Aviation Finance & Leasing 2023 Comparisons

Corporation Tax on Lease or Loan Payments

The Income Tax Ordinance (New Version), 1961 (the "Ordinance") provides generally that non-residents of Israel will be subject to income tax in Israel only with respect to income accruing or deriving from certain types of identifiable sources of income in Israel.

Notwithstanding the foregoing, an exemption from income tax exists under Israeli law in connection with interest payments and leasing or rental payments made by an Israeli resident to a non-Israeli resident in relation to an aircraft or aircraft engine that is used for transporting passengers or cargo on international routes, subject to meeting the requirements of the exemption.

Additionally, the applicable international tax treaty may dictate the tax treatment of such income, and thus must be consulted on a case-by-case basis.

Withholding Taxes

Payments made by Israeli taxpayers to companies or individuals that are not deemed to be tax residents of Israel that constitute taxable income are subject to a withholding of tax at the source, which is typically between 20 and 25%. Certain exemptions under the Ordinance or international treaties may apply; however, a specific exemption certificate will need to be issued by the Israel tax authorities for financial institutions in Israel to effect payment.

Value Added Tax

Israel’s VAT Law provides that value added tax, which is currently 17%, is imposed on transactions and the importation of goods into Israel. Certain aircraft sale transactions with purchasers who provide scheduled passenger or cargo transportation services for consideration may be zero rated for the purpose of VAT.

Capital Gains Tax

Aircraft sale transactions where the seller is an Israeli resident or the aircraft is physically located in Israel may be subject to capital gains tax. This should be examined on a case-by-case basis depending on the facts at hand.

From a practical point of view, in any court proceeding, any sale agreement that is not in Hebrew or English should be translated into Hebrew or English, which ideally should be a certified translation.

Title to an aircraft, engine or any part that has a serial number is customarily transferred by a bill of sale that has been duly executed by the seller.

The sale of an ownership interest in an entity that owns an aircraft or engine will not be recognised as a sale of such aircraft or engine; however, a change of control in such entity may require the consent of the Minister of Transport if the new owners are not citizens or permanent residents of Israel.

Transfer of title to an aircraft or engine delivered in Israel through a bill of sale governed by English or New York law will generally be recognised in Israel, as Israeli legislation does not limit parties from choosing foreign law as the governing law of their contracts. However, foreign law will need to be proven in court by a witness who will provide an expert opinion on the form and substance of such foreign law.

In the case of an aircraft, the Aviation Regulations (Registration and Marking of Aircraft), 1973 provide that the bill of sale must include the following details:

• the manufacturer, type and design of the aircraft;
• the serial number of the aircraft;
• the nationality and registration mark;
• the names of the seller and purchaser; and
• the date of transfer of ownership.

From a practical point of view, in any court proceeding, it is advisable to have any bill of sale that is not in Hebrew or English to be translated into Hebrew or English.

Aircraft bills of sale are filed with the Israeli Registrar of Aircraft in connection with the registration of aircraft. The Registrar generally accepts duly executed bills of sale in Hebrew or English. To register a bill of sale that is in a language other than Hebrew or English, the Registrar may require a notarised and apostilled translation of the bill of sale into Hebrew or English. An original bill of sale is required to be presented to the Registrar to give effect to the registration.

In addition to the bill of sale, in order to register an ownership interest in an aircraft, an owner must submit an original aircraft registration application in the form prescribed by the Registrar and signed by the owner (or its authorised agent or representative) with the following attachments.

• If the application is made by a corporation, corporate authorisation must be given by the relevant organ of the relevant corporation duly empowering the individual executing the application to do so, approved and certified by such corporation’s authorised signatory for such purpose. In the case of an Israeli corporation, the applicant must also submit sufficient proof of such corporation’s registration with the Israeli Companies Registrar or another applicable authority.
• If the application is executed by an agent or representative of the owner of the aircraft, the application shall expressly state the name of the owner and include details of the agent or representative and state that they are acting in such capacity, enclosing a notarised power of attorney from the owner presented not later than three years from its issuance, unless it expressly provides that it shall be in effect for more than three years. If the power of attorney is executed outside Israel, it should be notarised and apostilled or be attested by an Israeli diplomatic or consular representative or by a public notary in compliance with the requirements of the Israeli Evidence Ordinance regarding proof of foreign certificates.

• If the aircraft was previously registered in a foreign country, sufficient proof must be provided that such registration has been cancelled or is no longer valid.
• If the aircraft was not previously registered in a foreign country, an affidavit or other sufficient proof must be given that the aircraft has never been registered in a foreign country to the satisfaction of the Registrar.
• A receipt for the payment of the applicable registration fees in respect of the certificate of registration and issuance of the applicable registration marks must be provided.
• In the event of a change of ownership, in addition to the bill of sale as noted above, any previous certificates of registration for the aircraft, as well as sufficient proof regarding the change of ownership, must be provided.
• In respect of an aircraft not previously registered in Israel, proof of payment of the applicable customs payment (or exemption thereof) is required. The Registrar will accept an importation declaration regarding the import of the aircraft executed by the customs authority as sufficient proof. In the event that the aircraft is to be registered prior to its arrival in Israel, the submission of an import declaration may be delayed for 30 days.

The Registration Regulations also provide for additional registration requirements in special circumstances such as in transfers by force of law, inheritance and realisation of security.

The execution and delivery of a bill of sale do not require any government applications or consents; however, the registration of an aircraft by an owner who is not a citizen or permanent resident of Israel with the Israeli Registrar of Aircraft will require certain consents; see 2.3.4 Registration of Leases With the Domestic Aircraft Registry.

For taxes and duties payable upon the execution or delivery of a bill of sale, or the consummation of a sale of ownership interest in an entity that owns an aircraft or engine, see 1.1.1 Taxes/Duties Payable Upon Execution of the Sales Agreement.

Operating leases, wet leases and finance leases are generally permitted and recognised under Israeli law, as are leases over engines or spare parts.

Leases involving a domestic party, or an asset situated in Israel, may be governed by a foreign law. However, Israeli courts may limit the application of foreign law if it is determined that its application would be incompatible with mandatory laws or the public policy of Israel. In certain cases, Israeli courts may also determine that certain mandatory legislation is applicable to persons, actions or assets located in Israel, notwithstanding the expressed intention of the parties.

There are no material restrictions on payments by domestic lessees to foreign lessors being made in US dollars.

Israeli law does not contain exchange controls that prevent rent payments under a lease or repatriation of realisation proceeds, except with respect to withholding taxes and measures imposed by Israeli banks under applicable anti-money laundering regulations.

For taxes and duties payable upon the execution of a lease in Israel and/or by an Israeli party, see 1.1.1 Taxes/Duties Payable Upon Execution of the Sales Agreement.

A foreign lessor does not have to be licensed or otherwise qualified in Israel in order to do business with a domestic lessee; however, for restrictions on foreign ownership of aircraft, see 2.3.4 Registration of Leases With the Domestic Aircraft Registry.

Leases governed by English or New York law should be drafted to reflect local legal terminology, local operational and regulatory requirements and/or relevant conditions precedent.

Provisions relating to tax withholding and other withholding gross-up provisions are generally permissible and enforceable in Israel, provided that such provisions are not contradictory to any mandatory Israeli law or public policy.

An aircraft lease may also cover parts that are installed or replaced on an aircraft or engine after the execution of the lease. Good practice would require the amendment of the lease should such parts be identifiable.

The installation of an aircraft engine on to an airframe should not cause title in the engine to be annexed to that of the airframe. If an aircraft engine is owned or charged in favour of a third party, market practice is to put ownership plates on the engine that identify the owner and/or the holder of the charge, as well as providing for the appropriate contractual delineation and acknowledgement of the separate ownership of the engine.

The concept of trust and the role of an owner trustee are recognised in Israel.

The interests of the owner of an aircraft are registered with the Israel Aircraft Registry (the "Registry"), which is an owner registry maintained and operated by the Civil Aviation Authority of Israel. As the Registry is an owner registry, non-owner lessor interests may not be registered in the Registry.

An aircraft will be eligible for registration in the Registry if (i) it is owned by an Israeli citizen or permanent resident, or by a corporate entity registered in Israel where at least two thirds of its directors are Israeli citizens or permanent residents, and (ii) it is not registered in another jurisdiction. However, the Minister of Transportation may order the registration of an aircraft that is not registered in another jurisdiction, but does not meet the conditions set out in (i), if it is convinced that there is sufficient linkage between the aircraft and the State of Israel.

Pursuant to the Registration Regulations, the registration of an owner’s interests with the Registry does not constitute a proof of title to the aircraft.

The owner of an aircraft is registered with the Registry, regardless of whether it is also the operator of the aircraft. As the Registry is an owner registry, operator interests may not be registered with the Registry.

Israel does not maintain a register regarding leases of aircraft or engines.

As the Registry is an owner registry, it does not provide for the registration of leases.

However, in order for a domestic operator to be able to operate an aircraft in Israel, the owner of such aircraft must register the aircraft with the Registry. As noted in 2.3.1 Notation of Owner’s/Lessor’s Interests on Aircraft Register, the registration of an aircraft owned by a foreign person or entity with the Registry requires the consent of the Minister of Transportation. The foreign aircraft owner is required to provide a copy of the aircraft lease and a statement of the Israeli lessee when filing a request for the Minister of Transportation’s consent, to demonstrate sufficient linkage between the aircraft and the State of Israel for registration. Typically, the period for obtaining such consent may vary between 60 to 120 days.

Additionally, under the applicable aviation regulations, an operator must file the lease agreement of an aircraft operated in Israel with the Civil Aviation Authority of Israel.

The failure of a foreign owner of an aircraft to obtain the consent of the Minister of Transportation would not allow for the registration of the aircraft in Israel, and thus the receipt of such consent should be considered by the parties a condition precedent to the effectiveness of the lease.

Leases regarding aircraft operated in Israel do not generally require a specific form in order to be valid; however, certain operational and regulatory requirements set out in local aviation regulations should be sufficiently addressed in the lease.

As the Israeli Registrar of Aircraft is an owner registry, leases may not be registered therein.

As noted above, aircraft leases are not registrable in Israel. Thus, taxes or duties do not apply to the registration of a lease.

Generally, commercial aircraft that are based in Israel are not registered in any jurisdictions other than Israel.

The Israeli Registrar of Aircraft requires that the original bill of sale be presented to give effect to registration of an aircraft. If the bill of sale is in a language other than Hebrew or English, a notarised and apostilled translation into Hebrew or English is required by the Registrar. For additional documentation that may be required, see 1.2.4 Registration, Filing and/or Consent From Government Entities.

For tax requirements of a foreign lessor, see 1.1.1 Taxes/Duties Payable Upon Execution of the Sales Agreement. The Israeli Tax Ordinance places the duty to withhold and remit withholding tax on the payor.

A lease of aircraft to an Israeli lessee by a foreign lessor, or the enforcement thereof, would not typically create a permanent establishment for the lessor in Israel. The tax treatment of any transaction is dependent on the facts and circumstances of such a transaction and any applicable tax treaty.

A foreign lessor may be liable in tort or on other grounds in Israel in respect of aircraft or engine maintenance and operations in the event that linkage is sufficiently established between the relevant damages and the actions or omissions of such lessor under the general principles of tort law. However, under a properly drafted operating lease agreement, operational risk should fall solely upon the lessee in the absence of fraud or wilful misconduct of the lessor.

Israel has not applied the doctrine of strict liability towards aircraft or engine owners or lessors, or financiers financing such assets on lease, who have no operational interests or duties regarding the aircraft or engine.

However, to the extent that a lessor is deemed to be the manufacturer or importer of an aircraft into Israel, such lessor may have exposure under Israel’s Defective Products Liability Law, 1980.

Creditors of a domestic lessee who do not hold possessory liens or statutory liens would not typically have a right to attach an aircraft owned by a third party that is unrelated to the domestic lessee, unless such a creditor can establish a direct linkage between the aircraft and the debt in question.

Israeli law provides certain third parties with the right to take a lien over an asset, such as a contractor that was given possession of an asset pursuant to the Contract for Services Law, 1974 and an injured party pursuant to the Contract (Remedies for Breach of Contract) Law, 1970.

Additionally, the Israel Airport Authority has a statutory lien over assets within its control, to recover fees or charges due to it, which may limit or impose conditions on the rights of the lessor under the lease. The statutory lien grants certain preference to the Israel Airport Authority over other creditors.

Furthermore, the Minister of Defence is granted authority – pursuant to the Registration and Mobilisation of Equipment to the Israeli Defence Forces Law, 1987 – to requisition any aircraft that is owned, controlled by, or within the possession of an Israeli entity, provided that reasonable payment is made to the owner of the aircraft. Furthermore, additional compensation may be provided to the owner of an aircraft if the aircraft is damaged during the requisition period.

Israeli legislation does not impose an obligation to place any part of the insurances over an aircraft with domestic insurance companies.

The applicable Israeli aviation regulations establish mandatory minimum coverage requirements for commercial aircraft, which are determined based upon the maximum take-off mass of the aircraft in question.

The Israeli aviation regulations do not restrict reinsurances being placed outside Israel, provided that the foreign insurers and/or reinsurers are authorised to act under the applicable law of their jurisdiction.

“Cut-through” clauses are generally enforceable to the extent that they are drafted properly and establish clear privity between the reinsurer and the party named as loss payee.

Assignments of insurance or reinsurance are generally permitted under Israeli law, to the extent that proper notice is provided and consent is obtained (unless such assignment is expressly permitted without notice and consent under the relevant agreement).

Restrictions on lessor’s ability to terminate an aircraft lease, export an aircraft and/or sell an aircraft following the lease termination may be restricted in accordance with the provisions of the Insolvency and Economic Rehabilitation Law, 2018 (the “Insolvency Law”), or as a result of the requisition of the aircraft by the Minister of Defence, as noted in 2.4.6 Priority of Third Parties’ Rights.

Although limited self-help is theoretically available under the Movable Property Law 1971 for a prescribed period following unlawful possession, involuntary physical repossession by the lessor would require a court order for the return of the asset to the lessor’s control.

Israeli legislation does not refer aviation disputes to any specific court. Given the value of the dispute, civil disputes relating to aircraft would typically be within the jurisdiction of the district courts. Disputes concerning the enforcement of charges will sometimes be resolved before the registrar of the execution office.

Lessors wishing to enforce an aircraft lease should note that summary judgments are rarely granted in Israeli jurisprudence, as the threshold for opposing a summary judgment is very low.

Temporary remedies such as equitable or injunctive relief are factually dependent and will depend to a large extent on the “balance of convenience” between the parties as interpreted by the Israeli courts. In granting temporary injunctive relief, the courts are likely to require monetary collateral to secure the interests of the lessee and third parties. The court will also consider certain additional equitable considerations, including the proper disclosure of relevant facts and the lack of delay on the part of the lessor in applying to the court.

The estimated period to obtain such a court order is dependent on the facts and circumstances of the relevant matter, and generally ranges from weeks to months.

Foreign Governing Law

As Israeli legislation does not limit parties from choosing foreign law as the governing law of their contracts, Israeli courts will generally uphold a foreign choice of law that was made in good faith.

However, an Israeli court may refuse to apply such foreign law if its application would lead to a result that the court deems to be incompatible with Israel’s public policy. In certain cases, Israeli courts may also determine that certain mandatory legislation is applicable to persons, actions or assets located in Israel, notwithstanding the expressed intention of the parties.

Submission to Foreign Jurisdiction

Israeli courts will generally uphold a designation of a recognised foreign jurisdiction in disputes between contractual parties to a commercial agreement; however, the contractual language should be clear about the exclusivity of such foreign jurisdiction.

Israeli courts have power to stay an action where it is shown that there is some other forum having competent jurisdiction which is more appropriate for the trial of the action or in which the case can be tried more suitably given the interests of all the parties.

Waiver of Immunity

Israeli courts will generally uphold a waiver of immunity by the parties of a lease, including a sovereign immunity.

For the recognition of foreign arbitral awards by Israeli courts, see 2.6.12 Enforcement of Foreign Arbitral Decisions.

The recognition and enforcement of foreign judgments by Israeli courts is governed by the framework set out in the Foreign Judgments Enforcement Law, 1958 (the “Enforcement Law”).

Under the Enforcement Law, Israeli courts may, in their discretion, declare a foreign judgment to be enforceable if:

• it was obtained before a court of competent jurisdiction according to the laws of the state in which judgment is given;
• it is no longer appealable;
• the obligations imposed by it are enforceable under the Israel laws applicable to enforcement of judgments and its content does not contradict the public policy, security or sovereignty of Israel; and
• it is enforceable in the country in which it was given.

The Enforcement Law further provides that a judgment will not be declared enforceable if any of the following is proven before the court:

• the judgment was obtained fraudulently;
• the defendant was not given a reasonable opportunity to make its claims and provide its evidence before the judgment was given;
• the judgment was made by a court that is not authorised to issue such judgment under the rules of international private law that apply in Israel;
• the judgment conflicts with another valid judgment given in the same matter between the same parties; or
• an action between the same parties in the same matter was not pending in any Israeli court at the time that the lawsuit was initiated in the foreign court.

The law further provides for a requirement of reciprocity whereby Israeli courts will not declare a judgment given in a particular country as enforceable in Israel if under the laws of such country, judgments given by Israeli courts are not enforced. This requirement may be waived at the request of the Attorney General of the State of Israel. The Enforcement Law provides for a statute of limitations of five years from the date of the judgment being enforced.

A foreign judgment that was declared by the Israeli courts to be enforceable shall be considered as a judgment awarded in Israel for execution purposes.

The Enforcement Law provides for the recognition of a foreign judgment if the following conditions are satisfied:

• Israel has entered into an agreement with a foreign country applicable to the judgments of a court of such country;
• Israel undertook in such agreement with such foreign country to recognise foreign judgments of the same nature, with such undertaking applying only to foreign judgments that would be enforceable under Israeli law; and
• the foreign judgment meets the terms and conditions as set out in the agreement between Israel and such country.

Israel is a party to four treaties on the enforcement of foreign judgments – with Austria, Germany, the United Kingdom and Spain – however, only the treaty between Israel and Germany has been implemented into domestic law.

Israeli law does not preclude lessors from obtaining a judgment in a foreign currency.

Israeli law does not limit contractual provisions that would allow a lessor to charge additional rent following termination of a lease for default, particularly if the aircraft is not returned to the lessor.

A lessor’s ability to recover default interest is limited under the Interest Law, 1957, as well as the Insolvency Law.

A lessor enforcing its lease may be subject to the payment of statutory court fees, which may range from a nominal amount up to 2.5% of the amount claimed under the lease.

To the extent that notice periods are contractually agreed by the parties, such provisions are typically respected by the courts. To the extent that notice periods are not provided contractually, the courts are likely to impute a reasonable notice period under the circumstances.

A lessee that is a party to a commercial transaction is not entitled to sovereign immunity under Israeli law. For non-commercial transactions, sovereign immunity may be waived.

The State of Israel is party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), and adopted the convention into local law through the New York Convention Implementation Regulations (Foreign Arbitration) 1978. The regulations provide that if another international treaty to which Israel is party applies to a certain arbitration process, the regulations would not apply to such arbitration.

Israeli courts will generally recognise and enforce an arbitral decision to which the 1958 Convention applies; however, according to the implementation regulations, the court may postpone the proceedings or require the posting of bail in the event that a party applies for a revocation or suspension of judgment with the competent authority of the jurisdiction in which the arbitration took place, or in accordance with the governing law thereof.

Israeli legislation and jurisprudence emphasise equitable considerations such as the doctrine of good faith and principles of fairness and reasonability. Such considerations may have a significant impact on the optimal course of action in the performance of a contract and in the enforcement of contractual rights.

The concepts of contractual assignment and novation are recognised under Israeli law. The concept of assignment is more prevalent in Israeli legislation, case law and practice.

The Assignment of Obligations Law, 1969 provides that rights under an agreement, such as an aircraft lease, may be freely assigned, without the debtor’s consent, except to the extent that the transferability of such rights has been limited by the nature of the right, by law or by a contractual provision. An assignment of such rights under a New York or English law-governed document will generally be recognised by Israeli courts and deemed enforceable in Israel.

The Assignment of Obligations Law further provides that an obligation or liability may be assigned, if such assignment was agreed upon by the creditor, unless the transferability of the obligation or liability has been restricted by law.

For the enforceability of commercial agreements in Israeli court proceedings, see 1.2.3 Enforceability Against Domestic Parties.

Aircraft and/or engine lease assignment and assumption agreements and/or novations are not registered with the Registry.

To the extent that such agreements trigger a change of ownership of an aircraft, the change of ownership will need to be approved by the Minister of Transportation, as set out in 2.3.4 Registration of Leases With the Domestic Aircraft Registry.

Israel currently imposes no taxes or duties on the assignment of aircraft leases.

According to the Israeli regulations, within ten days following change of ownership over the aircraft, the aircraft certificate of registration expires.

As the consent of the Minister of Transportation to the registration of a foreign-owned aircraft with the Israeli Registrar of Aircraft examines the ultimate beneficial ownership of the aircraft, a change in the ownership interest of an entity or the beneficial interest in a trust could be viewed as triggering a requirement to obtain a consent for such change in ownership prior to such change in ownership.

The deregistration of an aircraft from the Registry is affected by a written request of the owner or a person granted power of attorney by the owner.

An aircraft owner may apply for the deregistration of an aircraft without the consent of the lessee or the operator; however, from a practical point of view, the deregistration of the aircraft without the co-operation of the operator is likely to be more difficult. A mortgagee or lessor may apply for the deregistration of an aircraft as the attorney in fact on behalf of the owner by virtue of a notarised power of attorney.

To deregister an aircraft from the Registry, the owner of the aircraft or the owner’s attorney in fact shall submit a request for deregistration, accompanied by a certified resolution of the board of directors authorising the signatories to execute such a request. If the request is submitted on behalf of the owner (by the owner’s attorney in fact), a notarised power of attorney shall be provided. The aircraft’s original certificate of registration should be returned to the Registrar of Aircraft within five days of its cancellation.

To the extent that a pledge, charge or attachment has been placed over the aircraft, prior to the deregistration of the aircraft, one of the following is required:

• the consent of the holder of the charge, pledge or attachment;
• proof that such charge, pledge or attachment has been removed; or
• an order of the court or the registrar of the execution office expressly transferring or cancelling the charge or attachment.

The deregistration process of an aircraft may be completed within up to 14 working days following receipt of all required documentation. Practically, assuming that all required documentation is at hand and there is full co-operation on the part of the lessee and an agreed-upon time slot has been arranged with the Registrar of Aircraft, the process may be completed within a few days.

The Israel Aviation Authority does not provide advance assurance to an aircraft owner, mortgagee or lessor as to the prompt deregistration of an aircraft.

There are no significant costs, fees or taxes chargeable in connection with the deregistration of an aircraft. If a charge has been placed over an aircraft, nominal charges may be imposed by the Registry in connection with its removal.

Deregistration powers of attorney are generally recognised in Israel so long as they are notarised. However, the Israeli Registrar of Aircraft will not recognise a power of attorney that was made and signed more than three years before the date of submission of the deregistration request.

If a deregistration power of attorney is executed outside Israel, additional requirements, including apostillisation, may also apply.

Following insolvency proceedings for rehabilitation, any recognition of a deregistration power of attorney granted by an owner of an aircraft in favour of a financier may be subject to the discretion of the courts and therefore there is no guarantee that the Registrar (or any other relevant governmental body) would recognise a deregistration power of attorney in such circumstances.

To enforce a deregistration power of attorney, proof may be required as to the underlying authorities granting such power of attorney, and proof that the persons granting such power of attorney had the authority to do so under the relevant corporate documentation.

A deregistration power of attorney does not have to be governed by the laws of the State of Israel. However, it should be notarised and if executed outside Israel, it may be subject to additional requirements, which include apostillisation.

A grantor will generally be unable to revoke a deregistration power of attorney that is deemed to be irrevocable. In extreme circumstances such as fraud, the court may order the revocation of an irrevocable power of attorney.

An aircraft owner that has lawfully taken possession of an aircraft, in accordance with the steps set out in 2.6.2 Lessor Taking Possession of the Aircraft, may seek to deregister the aircraft from the Registry, which will generally allow such deregistration to the extent that the steps set out in 2.8.4 Duration of Deregistration Process are adhered to, and no pledges, charges or attachments exist over the aircraft. Typically, the export of the aircraft outside Israel is done by the lessee, being an Israeli entity and named as the importer of the aircraft into Israel. The authors are not familiar with an export process that was successfully performed without the lessee’s consent and cooperation, based solely upon a power of attorney from the lessee.

Practically, an aircraft mortgagee or lessor who is not the owner of the aircraft will generally not be able to deregister the aircraft from the Registry without obtaining the consent of the owner through a valid deregistration power of attorney or a court order.

For the exportation of aircraft from Israel, certain documentation should be submitted to the customs authority prior to the exportation, and following the exportation of the aircraft from Israel, an export declaration is issued by the customs authority. Additionally, to deregister the aircraft from Israel for its registration in another jurisdiction, an export certificate of airworthiness should be issued by the Civil Aviation Authority of Israel.

No significant costs, fees or taxes are charged in respect of the export of an aircraft.

Please see 2.8.9 Choice of Laws Governing Deregistration Power of Attorney and 2.8.11 Owner’s/Lessor’s Consent.

The Insolvency Law, together with the Execution Law, 1967 and the regulations promulgated under each such law, provide for a legal framework pursuant to which lessees domiciled in Israel may enter into composition with creditors, economic rehabilitation operated by an insolvency trustee, or liquidation.

Composition with Creditors

A lessee domiciled in Israel may apply to the court for a stay of proceedings in order to enter into a settlement with its creditors. The court will generally approve a stay of proceedings if the continued operation of the lessee is unlikely to harm its creditors, the lessee is able to finance the expenses of its operation during the stay of proceedings, and there is no real concern that the lessee is acting to defraud its creditors. The actions of the lessee during the stay period shall be limited so that its continued operation during such period is geared toward the conclusion of the settlement.

Economic Rehabilitation

Upon the commencement of insolvency proceedings, the court may order the continuation of the operation of the lessee for the purpose of its economic rehabilitation, if the court is convinced that economic rehabilitation of the insolvent lessee is reasonably probable, that its continued operation with a view to rehabilitation is unlikely to harm its creditors, and that there are sufficient sources to finance the expenses of its operation during the rehabilitation period.

Liquidation

In the event that the court does not find that economic rehabilitation of the insolvent lessee is feasible, the court will order the liquidation of the lessee.

Receivership

Receivers are usually appointed to exercise a security, typically a pledge, mortgage or floating charge over the assets of a company. Receivers are also appointed to exercise an attachment over an asset (usually after a monetary judgement had been entered). Appointment of a receiver over an asset is also available as an interim measure in a civil dispute. A receiver is appointed only by an order of the court or of the registrar of the execution office. The typical roles of the receiver will be to seize, preserve, manage or sell assets.

The Insolvency Law provides that Israeli insolvency authorities such as the courts and the registrar of the execution office shall co-operate with foreign insolvency authorities to facilitate domestic and overseas proceedings.

The Insolvency Law further provides that domestic insolvency authorities may refrain from co-operation with foreign authorities where the exercise of jurisdiction by such authorities would infringe on Israeli public policy, or if the Israeli courts find:

• that the foreign proceedings were fraudulently conducted; or
• that the debtor was not given a reasonable opportunity to make its claims in the foreign proceeding.

Israeli courts will generally recognise foreign insolvency proceedings as primary or ancillary proceedings in accordance with the jurisdiction that serves as the centre of main interest of the insolvent entity, following which the administrators of the foreign insolvency proceeding may be provided with a wide range of remedies pursuant to the Insolvency Law.

The Insolvency Law, in effect, implements the UNCITRAL Model Law on Cross-Border Insolvency.

A general deregistration power of attorney will expire upon the commencement of insolvency proceedings of the grantor. An irrevocable deregistration power of attorney should survive the commencement of such proceedings; however, its exercise is likely to be subject to the limitations set out in 2.9.5 Other Effects of a Lessee’s Insolvency and 2.9.10 Impact of Domestic Lessees’ Winding-Up.

Where insolvency proceedings have been initiated with respect to a lessee that has possession of an aircraft, the lease may be set aside by mutual consent of the lessor and the insolvency trustee operating the insolvent lessee. If mutual consent cannot be reached, the insolvency court may order that the agreement be set aside if the court finds that setting aside the agreement is required for the economic rehabilitation of the lessee or to maximise the amount of return that would be repaid to the lessee’s creditors.

Where the continued commercial operation of the aircraft under the lease is deemed necessary for the economic rehabilitation of the insolvent lessee, the court will generally approve the continuation of the lease, which would prevent the lessor from its repossession.

The Insolvency Law provides that, where the court has approved the continuation of an agreement during insolvency, payments incurred under such an agreement are deemed to be expenses of the insolvency proceedings, which are granted priority over secured creditors.

In the case of a true operational lease, the aircraft will not be deemed to be property of the lessee and will not be deemed included in the lessee’s insolvency estate. However, in the case of certain finance leases, there is a risk that Israeli courts may find that the retention of the ownership was, in fact, a disguised pledge, and rule that the aircraft is part of the lessee’s insolvency estate, and that the lessor is an unsecured creditor.

A lender’s actions as a creditor will generally be limited upon the commencement of insolvency proceedings of a borrower as an automatic moratorium is imposed for the duration of the insolvency proceedings.

If the lender is a secured creditor, and the insolvent borrower enters into operation by an insolvency trustee with a view towards its economic rehabilitation, the lender is barred from realising the asset charged in its favour in a fixed charge, and may not perfect a floating charge, without the approval of the court.

If the lender’s debts are not secured, it will be repaid together with other unsecured creditors on a pro rata basis, from those assets that remain in the borrower’s insolvency estate following the repayment of secured debts, the insolvency trustee’s expenses, certain categories of preferred debts, and debts secured by a floating charge.

Pursuant to the Insolvency Law, upon the initiation of insolvency or rehabilitation proceedings, an automatic moratorium is imposed for the duration of the proceedings. The Insolvency Law provides that proceedings shall take place over a period of nine months, which may be extended for additional three-month periods by court order.

A domestic lessee may be liquidated or placed into operation by an insolvency trustee by the initiation of insolvency proceedings in accordance with the Insolvency Law. Insolvency proceedings may be initiated by an application to the court by the insolvent lessee, its creditor(s) or the Attorney General of the State of Israel.

Ipso facto default clauses are not recognised pursuant to the Insolvency Law. Termination of leases and repossession of aircraft during a moratorium is subject to the approval of the court, which may be denied even in such cases where the lessor can show that it has suffered performance defaults.

In the event that the court orders the winding up and liquidation of a domestic lessee:

• assuming the aircraft is leased to the domestic lessee under a true operational lease, the aircraft remains the property of the lessor;
• if the trustee operates the aircraft during the rehabilitation period, the lease rentals due for such period will be deemed to be expenses of the insolvency proceedings, which are granted priority over certain creditors other than secured creditors holding fixed charges;
• if the security deposit and the accumulated maintenance reserves held by the lessor are held by court to be an asset of the lessor, it shall not be affected by the liquidation of the lessee; and
• any due and unpaid amounts of rent and/or maintenance reserves due for the period prior to the commencement of insolvency proceedings are most likely to be classified as unsecured debt and thus will be repaid to the lessor together with other unsecured creditors, on a pro rata basis, from those assets that remain in the lessee’s insolvency estate following the repayment of secured debts, the insolvency trustee’s expenses, certain categories of preferred debts, and debts secured by a floating charge.

The State of Israel is not a party to the Convention on International Interests in Mobile Equipment and the related Protocol on Matters specific to Aircraft Equipment.

There is no applicable information in this jurisdiction.

There is no applicable information in this jurisdiction.

There is no applicable information in this jurisdiction.

Israel is not a party to the 1948 Geneva Convention on the International Recognition of Rights in Aircraft, nor is it a party to the 1933 Rome Convention on the Unification of Certain Rules relating to the Precautionary Arrest of Aircraft.

Foreign lenders locally financing an aircraft may be subject to the Supervision of Financial Services (Regulated Financial Services) Law 2016, which in certain cases would require lenders to apply for a “financial services” licence in Israel, unless such lenders meet one of the exemptions provided under the law.

Regulations promulgated under the law exempted certain types of transactions and entities from the licensing requirement, including banks and insurers licensed in OECD member countries.

See 2.1.4 Exchange Controls.

Israeli law does not limit domestic borrowers from granting security to foreign lenders.

Downstream, upstream and cross-stream guarantees in favour of lenders are permitted in Israel.

It is advisable for lenders to take share security over a domestic special purpose vehicle that owns the financed aircraft. A pledge of shares is recognised in Israel.

A negative pledge is recognised as a binding contractual obligation. Additionally, it is advisable to include and notate the negative pledge in any charges being registered to restrict the granting of any further charges over an asset or rights.

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

Israeli law recognises the concept of agency and the role of an agent under a syndicated loan.

The most common methods of subordination are debt subordination and collateral subordination.

Israeli law recognises subordination of collateral, which is typically effected through the grant of different degrees of charges, or by placing specific fixed charges over certain assets, to which floating charges may be subordinated in certain circumstances.

Contractual subordination of debt is also recognised in Israel; however, it has no force and effect upon third-party creditors.

The transfer or assignment of all or part of an outstanding debt under an English or New York law-governed loan is generally permissible and recognised under Israeli law, assuming it is valid under its governing law and provided that the documentation is consistent with the requirements of the Assignment of Obligations Law, 1969, as set out in 2.7.2 Assignment/Novation of Leases Under Foreign Laws.

Israel’s Interest Law, 1957 empowers the Minister of Finance to set a maximum rate of interest that a lender may receive from a borrower with regard to certain types of prescribed transactions. An order promulgated under the Interest Law provides limitations to the maximum rate of interest that applies to loans in which the loan amount is linked to the consumer price index or indexed to the increase of anything other than a loan that is linked to a foreign exchange rate. The maximum default interest for such loans is currently capped at 17% per annum.

The security provided in an aviation finance transaction in Israel varies based on the type of legal entity granting the security and the facts and circumstances of the particular financing.

A corporate borrower would typically provide:

• a charge over the financed asset;
• an assignment of insurances, warranties and proceeds payable for confiscation for hire;
• a floating charge over spare and future parts (to the extent not currently identifiable);
• an assignment by way of security over any proceeds payable under a lease agreement; and
• a tri-party subordination agreement between the lender, borrower and lessee.

If an SPV is being utilised, a pledge or charge over the shares of the SPV is usually provided.

If the borrower is a limited partnership, a pledge over the assets, spare parts and insurances should be provided. Floating charges cannot be registered over limited partnerships under Israeli law.

As noted above, a limited partnership cannot grant floating charges under Israeli law.

The concept of a trust and the role of a security trustee in a financing transaction are generally recognised in Israel.

Borrowers may generally assign their rights to an aircraft or under an aircraft lease (including in relation to insurances) to a security trustee pursuant to a charge or security assignment, as the case may be.

A lessor may assign its rights and benefits under an aircraft lease without also assigning its attendant obligations thereunder.

It is preferable for security assignments and guarantees to be governed by Israeli law, as it eases the enforcement of such instruments in Israel.

Should a financier wish to directly enforce a security assignment or guarantee that is governed by English or New York law, the law would have to be proven by expert testimony in Israeli courts.

There are certain provisions in the Guarantee Law that provide the guarantor a certain defence that may be expressly waived by the guarantor. However, certain provisions are mandatory, particularly with respect to individual guarantors, which may not be specifically waived to the guarantor’s detriment.

A security assignment must include:

• a brief description of the encumbered asset;
• the amount secured by the asset;
• the type of security; and
• the names of the assignor and assignee.

Ideally, the security assignment should be drafted in Hebrew or English, otherwise it is recommended that it be translated into Hebrew or English.

A security assignment granted by an Israeli corporate entity must be registered with the Companies Registrar within 21 days of its creation, unless an extension of such period is requested and approved, which, in certain circumstances, may require further corroborative documentation to be provided.

If the security assignment is not registered with the Companies Registrar, it shall be deemed void with respect to the insolvency trustee of the grantor pursuant to the Insolvency Law and with respect to any third-party creditors.

If an English or New York law-governed security assignment were to be taken in respect of an aircraft registered in Israel, such security should be registered in Israel through the filing of the applicable form.

Additionally, it is advisable to ease enforcement in Israel to enter into an Israeli law security assignment in addition to the English or New York law-governed security assignment and register the same in Israel. As noted in 3.2.7 Formalities/Mandatory Terms to Create and Perfect Security Assignments, a security created by an Israeli corporate entity granting security must be registered with the Registrar of Companies.

As noted in 2.10 Cape Town Convention and Others, the Convention on International Interests in Mobile Equipment has not been ratified in Israel.

Fees are payable with respect to pledge registration with the Israeli Pledges Registrar and notation of the pledge in the Aircraft Registry and on the aircraft Certificate of Registration.

An English or New York law-governed security assignment and a domestic law security instrument may be registered domestically with the Pledges Registrar or Companies Registrar (depending on the nature of the borrower).

The transfer of security interests over aircraft and engines is recognised; however, it is not clear under Israeli law whether the preference granted would relate back to the date of the original filing or the date of the transfer. Thus, the use of a security trustee is preferable in this case.

A change to the secured parties under a security assignment will generally require the parties to amend the registration of the security or to re-register the security. To the extent that re-registration is required, this may affect the preference date of the priority of the assigned security.

“Parallel debt” structures may be utilised in Israel, provided that they are agreed contractually between the parties and do not result in “double counting” of debt; ie, that payment of a portion of the debt to the security trustee will automatically discharge the corresponding debt to the lender.

Security assignment by itself should not create a permanent establishment of the secured parties in Israel.

A domestic law charge or pledge over an aircraft or engine is perfected by its registration with the Companies Registrar (if the mortgagor is an Israeli company) or the Pledges Registrar (if the mortgagor is an Israeli individual, or a foreign individual or entity).

Security taken over aircraft and identifiable spare engines will typically take the same form of a fixed charge or pledge registered with the Companies Registrar or Pledges Registrar (as applicable). Additionally, in the case of a fixed charge or pledge over an aircraft, this security should also be notated in the register of the Registrar of Aircraft, to prevent the deregistration of the aircraft without the consent of the holder of such pledge or charge. A charge or pledge over spare engines cannot be registered in the Israeli Registrar of Aircraft.

Security over a bank account will generally take the form of a floating charge over the account and any amounts received into the account in the future, unless the security is over a known deposit, in which case a fixed charge may be taken.

Each of the above forms of security should be perfected by its registration with the Companies Registrar or Pledges Registrar (as set out in 3.3.3 Register of Mortgages and Charges).

Most banks limit the assignment of rights with respect to accounts, and thus it is preferable to provide notice to the bank and to receive its consent to any type of security created over the account. As banks have set-off rights, it is common practice to require the banks to expressly waive or subordinate certain of these rights in connection with the secured account.

Israeli law provides certain third parties with the right to take a lien over an asset, such as a contractor that was given possession of an asset pursuant to the Contract for Services Law, 1974 and an injured party pursuant to the Contract (Remedies for Breach of Contract) Law, 1970.

According to the applicable Israeli law, repairer’s costs and liens of a similar nature apply to the specific asset in possession of the contractor that was the provider to the contractor for the performance of the services and is limited to cover debt due and payable for the contracting transaction. The determination whether a contracting transaction covers only a specific work actually performed on the asset or series of transactions performed by the contractor is dependent upon the facts and circumstances of each case.

Fleet-wide liens are generally not recognised in Israel.

Pursuant to Israeli law, a lien expires once the asset is released from the possession of the applicable third-party creditor. Thus, where a third party wishes to enforce a lien, it should hold on to the detained asset until the full repayment of its debt. A holder of a possessory lien is deemed to be a secured creditor. If the debtor has entered into insolvency proceedings, however, the Insolvency Law provides that the court may instruct the holder of the lien to transfer the detained asset to the insolvency trustee, and the secured debt shall be deemed to be an expense of the insolvency proceedings, which is granted priority over secured creditors.

A pledge over an aircraft registered in the Pledges Registrar may be discharged on the day on which the request to discharge the pledge is submitted, if submitted physically at the offices of the Pledges Registrar, or within five business days of the receipt of such a request, if submitted electronically or by mail.

A charge registered over an aircraft with the Companies Registrar is generally discharged within 14 business days of the receipt by the Companies Registrar of the request to discharge.

Mortgage interests may be registered in the Companies Registrar, where they shall take the form of a charge, if the chargor is an Israeli company; or in the Pledges Registrar, where they shall take the form of a pledge, if the pledgor is a foreign entity or an Israeli individual or partnership.

Upon the registration of a charge or pledge over an aircraft, the interests of the mortgagee or security trustee may be noted in the Aircraft Register and endorsed upon the aircraft’s certificate of registration.

If a pledge or charge is registered over an aircraft in the Aircraft Register, the Registrar will not permit any changes to the registration of the aircraft without one of the following:

• the consent of the holder of the charge or pledge;
• proof of the removal of the charge or pledge; or
• an order of the court or the registrar of the execution office expressly transferring or cancelling the charge or pledge.

The holder of a fixed charge or pledge will generally have priority over other creditors; however, certain limited creditors (eg, holders of possessory liens such as mechanics’ liens) may be granted priority over a secured creditor. Upon the commencement of insolvency proceedings, the above priority may further vary in accordance with the Insolvency Law, and the rulings of the courts from time to time.

See 2.4.6 Priority of Third Parties’ Rights and 3.3.1 Third-Party Liens.

To verify that an aircraft is free of encumbrances, it would be recommended that a potential purchaser search the Israeli Registrar of Aircraft, together with the Pledges Registrar or the Companies Registrar (as applicable).

A loan or a guarantee is generally enforced against the borrower or guarantor through legal proceedings. The enforcement of a registered security assignment requires a court order or an order of the registrar of the execution office, depending on the nature of the secured property.

As noted in 3.4.1 Differences Between Enforcing Security Assignments, Loans and Guarantees, the enforcement of a registered security assignment requires a court order or an order of the registrar of the execution office, depending on the nature of the secured property.

Israeli courts will generally uphold a foreign governing law and submission to a foreign jurisdiction, with respect to a finance or security document, if such choice of law and jurisdiction were made in good faith.

The courts may refuse to apply such foreign choice of law and jurisdiction if their application would cause a result that the court determines to be incompatible with Israel’s public policy. In certain cases, Israeli courts may also determine that certain mandatory legislation (eg, insolvency laws) is applicable to persons, actions or assets located in Israel, notwithstanding the expressed intention of the parties.

For the recognition and enforcement of foreign judgments, see 2.6.6 Domestic Courts’ Recognition of Foreign Judgments/Awards.

For the recognition of foreign arbitral awards by Israeli courts, see 2.6.12 Enforcement of Foreign Arbitral Decisions.

A secured party’s right to take possession of the aircraft is subject to the same terms and conditions as the right of a lessor, as set out in 2.6.2 Lessor Taking Possession of the Aircraft.

See 2.6.3 Specific Courts for Aviation Disputes and 3.4.1 Differences Between Enforcing Security Assignments, Loans and Guarantees.

See 2.6.4 Summary Judgment or Other Relief.

Israeli law does not preclude secured parties from obtaining a judgment in a foreign currency.

The enforcement of a security agreement or an aircraft mortgage by a secured party is subject to the payment of statutory court fees that may range from a nominal amount up to 2.5% of the secured debt. Additional amounts may need to be provided as collateral during the enforcement proceedings.

Tax implications of the enforcement of a security agreement or an aircraft charge depend on the facts and circumstances of the parties, the asset and the relevant transaction.

There are no other relevant issues.