Aviation Finance & Leasing 2024 Comparisons

VAT could be due as a consequence of the execution of an aircraft or engine sale agreement, either in Portugal or by a domestic party.

A sale agreement must be translated, certified, notarised or legalised to be enforceable against a domestic party.

“Transferring title” to an aircraft or engine includes all installed parts, such as an auxiliary power unit (APU), in order to be airworthy.

The sale of the ownership interest in an entity that owns an aircraft or engine will not be recognised as a sale of such aircraft or engine itself.

The transfer of title to an aircraft or engine physically delivered in Portugal can be recognised if the bill of sale is governed by English or New York law. The bill of sale must be translated, certified, notarised and legalised and state the serial number, registration marks, purchase price, date, purchaser, seller, delivery location, and country of registration (among other things), depending on the aircraft and engine features.

A bill of sale must be translated, certified, notarised or legalised to be enforceable against a domestic party.

The bill of sale must be registered at the National Authority of Civil Aviation of Portugal (Autoridade Nacional de Aviação Civil, or ANAC). Registration requires the bill of sale to be submitted along with the registration certificate, engine and rotor certificates, navigation log, and a request for a new radioelectric station licence. Registration is estimated to take between two and three weeks to complete.

Executing and/or delivering a bill of sale or consummating the sale of the ownership interest in an entity that owns an aircraft or engine could be subject to VAT.

Operating/wet/finance leases or leases concerning only engines or parts are neither permissible nor recognised.

A lease involving either a domestic party or an asset situated in Portugal can be governed by a foreign law.

In Portugal, no material restrictions are imposed on domestic lessees making rent payments to foreign lessors in US dollars.

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

Executing a lease physically in Portugal and/or by or to a domestic party, or as a consequence of an original or copy of a lease being brought into Portugal either physically or electronically, could be subject to VAT.

A lessor does not have to be licensed or otherwise qualified in Portugal to do business with a domestic lessee.

There are no mandatory terms required to be in a lease (or ancillary documents thereto) governed by English or New York law that would not typically already be included.

Tax and other withholding gross-up provisions are permissible and enforceable, either by state entities or by individuals duly supported in the legitimacy of the claim.

A lease can cover parts that are installed or replaced on an aircraft or engine after the execution of the lease. Specific provisions can be added to the lease to ensure that such parts are captured under the lease.

Aircraft engines have a proper register and are autonomous with regard to the airframe.

The concept of a trust and the role of an owner trustee could be recognised under a lease.

Some of the interests of the owner (legal or beneficial) or a lessor of the aircraft can be noted on the aircraft register. Liens or encumbrances must be registered.

The aircraft must be registered in the name of the owner if the operator is not also the owner. Leases must be approved or, in the case of wet lease-out, communicated to ANAC.

Leases concerning aircraft or engines must be registered with ANAC.

Apart from the wet lease-out, which only needs to be communicated to ANAC, all leases must be approved by ANAC. Financial leases must be registered. Failure to comply results in the lessee being unable to operate the aircraft. The estimated period for completion could be between two and four weeks, depending on volume of work of the regulator and the complexity of the lease.

For a lease to be valid and registrable, ANAC requires a copy of the lease – with all its provisions except for the financial conditions – and a specific form filled in and signed, as well as several technical documentations, depending on the situation. Besides Portuguese documents, ANAC usually accepts documents in English.

The tax payable for registering a lease will depend on the type of lease.

Aircraft habitually based in Portugal are not typically registered in any alternative countries. Major business jet companies such as Netjets are based in Lisbon and most of the aircrafts are also registered under CS, which is the ICAO (International Civil Aviation Organization) aircraft registration prefix for Portugal.

Documents issued in foreign countries must contain the signatures of the parties duly notarised and legalised with the affixing of the apostille, in accordance with the provisions of Articles 3 and 4 of the Hague Convention of 5 October 1961, relating to the Abolition of the Requirement of Legalisation for Foreign Public Documents, ratified by Decree-Law No 48450 of 24 June 1968, or duly notarised and legalised by a Portuguese diplomatic or consular agent in that country.

Documents issued in Portugal, by a legal person or by a proxy, must contain the signatures of the legal representatives recognised under the terms of the law and “in their capacity and with powers for the act”. ANAC usually accepts documents in English.

Whether a foreign lessor is required to pay any income or capital gains or other taxes upon leasing an aircraft or engine to a domestic lessee – including where the lessee was to have withheld and remitted withholding tax but failed to – will depend on the specific double taxation treaty, which will itself depend on the country of the lessor.

If this activity is not occasional, a foreign lessor can be deemed to be resident, domiciled, carrying on business or subject to taxes as a result of its being a party to – or its enforcement of – the lease. Depending on the country of the lessor, the double taxation treaty will also have an effect.

Liabilities in respect of aircraft or engine maintenance and operations can be imposed on a foreign lessor under a lease (as a result of its being a party to such lease) if the lessor has any responsibility for maintenance according to the provisions of the lease. Usually, maintenance is responsibility of the lessee during the lease.

Whether a foreign aircraft or engine owner or lessor under a lease or a financier financing the asset on lease would liable under the doctrine of strict liability as a result of damage or loss caused by the assetdepends on the lease provisions. Usually, the lessee is liable for damages or losses caused by the asset during the lease.

Creditors can only attach assets owed by the lessee, so creditors of a domestic lessee could not attach an aircraft leased to it but owned by a different entity.

Whether or not any third party’s rights take priority over a lessor’s rights under an aircraft or engine lease depends on the specific situation. Usually, however, the lessor/owner’s rights prevail over third parties’ rights.

In Portugal, it is not mandatory to engage domestic insurance companies.

Depending on the type of lease, the applicable mandatory insurance coverage requirements could be imposed – namely, hull insurance and agreed value insurance – and, in some cases, operational risks can be separated from ground risks. But, in any , the asset value must be set at an agreed amount and third-party responsibility should be covered under a case-to-case contract demand. Transporting a stadium rock band such as U2 or any of the world’s monarchs can impose different set of conditions on each insurance cover.

Reinsurances can be placed outside Portugal up to 100% coverage; there is no limitation.

“Cut-through” clauses in the insurance/reinsurance documents are enforceable in Portugal.

It can be permitted, if the assignment is allowed in the insurance/reinsurance provisions.

The restrictions on a lessor’s ability to terminate an aircraft lease are provided in the lease contract. In order to re-export and/or sell the aircraft following such termination, the lessor would be advised to have a deregistration power of attorney (DPoA) and it could be necessary for customs to inspect it.

For a lessor to take physical possession of the aircraft without the lessee’s consent to enforce such lease, a court decision may be required.

Portugal does not have any specific courts that are competent to decide aviation disputes. Usually, lease contracts have specific provisions regarding arbitration conventions.

A lessor can obtain a summary judgment, equitable or other injunctive relief pending final resolution of judicial proceedings to enforce an aircraft lease. The court will judge if there is a prima facie case (fumus boni juris) and urgency (periculum in mora), and will decide within one-to-two months.

A domestic court will decide if the foreign law governs the lease and, if so, it will declare itself incompetent to decide the conflict.

Foreign final judgments are recognised in Portugal through the judicial review procedure, which is not about the merits of the conflict, but simply about formal requirements.

A lessor under an aircraft lease can obtain a judgment in a foreign currency if that foreign currency is the one established in the lease contract.

There are no limitations on a lessor’s ability to recover default interest (or the compounding thereof) or to charge additional rent following termination of the lease for default – provided that this is determined in the contract or, if the court decides so, after a judicial claim from the lessor.

Whether a lessor under an aircraft lease is required to pay taxes or fees in a significant (ie, non-nominal) amount in connection with the enforcement of such lease in Portugal will depend on the specific double taxation treaty (depending on the country of the lessor).

The lessor must comply with all notice periods determined in the lease contracts if it terminates an aircraft lease, regardless of the lease contract’s terms or whether it relates to an aircraft that is operated domestically or is leased by a domestic operator.

A lessee is entitled to claim sovereign or other immunity from suit only if this immunity or its waiver option is determined in the contract.

Portugal adopted the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”) in 1994; therefore domestic courts will recognise and enforce an arbitral decision.

The lessor can provide clauses in the contract that determine penalties for the lessee in case of failure to comply or breach of contract. The lessor can enforce its rights in a court of law, or arbitration court, according to what is stated in the contract.

Portugal recognises the concepts of contractual assignment and novation.

The lessee’s consent is required by Portuguese law and that consent must be included in the assignment agreement.

It is advisable 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, especially if it needs to be claimed in a domestic court.

An aircraft and/or engine lease assignment must be authorised by ANAC. As discussed in2.3.5 Requirements for a Lease to Be Valid and Registrable, formalities required for such registration include a copy of the agreement – with all its provisions except for the financial conditions – and a specific form filled in and signed, as well as technical documentation if applicable. ANAC usually accepts documents in English as well as Portuguese.

There are no taxes payable in respect of assignment and assumption/novation agreements.

There are no relevant issues in respect of the transfer of the ownership interest of the entity owning an aircraft (with the legal title to the asset remaining with that entity).

The owner or the lessee with a DPoA can deregister an aircraft in Portugal.

The lessee’s consent is not required for the aircraft owner, mortgagee or lessor to apply for the deregistration of the aircraft.

In order to deregister the aircraft, the owner, mortgagee or lessor will have to provide the registration certificate,  engine and rotor certificates, and navigation log, as well as request a new radioelectric station licence.

Typically, the deregistration process takes an estimated period of two-to-three weeks to complete.

ANAC does not provide advance assurances to an aircraft owner, mortgagee or lessor as to the prompt deregistration of the aircraft.

There are no significant costs/fees/taxes chargeable in respect of the deregistration of an aircraft.

A DPoA can be recognised and must contain all details of the aircraft and the owner. It is advisable for a DPOA to be translated, certified, notarised, legalised or lodged in advance to be enforceable against a domestic party.

A commercial registry certificate can be requested in order to enforce a DPoA.

A DPoA does not have to be governed by Portuguese law.

If the DPoA is expressed to be irrevocable, the grantor will not be able to revoke it in any circumstances.

If the export of the aircraft is necessary for the lease contract, the lease contract may be requested. A mortgagee cannot export the aircraft without the owner’s or lessor’s consent. An owner, mortgagee or lessor can request a declaration from the lessee of the lessee’s consent to export. The asset needs to be located in Portugal at the time of deregistration and/or export.

Portugal issues aircraft export permits. The export permit must be requested by a dispatcher at the customs authority and a customs form, a commercial registry certificate of the owner, and registry certificate of the asset must be submitted with the application. It will take at least one month to obtain an aircraft export permit.

VAT and customs duties can be charged in respect of the export of an aircraft.

Registration marks can only be removed from aircraft upon active register.

The most relevant law in this regard is the Insolvency and Company Recovery Code (Código da Insolvência e da Recuperação de Empresas, or CIRE), which provides different procedures – of which, Processo Especial de Recuperação (PER) and Processo de Insolvência arethe two most used in Portugal.

PER is a procedure that was conceived as an expeditious mechanism aimed at recovering debtors in a difficult economic situation or in a situation of imminent insolvency (but who have not yet entered a situation of actual insolvency), whenever this seems possible, which:

• prevents the initiation of any action to recover debts against the debtor; and
• for the duration of the action, prevents the initiation of any action to recover debts against the debtor; and
• for the duration of the negotiations, suspends – as far as the debtor is concerned – any ongoing actions for the same purpose.

Portuguese law determines that insolvency procedures must be filed either by the company itself (through its directors) or by any creditor. The insolvency proceedings can be aimed at enabling payment to the insolvent’s creditors through the execution of an insolvency plan and/or at the liquidation and judicial sale of the insolvent’s assets. If the intention is the restructuring of the company, the debtor must submit an insolvency plan, which is subject to approval by the creditors. If a debtor files for insolvency proceedings and does not submit an insolvency plan, the creditors can decide to close the company and proceed to liquidation of its assets.

A court decision given in any EU member state is recognised in Portugal without any special procedure being required. For court decisions of non-EU states, a review of the judgment or orders is required. Generally, foreign insolvency and restructuring proceedings will be recognised as long as the foreign court that declared the insolvency based its competence on the criteria of the location of the residence or headquarters of the debtor or of its centre of main interests and the recognition does not violate public order. The UNCITRAL Model Law on Cross-Border Insolvency was not adopted in Portugal.

The DPoA already granted should not be affected by the lessee’s liquidation. The termination of the operation depends on what comes to be decided in the liquidation procedure.

The aircraft is not property of the lessee, so the Lessor can repossess the aircraft if the lease has terminated or if the lessee has breached the contract. The liquidator/administrator cannot impose the rights of any other creditors in priority to the lessor’s.

The main risks for a lender if a borrower, a guarantor or an entity providing security becomes insolvent depend on the guarantees presented.

Moratoria are usually negotiated with creditors in recovery or insolvency plans. No timelines are imposed.

In accordance with CIRE, insolvency proceedings can be aimed at enabling payment to the insolvent’s creditors through the execution of an insolvency plan and/or at the liquidation and judicial sale of the insolvent’s assets. As discussed in 2.9.2 Overview of Relevant Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership, if the intention is the restructuring of the company, the debtor must submit an insolvency plan, which is subject to approval by the creditors. If a debtor files for insolvency proceedings and does not submit an insolvency plan, the creditors can decide to close the company and proceed to liquidation of its assets.

Ipso facto clauses are not recognised. Performance defaults are also required to repossess an aircraft during a lessee insolvency proceeding.

The lessor can repossess the aircraft if the lessee is legally wound up. The lease rentals would be a credit of the lessor that can be requested as payment in the court proceeding, but the payment will only be made according to credits hierarchy and according to the financial capacity of the lessee. Security deposits and maintenance reserves should be returned to the lessor.

The Cape Town Convention is in force in Portugal.

Portugal has not made any declarations under the Cape Town Convention.

Article XIII of the Protocol on Matters Specific to Aircraft Equipment is applicable in Portugal but it can be excluded if agreed by the parties.

Portuguese courts have had significant experience in relation to parties enforcing the Cape Town Convention, proportional to size of the market and activity.

The 1948 Geneva Convention on the International Recognition of Rights in Aircraft was ratified in Portugal in 1985.

The 1933 Rome Convention on the Unification of Certain Rules relating to the Precautionary Arrest of Aircraft was approved on 20 June 1936 but not ratified.

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

There are no exchange controls or government consents that would be 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.

In Portugal, downstream, upstream and/or cross-stream guarantees are permitted in favour of lenders. Conditions are to be set by mutual agreement between the parties.

In Portugal, it is advisable for a lender to take share security over a domestic special purpose vehicle that owns the financed aircraft.

Negative pledges are recognised in Portugal.

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

The concept of agency and the role of an agent (eg, the facility agent) under a syndicated loan is not recognised in Portugal.

Which methods of debt subordination are permitted and recognised in Portugal depends on the procedures and on the specific case.

The transfer or assignment of all or part of an outstanding debt under an English or New York law-governed loan is permissible and recognised in Portugal.

In Portugal, usury or interest limitation laws are based on the need of proof.

Typical forms of security and recourse granted in an aviation finance transaction domestically include the proper register of ownership and the financial register procedure with ANAC.

There are no types of security that cannot be taken over an aircraft or related collateral such as engines, warranties or insurances.

The concept of a trust and the role of a security trustee is recognised in a limited way in Portugal.

Whether a borrower can assign its rights to the aircraft or under an aircraft lease to a security trustee pursuant to a security assignment or a mortgage within several principles of the Portuguese legal system depends on the specific conditions.

In Portugal, it is possible to assign the rights and benefits only without also assigning the attendant obligations of the lessor under an aircraft lease if initially agreed.

A security assignment or a guarantee governed by English or New York law can be fully enforceable if performed by an institution and not submitted by the local financial supervision entity.

All formalities should be followed to create and perfect security assignments. All documents should follow international conventions – namely, the Hague Convention.

National activity on insuring rightful access to aircrafts is performed under international regulations whatever the state of origin of the owner. There is no limitation on exercising rights by individuals duly identified and properly represented by lawyers.

An English or New York law-governed security assignment or domestic law security instrument can be registered domestically. However, it must be converted into the proper conditions and requirements correspondent to those valid domestically.

The transfer of security interests over an aircraft and/or engines is recognised, albeit with proper documentation and requirements.

If the identity of the secured parties under a security assignment changes after its execution, the security interests are not jeopardised provided the contract initially allows that kind of assignment.

Whether “parallel debt” structures are used domestically so that the security trustee has an independent right to the secured debt depends on the framework of the parallel structure and the full reach of such structure.

Single actions can determine tax submission and, in this area, all advisory can only be taken based on a specific case and not in general.

It is unclear how a domestic law mortgage over an aircraft or engine would be perfected in Portugal.

Items submitted to the ownership register are easier to secure.

Bank accounts for receivables depend on a legitimate activity and a proper contract signing deposited in the bank.

Pledges are admissible whatever the origin of the credit and the item submitted. Individual assets should be taken into consideration separately and there is no such concept as lien of fleet in Portugal.

The average timeframe to discharge a lien or mortgage over an aircraft in Portugal is three weeks.

There is a proper register for mortgages and charges in Portugal. It can be opposed by any third party.

Statutory rights of detention are limited to specific contracts in which parties can exercise these rights in accordance with the minimal conditions to which they have agreed before.

A potential purchaser of an aircraft in Portugal could search ANAC to verify that an aircraft is free from encumbrances.

Loans guarantees are normally secured under mortgages and pledges.

If – under a security assignment – security is granted to a security trustee by a lessor in respect of its rights under an aircraft lease, whether that security trustee can 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 depends on the case.

Domestic courts only judge according to Portuguese law. Otherwise they will redirect each case to each foreign jurisdiction.

There is a special procedure for revision of foreign decisions that goes into the essential, formal matters of the case.

A secured party can take physical possession of the aircraft to enforce a security agreement/aircraft mortgage without the lessee’s or operator’s consent if duly empowered to and acting under the special procedures under the Cape Town Convention.

In Portugal, common courts are competent to decide enforcement actions under a security agreement/aircraft mortgage.

In Portugal, a secured party can obtain a summary judgment, equitable or other injunctive relief pending final resolution of judicial proceedings to enforce a security agreement/aircraft mortgage – provided certain conditions are complied with. There are several requirements.

The court ruling can be for a fixed amount or a specific action, whatever the case.

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

With regard to the enforcement of its rights, a lender should always to get formal information about the condition of airworthiness of an aircraft, its whereabouts, and the type of insurance that covers the asset and the operation.