be or become subordinated by means of a contractual subordination or a structural subordination as well as by operation of law (eg, in the case of a shareholder loan).

The concept of transfer and assumption of contracts (including the debt) is generally recognised in Germany. Certain implications of the Rome I Regulation may require specific attention.

Pursuant to the German Civil Code (Bürgerliches Gesetzbuch), usury is prohibited, and any agreement providing usurious consideration is void ab initio. Compound interest cannot be validly agreed upon in advance under German law.

Typical forms of security and recourse granted in a domestic aviation finance transaction would be an aircraft mortgage, a security assignment (regarding rent payments, other lessor rights under a lease agreement, insurance proceeds, requisition and total loss proceeds), a share pledge, an account pledge, a parent company guarantee, cross-collateralisation arrangements, airframe and engine warranties arrangements, a security deposit and a deregistration power of attorney. The selection and details of the security instruments employed depend on the specific transaction structure and the parties involved.

If the aircraft is registered in the German aircraft register (Luftfahrzeugrolle), no in rem security can be taken over the aircraft other than a German aircraft mortgage.

The concept of a security trustee (Sicherheitentreuhänder) is generally recognised and frequently employed in Germany. With respect to accessory security instruments such as mortgages and pledges, it should be combined with a parallel debt arrangement in favour of the security trustee (eg, on the basis of an abstract acknowledgement of debt).

A borrower can assign to a security trustee its rights under a lease agreement pursuant to a security assignment, and it may mortgage the aircraft to the benefit of the security trustee. A security transfer of title (Sicherungsübereignung) in an aircraft would require additional legal consideration.

It would be usual for a borrower/lessor to assign the rights and benefits only – ie, without also transferring the related obligations of the lessor under an aircraft lease to the security trustee.

A security assignment or guarantee can generally be governed by English or New York law. Upon their enforcement, a German court may give effect to German public policy and overriding mandatory provisions of either German law or the laws of any other country pursuant to the Rome I Regulation. Furthermore, it must give effect to foreign exchange regulations pursuant to Article VIII 2(b) of the Articles of Agreement of the International Monetary Fund. It is generally recommendable that a security assignment follows the law governing the right that is assigned.

In connection with any German law security assignment, a notification of the third-party debtor is necessary to prevent the third-party debtor from discharging its obligations by making payments to the assignor instead of the assignee. It is not necessary for a security assignment to be translated, certified, notarised or apostilled/legalised to be enforceable against a domestic party. However, if legal proceedings are instigated before a German court, upon request of the court, foreign language documents have to be translated into German to be admissible in evidence in such proceedings.

An aircraft registered in Germany should have a German aircraft mortgage; other security over the aircraft would not be enforced by German courts. Such mortgage needs to be notarised and registered with the German aircraft mortgage register (Register für Pfandrechte an Luftfahrzeugen), which is different from the German aircraft register (Luftfahrzeugrolle). The costs for the notarisation and filing depend on the amount of the secured obligations. As Germany has not ratified the Cape Town Convention, no international interest can be registered against the aircraft on the basis of an aircraft mortgage.

A security assignment of claims or rights cannot be registered in Germany.

A security interest over an aircraft pursuant to a German aircraft mortgage (Registerpfandrecht) can generally be transferred. Due to its accessory nature, it can only be transferred together with the secured obligations and to the same person and requires registration with the German aircraft mortgage register (Register für Pfandrechte an Luftfahrzeugen).

The effects of any change in the identity of a secured party under a German law security assignment depend on the specific arrangements made with respect to such security interest – eg, whether a security trustee concept has been introduced or not. The transfer of a mortgagee’s position under a German aircraft mortgage (Registerpfandrecht) is possible if transferred together with the secured obligation, and it requires registration with the German aircraft mortgage register (Register für Pfandrechte an Luftfahrzeugen).

The concept of “parallel debt” on the basis of abstract acknowledgements of debt is generally an established concept in Germany.

A secured party under a security assignment is generally not deemed to be resident, domiciled, carrying on business or subject to any taxes in Germany solely because it is a party to, or the enforcement of, such security assignment.

A German aircraft mortgage would take effect upon its registration in the German aircraft mortgage register (Register für Pfandrechte an Luftfahrzeugen). Such mortgage encompasses engines that are on-wing and owned by the same legal entity or natural person owning the airframe.

An engine installed on an airframe owned by the same person can become subject to an aircraft mortgage pertaining to such airframe. For a spare engine that is off-wing or owned by a person other than the owner of that airframe, other security interests – such as a pledge or security transfer of title – may be available.

Typically, an account pledge would be used to take security over a bank account (such as a lease receivables account), and it requires, among other things, a notification to the account bank.

In the case of:

• undischarged European Union Emission Trading Scheme payments;
• unpaid VAT and/or customs in case of an import of an aircraft;
• due and outstanding Eurocontrol charges; and
• non-payment of certain official charges as well as fines as a result of a breach of obligations under the German Air Traffic Act (Luftverkehrsgesetz),

the relevant authority can – with the help of a bailiff (Gerichtsvollzieher) – register a non-consensual lien over an aircraft registered in Germany if the debtor is the aircraft owner (and in case of air traffic control charges if the operator is unknown).

Repairer’s charges, otherwise generally permitted under German civil law, cannot be created in respect of German-registered aircraft. However, in the case of salvage, the Act on the Rights in Aircraft (Gesetz über Rechte an Luftfahrzeugen) provides for a first-priority lien if certain conditions are met.

A German aircraft mortgage can be granted over more than one German-registered aircraft.

One has to distinguish between the discharge of the mortgage itself and the deregistration of the mortgage from the register. In general, the mortgage as a legal right ends automatically if the claim secured by the mortgage ceases to exist. To record the release of the mortgage its deregistration from the German aircraft mortgage register (Register für Pfandrechte an Luftfahrzeugen) should be sought. Vis-à-vis third parties acting in good faith, the register is generally deemed correct.

Once the required documents have been submitted to the mortgage register, it usually takes at least one week until written confirmation of deregistration is received by the mortgagee and mortgagor.

German aircraft mortgages must be registered in the German aircraft mortgage register (Register für Pfandrechte an Luftfahrzeugen) to be effective. The mortgage registration avails in rem effects and generally entitles the secured party to enforce the aircraft mortgage and obliges the owner to tolerate the foreclosure of the aircraft.

In the case of:

• a default in the payment of Eurocontrol charges by an aircraft operator and, if the operator is unknown, non-payment of such charges by the owner;
• unpaid VAT and/or customs in case of an import of an aircraft; and
• non-payment of charges for official acts, especially for examinations and inspections, according to the German Air Traffic Act (Luftverkehrsgesetz) and the Act on the German Civil Aviation Authority (Gesetz über das Luftfahrt-Bundesamt),

a bailiff (Gerichtsvollzieher) can be retained by the relevant authority to detain and encumber the aircraft – to the extent that the defaulting debtor is also the owner of the aircraft, whereas an aircraft which is registered in the German aircraft register (Luftfahrzeugrolle) may be encumbered with a German aircraft mortgage (Registerpfandrecht) and an aircraft registered abroad may be encumbered by way of attachment.

In principle, the non-consensual lien would arise over one aircraft, whereas the Act on the Rights in Aircraft (Gesetz über Rechte an Luftfahrzeugen) generally provides for the entitlement of the bailiff to encumber more than one aircraft registered in the German aircraft register (Luftfahrzeugrolle) with a German aircraft mortgage (Registerpfandrecht).

A potential purchaser of an aircraft may search the German aircraft mortgage register (Register für Pfandrechte an Luftfahrzeugen) to verify that an aircraft is free from encumbrances; furthermore, a check should be run for Eurocontrol charges and, if the aircraft was previously registered in any other country, a check in that jurisdiction and in the International Register is recommended.

A security assignment over rights and claims, constituting an in rem interest over the respective collateral, is typically enforced by the secured party collecting any claims and in case of other rights by realising them by private sale or auction. A loan or guarantee, constituting claims in personam are enforced by filing a lawsuit against the respective debtor and seeking court title for payment or performance, as the case may be.

Under German law, notice and acknowledgement of a security assignment over German law-governed rights or claims are not necessary to establish a valid security assignment or allow for enforcement. The third-party debtor may, however, continue to discharge its obligations to the assignor and will be otherwise protected – eg, by a continuing right to set-off – unless notice of assignment or other appropriate proof of assignment is given to the third-party debtor by the relevant assignor.

German law applies German and European conflict of law rules to any finance or security document. Subject to limitations in certain circumstances and compliance with ordre public, there is general freedom of choice of applicable law under contracts between commercial parties. Regarding security, the law governing the collateral (eg, a claim or tangible item) should typically determine the law applicable to any security interest over such asset.

The submission to a foreign venue is generally permissible between commercial parties.

A final judgment by a court in any member state of the EEA on commercial matters will typically be recognised in Germany pursuant to the Brussels Recast Regulation. In the absence of specific treaties, a judgment obtained in any other jurisdiction will have to comply with certain standards of due process, and certain prerequisites of the German Civil Procedure Code (Zivilprozessordnung) and reciprocity will have to be ensured. An arbitral award will be recognised and enforced by German courts subject to certain restrictions according to the New York Convention.

The remedy of self-help is not available in Germany. A court order may have to be sought to access the aircraft, the engines or the aircraft documents (with the help of a bailiff (Gerichtsvollzieher)).

For questions of enforcement (outside insolvency proceedings), the competent court will have to be determined pursuant to general rules (eg, linking the place of venue to the debtor’s seat, the place of performance or the location of the asset). The local court (Amtsgericht) of Braunschweig has exclusive jurisdiction for the enforcement of a German aircraft mortgage (Registerpfandrecht).

Injunctive relief (einstweilige Verfügung) can generally be sought to prevent a continuing or threatening violation of the lessor’s rights. Injunctive relief will typically not accelerate the objective of the main proceedings – eg, an aircraft may be sequestered and be kept under the custody of a bailiff (Gerichtsvollzieher) but will not be handed over to the lessor claiming repossession. There may be exemptions in extraordinary circumstances for ancillary claims (eg, relating to aircraft documents) or where compliance with public law obligations is to be preserved.

A judgment can be obtained in any currency. A judgment for payment of money expressed in a foreign currency may be satisfied in euros at the exchange rate prevailing at the time of payment unless the enforcement court decides that specific performance of the obligation to effect payment in the judgment currency has been agreed.

A secured party is not required to pay taxes in a non-nominal amount in connection with the enforcement of a security agreement/aircraft mortgage per se.

Enforcement of a German aircraft mortgage can be accelerated by a related submission to immediate enforcement in the form of a notarial deed, thereby saving the need to first obtain a court title. In practice, enforcement requires close co-ordination with the local court (Amtsgericht) of Braunschweig as additional measures may be necessary to ground the aircraft and facilitate sequestration. Maintenance and storage of the aircraft while it is in the custody of the bailiff (Gerichtsvollzieher) should be supported by the creditor.