Contributed By HENAFF D'ESTREES
The execution of an aircraft or engine sale agreement does not in itself create an obligation to pay a tax in France.
As a general rule, value-added tax at the rate of 20% is invoiced to the buyer and is due from the seller of an aircraft physically located in France at the time of transfer of title. In some cases, however, an exemption may apply, such as the exemption to the benefit of companies whose services to the destination of France or departing from France represent at least 80% of the services they operate.
The aircraft sale agreement does not need to be translated, certified, notarised or legalised to be enforceable against a domestic party.
Translations are requested by the French courts.
Transfer of ownership of French-registered aircraft must be made in writing and registered with the aircraft register. The registration is proof of a valid title and includes all installed parts, such as an APU.
There is no separate register for aircraft engines.
The sale of ownership interest in an entity that owns an aircraft or engine will not effectively be recognised as a sale of such aircraft or engine itself, while the entity remains the owner.
The transfer of title to an aircraft or engine physically delivered in France will be recognised if the bill of sale is governed by either English or New York law.
The bill of sale must however include a complete description of the aircraft by which it can be identified, with the category, name of the manufacturer, type and serial number, and it must clearly indicate full transfer of ownership in order to be recognised in France.
An aircraft bill of sale does not need to be translated, certified, notarised or legalised in order to be registered and enforceable against a domestic party.
The bill of sale of a French-registered aircraft needs to be filed with the aircraft register, together with all the documents required to register the new aircraft owner.
The formalities for filing the transfer of ownership are fairly simple and may take only a few hours in urgent cases. The following applies:
When title to an aircraft or engine is transferred while the aircraft or engine is located in France, even in transit, payment of a 20% French value-added tax may be due, subject to several exemptions, including an exemption for companies where at least 80% of their flights are outside French territory. A list of French exempted companies is published each year by the tax administration. The sale of an ownership interest between foreign persons in a foreign entity that owns an aircraft or engine, including where title to such aircraft or engine is transferred while it is located in France, or in transit, does not in itself create any French tax obligation regarding the aircraft or the engine owned by the entity.
All types of operating/wet/finance leases or leases concerning only engines or parts are generally permissible and recognised.
Foreign law may apply to an asset situated in France where there is a lease between a foreign party and a domestic party.
There are no material restrictions imposed on domestic lessees making rent payments to foreign lessors in US dollars.
There are no specific exchange controls which could prevent rent payments under a lease, or any repatriation of realisation proceeds, if such lease is enforced by a foreign lessor.
There are no taxes/duties payable for physically executing a lease in France with regard to a domestic party, or as a consequence of an original or copy of a lease being brought to France either physically or electronically, if the aircraft is not located in France at the time when the lease is executed.
A lessor does not need to be licensed or otherwise qualified in France to do business with a domestic lessee.
No mandatory terms are required in a lease (or ancillary documents thereto), governed by either English or New York law, that would not typically already be included.
Tax and other withholding gross-up provisions are permissible and enforceable.
A lease can cover parts that are installed or replaced on an aircraft or engine after execution of the lease, if this is clearly provided for in the lease agreement.
The lease should be carefully drafted in order to minimise the risk of title annexation in respect of aircraft engines installed on an airframe, and it is highly advisable to affix fireproof plates on the engine mentioning the name of the engine’s owner and the name of the lessee.
In France, the concept of a trust and the role of an owner-trustee are recognised under a lease.
The French aircraft register is an owner’s register. The legal owner, not the beneficial owner, is registered as the aircraft owner on the register. Only dry leases may be registered.
When a lease is registered, the aircraft's registered owner will no longer be jointly liable with lessee for damages caused by the leased aircraft. The lessee alone will be liable, unless it can be proved that the owner has been negligent.
An aircraft may not be registered in France in the name of the aircraft operator if the operator is not also the owner, but it can be registered in the name of the owner if the owner is not also the operator.
Leases concerning aircraft are registered in the aircraft register. Engines may not be registered.
To protect a lessor’s interests it is advisable, but not mandatory, to register a lease with the aircraft register in order to avoid the risk of joint liability with the lessee in case of damage caused by the aircraft.
The formalities are fairly simple and the owner must file, inter alia:
There are generally no government applications or consents required as a prerequisite to the execution and delivery of an aircraft and/or engine lease for an aircraft registered in France.
A lease does not need to be in a specific form or translated, served, certified, notarised or legalised to be valid and registrable in the French aircraft register.
The fees payable to the aircraft registration bureau for registering a lease are nominal.
It sometimes happens that aircraft habitually based in France and operated by foreign companies are registered in other countries, such as Ireland (eg, Ryanair).
The French aircraft register requires that the bill of sale and the lease be filed in original executed copy before it will accept and process the registration of an aircraft.
Normally, translations from English are not required by the French register.
A foreign lessor will not be required to pay any income tax or capital gains upon leasing an aircraft or engine to a French lessee, but a foreign lessor established out of the European Union may be held jointly liable with the lessee for the payment of value-added tax. The lease agreement may provide that the lessee is under obligation to pay a lease rental net of any French taxes, including any withholding tax. Gross-up provisions are recognised.
A foreign lessor cannot be deemed to be resident or domiciled in France as a result of its being a party to, or its enforcement of, said lease.
Liabilities in respect of aircraft or engine maintenance and operations may not generally be imposed on a foreign lessor under a lease as a result of its being a party to such lease.
A foreign aircraft lessor may be held jointly and strictly liable with the lessee under a lease as a result of damage or loss caused by the aircraft, unless the lease has been registered with the French aircraft register.
Creditors of a domestic lessee are not generally authorised to attach an aircraft leased to it but owned by a different entity. Eurocontrol may however be authorised by the French courts to attach a leased aircraft for unpaid route charges for debts of the operator.
Some third parties’ rights may take priority over a lessor’s rights under an aircraft lease whether or not such lease/lessor is registered in the national aircraft register. For example, creditors may take advantage of retention rights for repair and maintenance costs, warehousing and depository costs, preservation costs and judicial costs.
It is not a mandatory requirement that either all or part of the insurance be placed in France.
Commercial air carriers must be insured for damages caused to passengers, luggage, freight and third parties, with a mandatory minimum. The mandatory insurance coverage requirements imposed by European regulations for damages caused to passengers are 250,000 SDR (about USD350,000 at the current rate of 1 SDR to USD1.40), and 300 million SDR (about USD420 million) for aircraft weighing between 50,000 and 200,000 kgs, in respect of liability for third parties.
Reinsurances of up to 100% coverage may be placed outside of France with foreign insurance companies based in a member country of the European Economic Area. Outside the European Union, in 2015, the European Commission granted ten-year equivalent conditions for reinsurance companies based in Australia, Bermuda, Brazil, Canada, Mexico and the United States.
Switzerland has been granted a limited equivalence.
A "covered agreement" between the European Union and the United States was signed on 22 September, 2017, detailing the financial and prudential obligations imposed on insurance and reinsurance companies.
"Cut-through" clauses in insurance/reinsurance documents are valid and enforceable.
Assignment of insurance/reinsurance is permitted.
There are no substantial restrictions on a lessor’s ability to:
The aircraft need not be physically located in France at the time of any such action(s).
A lessor cannot take physical possession of an aircraft without a court order in a case where the lessee is opposing the lessor’s possession. A court order is necessary in this case.
In France, there are no specific courts to decide aviation disputes, but commercial courts have competent subject matter jurisdiction to adjudicate disputes between commercial undertakings, whether French or foreign.
A lessor may obtain a summary judgment, equitable or other injunctive relief pending final resolution of judicial proceedings to enforce an aircraft lease. A French court would issue a summary judgment on the condition that the obligation of the debtor is not seriously questionable, or in the case of urgent matters.
French courts will generally uphold:
French courts will recognise and enforce a final judgment of a foreign court or an arbitral award without re-examining the merits of the case, once they have verified that due process has been followed, and that no fraud is involved.
A lessor under an aircraft lease may obtain a judgment in a foreign currency.
French courts may in certain cases qualify default interest or additional rent as a penalty clause following termination of a lease for default, including where the lessee fails to return the aircraft. French courts may reduce penalty clauses which are considered manifestly excessive, in consideration of the contractual obligations of the parties and the facts of the case.
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 recognition and enforcement of such lease in France.
French courts may in certain commercial cases declare a contractual clause void where this provides a too-short notice period for terminating an aircraft lease (regardless of its terms), and where this relates to an aircraft operated domestically or leased to a domestic operator.
A lessee (for example, a government entity) may contractually waive its sovereign immunity from suit (immunity of jurisdiction). The lessee’s waiver of its immunity must be expressed and must describe those of its assets which may be seized in execution of a judicial or arbitral decision.
The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) has been ratified and is in force in France. French courts will recognise and enforce a foreign arbitral decision, in the absence of fraud and providing the principles of due process have been observed.
In a case where a lessee defaults, it is advisable for the lessor to terminate the lease as soon as contractually possible and also notify the airport where the aircraft is parked of the termination of the lease, in order to limit the risk of being compelled to pay certain of the lessee’s debts, such as French airport charges.
The concepts of contractual assignment and novation are recognised by French jurisdictions.
Assuming that a lessor transferring its rights under an aircraft lease is assigning or novating its rights under such lease to a new lessor, pursuant to a New York or English law-governed assignment and assumption agreement or novation agreement or deed, the agreement or deed will be regarded as valid by a domestic court if the lessee is notified thereof, and the lessee’s consent will not be required. When a lessor is assigning or novating its obligations under the lease, the lessee’s consent is required, unless the lease provides otherwise. There are no mandatory terms that a French jurisdiction requires to be included in such agreement/deed.
It is not necessary for an aircraft and/or engine lease assignment and assumption/novation to be translated, certified, notarised or legalised to be enforceable against a domestic party. Translations of such agreements or deeds are generally required only when litigating before French courts.
When title to an aircraft has been transferred and after the new aircraft owner/lessor has been duly registered in the French aircraft register, an aircraft lease assignment and assumption/novation, executed with the lessee’s consent, must be registered and filed by the new owner/lessor in the French aircraft register. The consequences for failing to do so are that the new owner/lessor may be held jointly liable with the operating lessee for any damages caused by the leased aircraft.
The new registered owner/lessor must file an original executed copy of the relevant agreements, together with copies of all other required documents, with the French aircraft register. The registration process may take between a few hours and a few days.
No consent from any government entity is required, and no government applications or consents are generally needed, as a prerequisite to the execution and delivery of an aircraft lease assignment and assumption/novation in relation to an aircraft registered domestically.
As a general rule, French value-added tax is due any time aircraft ownership is transferred while an aircraft is located on French territory, subject to specific exemptions. Subject to the above, no taxes/duties are payable in respect of the execution of an aircraft lease assignment and assumption/novation agreement, or as a consequence of an original or copy thereof being brought into France, either physically or electronically.
When the ownership interest of an entity, or the beneficial interest in a trust, owning an aircraft is transferred (with the legal title, to the asset remaining with that entity), no filing with the French aircraft register is required, because the entity will remain the registered legal owner of the aircraft.
Only the owner of a registered aircraft may deregister an aircraft in France.
The aircraft owner may apply for the deregistration of the aircraft without the lessee’s consent once the registered lease has been terminated and once any registered mortgage has been released.
The following documents and information must be filed by the owner in order to deregister an aircraft:
The deregistration process typically takes a few hours to a few days to complete.
The French aircraft register will not provide advance written assurances to an aircraft owner, mortgagee or lessor as to the prompt deregistration of the aircraft until all the required documentation is filed with the executed request.
The fees charged by the aircraft register in respect of the deregistration of an aircraft are nominal.
The Irrevocable Deregistration Authorisation of the Cape Town Convention is not recognised in France because France is not a party to the Convention.
This is not applicable in France.
This is not applicable in France.
This is not applicable in France.
Once the lease is terminated and the aircraft has been repossessed, the aircraft owner may export the aircraft without the lessee’s consent. The lease generally provides that the lessee will assist the lessor, if and when needed, to facilitate the deregistration and export of the aircraft. The aircraft does not need to be located in France at the time of deregistration.
It is not possible for a mortgagee to deregister and export a registered aircraft. Deregistration of an aircraft from the French aircraft register may be made only by the aircraft owner after any registered mortgage will have been released by the mortgagee.
Export Certificates of Airworthiness for used aircraft are issued in France upon written request to the civil aviation authority in accordance with the applicable European safety regulations. In practice, the process may take from a few days to several weeks.
No significant costs/fees/taxes are charged in respect of the export of an aircraft.
Proof of removal of registration marks from an aircraft need not be provided for deregistration to be granted.
Irrevocable deregistration and export request authorisation (IDERA) is not recognised in France because France is not a party to the Cape Town Convention.
When the lessee of an aircraft, who is in possession of that aircraft, is put into liquidation or administration or similar process, the following generally applies:
The main risk for a lender if a borrower, guarantor or entity providing security becomes insolvent is that the debts which were outstanding before the bankruptcy judgment will be left unpaid. However, any new loan made to a borrower in bankruptcy that is deemed necessary for the continuation of its activities after the date of the bankruptcy judgment, will benefit from preferential rights of payment.
An observation period may be ordered by the bankruptcy court for six months, renewable for another six-month period, during which no payment or judicial action for payment or for termination for default of payment, may be made for debts due before the bankruptcy judgment or those due after the judgment, which are not necessary to continue the debtor’s activity. All procedures of execution on the debtor’s assets are also either suspended or prohibited.
In France, an insolvent lessee can be liquidated or placed in administration or receivership either at its own request or on the request of a creditor or the public prosecutor.
In repossessing an aircraft after the bankruptcy judgment of a lessee, the following applies:
If a domestic lessee is liquidated by a French court judgment, the following generally occurs:
The Convention on International Interests in Mobile Equipment (the Convention) and the related Protocol on Matters specific to Aircraft Equipment (the Protocol) are not in force in France.
This is not applicable in France.
This is not applicable in France.
This is not applicable in France.
The 1948 Geneva Convention on the International Recognition of Rights in Aircraft is applicable in France. The 1933 Rome Convention for the Unification of Certain Rules relating to the Precautionary Arrest of Aircraft is not applicable in France.
Regular lending activities in France are limited by the banking monopoly rule to credit institutions which are licensed to do business in France as credit institutions, or to credit institutions duly established and authorised in the European Union or in the European Economic Area. However, the issuance of bonds stays outside the banking monopoly.
There are no usury rate prohibitions for loans made to French corporations. The borrowers may use the loan proceeds in accordance with their own corporate purpose and benefit. A withholding tax of 75% will not generally be due, except in certain circumstances where a borrower makes reimbursement payments to an entity based in a state or territory which is considered as non-co-operative regarding transparency and exchange of information in fiscal matters.
Except where French public order or strategic sectors are concerned, no exchange controls or government consents are material to any financing or repatriation of realisation proceeds under a loan, guarantee or security document.
Borrowers are permitted to grant security to foreign lenders when this is not contrary to the corporate interests and benefit of the borrower, and if made in accordance with French corporate and monetary law.
Downstream, upstream and/or cross-stream guarantees are permitted in favour of lenders when they are made in accordance with the corporate interest and benefit of the guarantors, and in accordance with corporate and monetary law. There are no registration requirements.
It may be advisable for a lender to take share security over a domestic special purpose vehicle which owns the financed aircraft. Pledges of shares are possible under French law.
Negative pledges are recognised by the French courts when made in accordance with the corporate interest and benefit of the pledgor.
There are no specific or substantial material restrictions or requirements imposed on intercreditor arrangements.
The concept of agency and the role of an agent (such as a liability agent) under a syndicated loan is recognised in France.
All valid methods of debt subordination are permissible and recognised.
The transfer or assignment by a creditor of all or part of an outstanding debt under an English or New York law-governed loan is permissible and recognised once the debtor has been notified of this.
There are no limitation laws on interest regarding loans to business legal persons, except for overdraft debts.
The typical form of security over an aircraft in France is the aircraft mortgage (hypothèque) which is governed by French law and, once it has been registered with the aircraft register, permits the creditor to seize and proceed to a judicial sale of the aircraft in case of default of payment.
No pledge (gage) may be made or registered for a French-registered aircraft.
Foreign trusts and the role of a security trustee are recognised by the French courts, and the Supreme Court has declared that parallel debt structures are not contrary to French international public order.
A borrower may assign its rights to an aircraft or under an aircraft lease (including in relation to insurances) to a foreign security trustee, pursuant to a security assignment or mortgage.
It is possible to assign the rights and benefits only, without also assigning the attendant obligations of the lessor, under an aircraft lease.
A security assignment or guarantee can generally be governed by English or New York law, as long as it does not contradict French public order rules, in order to be fully enforceable in France.
Subject to the terms of the agreement, the transfer of a French aircraft mortgage by a mortgagee must be notified to the mortgagor, and the transfer of an engine pledge must be notified to the former pledgor. The new mortgagee must be formally registered in the aircraft register in order to perfect the transfer of the mortgage and bind third parties. In all cases, a translation of a mortgage assignment will need to be produced in court.
The transfer of an engine pledge is perfected by registering the transfer with the national register of pledges, after notice has been given to the previous pledgor.
The transfer of a registered aircraft mortgage is perfected when the mortgagor is notified and the new mortgage document is filed with the French aircraft bureau.
If an English or New York law-governed security assignment is taken in respect of an aircraft registered domestically, it may be advisable for the financier to take out and register a mortgage on the aircraft in addition to this.
An English or New York law-governed security assignment may not be registered in France on the aircraft register.
The transfer of security interests over an aircraft and/or engines is generally recognised under French law.
If the identity of the secured parties under a security assignment changes after its execution, the security interests may be jeopardised when the required statutory notices, filings and registrations are not duly made.
The jurisprudence of the Supreme Court permits parallel debt structures to be used in France so that the security trustee has an independent right to the secured debt.
A secured party under a security assignment will generally not be deemed to be resident, domiciled or carrying on business in France. In certain cases, it may however be subject to French taxes as a result of its being a party to, or its enforcement of, such security assignment, for example, when the secured party becomes the legal owner of the aircraft.
A domestic law mortgage over an aircraft is perfected by its registration with the aircraft register.
Pledges over spare engines may be taken and registered with the national register of pledges (Registre national des gages) and are perfected once registered.
A pledge is typically used to take security over a bank account (such as a lease receivables account) and is simply perfected by notifying the bank holding the debtor's account about the pledge.
Third party liens for debts such as unpaid airport fees, navigation charges and repairers’ costs are not registrable.
In the case of repairers’ costs and similar liens, a statutory right of retention permits the repairer to retain physical possession of an aircraft or an aircraft engine as long as the contractual debt to the repairer is not paid in full. The right to retention may not be used to cover the value of work done on other assets which are no longer in the physical possession of the repairer. No court order is necessary for the right to retention.
Where airport charges are due, the airport authority may ask the court to be authorised to attach any of the aircraft operated or owned by the debtor.
In the case of default of payment of route charges, the civil aviation ministry may ground the entire fleet operated by the debtor until full payment has been made. This administrative decision can be taken without a court order.
The discharge of a lien or mortgage over an aircraft may be made in less than a day.
Mortgages are registered for ten years in the aircraft register. There is no registry for airport or navigation charges. The mortgage registration gives the mortgagee a preferential right of payment out of a judicial sale of the debtor’s aircraft.
There are no statutory rights or non-consensual preferential liens on a fleet-wide basis.
A potential purchaser of an aircraft should search the aircraft register to verify that an aircraft is free of mortgages.
There are no significant differences in enforcing a security assignment as opposed to a loan or guarantee. In all cases, any difficulty encountered in enforcing the agreement should be referred to the court of competent jurisdiction.
If under a security assignment, security is granted to a security trustee by a lessor in respect of its rights under an aircraft lease, that security trustee may enforce its rights under the security assignment pursuant only to a notice and acknowledgement executed by that lessor and the relevant lessee respectively, in connection with such security assignment.
Generally, the French courts will uphold a foreign law as the governing law of a finance or security document, and submission to a foreign jurisdiction.
French courts will recognise and enforce the final judgment of a foreign court or an arbitral award, without re-examining the merits of the case.
A secured party cannot take physical possession of an aircraft to enforce a security agreement/aircraft mortgage without the lessee’s or operator’s consent.
No French courts have special competent jurisdiction to decide enforcement actions under a security agreement/aircraft mortgage. In commercial aviation matters, the cases are always adjudicated by commercial courts.
A secured party may obtain a summary judgment, equitable or other injunctive relief pending final resolution of judicial proceedings to enforce a security agreement. It is not generally necessary to give a guarantee or post a bond in connection with such summary judgment.
It is possible for a secured party under a security agreement to obtain a judgment in a foreign currency.
A secured party will generally not be required to pay taxes or fees in a non-nominal amount in connection with the enforcement of a security agreement.
In order to assess its risk, it is important for a lender to have a clear view of the economic and financial health of a debtor. If the debtor is a French company, a complete search of the corporate and financial data of that company must be made by the lender’s local counsel on the French register of commerce and companies.
It should be noted that the highest administrative court, the State Council (Conseil d’Etat), passed judgment in July 2003 that a retention by the Paris airports authority of several aircraft operated by a lessee had been made in violation of the right of property of the aircraft owner/lessor. The leases had been terminated for default of payment. According to the State Council’s judgment, Article 1 of the European Convention on Human Rights guarantees the respect of any person’s right of property, which is considered as a “fundamental freedom,” and the airport was ordered to pay damages to the company.
There are no current legislative proposals in relation to the matters covered by this chapter.