Aviation Finance & Leasing 2024 Comparisons

The analysis of taxes should be tailored to each transaction, taking into consideration the specifics of Spanish Tax Law, relevant double taxation treaties, and the location of delivery. When an aircraft is sold and made available, or delivered to the buyer, within Spanish territory – inclusive of Spanish airspace and territorial waters – it generally falls under the purview of Spanish VAT (21%), given certain conditions.

However, there are circumstances in which the sale of aircraft can be tax-exempt. The bill of sale may be considered evidence of delivery of the aircraft and/or engine in Spain for the purposes of VAT. A judgment of the European Court of Justice (ECJ) dated 12 July 2012 (A OY Case; C-33/11) has determined that the exemption provided under article 148 B) of Directive (EU) 2006/112 for airlines involved in international air navigation also applies to owners or lessors of aircraft leased to those airlines. Therefore, there is an inconsistency between current Spanish tax law and European law as interpreted by the ECJ; as a result, any attempt to charge VAT by the Spanish tax authorities will be reversed by the ECJ. In these circumstances, the VAT risk has to be characterised as very low.

The execution of a bill of sale in Spain does not attract Spanish stamp duty.

A bill of sale and other related documents must be translated into Spanish by an official translator (traductor-intérprete jurado) in order to be filed with the Spanish Register of Goods and Chattels (Registro de Bienes Muebles) and the Civil Aircraft Registry (Registro de Matrícula de Aeronaves), as well as to comply with requirements for presentations in Spanish law courts during legal disputes.

However, it is noteworthy that the enforceability of a sale agreement against a domestic party is contingent solely upon its execution by the involved parties, not upon its translation, certification, notarisation, or legalisation.

Spanish law requires the existence of a valid title and delivery of the asset to the buyer, and this extends to all parts detailed in the sale agreement. The Spanish registers currently recognise the bill of sale as a valid document proving the transfer of a title provided it has such effect according to the governing law of the bill of sale of the country of registration of the aircraft or engine or the lex situs of the engine. Additionally, Article 1463 of the Spanish Civil Code also permits to replace the physical delivery of the aircraft or engine by the mere consent or agreement of the purchaser and the seller (traditio ficta), if the aircraft or engine cannot be put at the disposal of the buyer at the time of the closing of the sale.

The sale of the ownership in an entity that owns an aircraft or engine means that the purchaser will be the new owner of such aircraft or engine.

See 1.2.1 Transferring Title.

See 1.2.1 Transferring Title.

There are no government applications or consents required as a prerequisite to the execution and delivery of a bill of sale in relation to an aircraft or engine registered in Spain.

See 1.1.1 Taxes/Duties Payable Upon Execution of the Sales Agreement.

There are no types of operating/wet/finance leases or leases concerning only engines or parts not permissible nor recognised.

A lease involving either a domestic party or an asset situated in Spain can be governed by a foreign law, pursuant to Article 3 of the Regulation (EC) No 595/2008 of 16 June 2008 (Rome I).

There are no exchange controls in Spain and transfer of money is free to OECD and EU countries and most other third countries subject to applicable sanctions dictated by the Spanish authorities, the European Union or the United Nations. However, local banks may scrutinise payments to and from a very limited number of countries, such as Iran, Russia, Lebanon, and Syria under the provisions of Law 19/2003 of 4 July 2003 on the legal regime governing the movement of capital and foreign economic transactions and on certain measures to prevent money laundering.

There are no particular exchange controls that could prevent rent payments under a lease or any repatriation of realisation proceeds.

Generally, lease payments are tax-exempt when they relate to aircraft that are operated for international commercial flights. However, specific circumstances surrounding the lease should be considered individually. See 1.1.1 Taxes/Duties Payable Upon Execution of the Sales Agreement.

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

Mandatory terms such as parties, rent or term are usually included in the leases governed by English or New York law. 

Gross-up provisions can be enforced as contractual provisions between the parties but cannot be opposed to third parties or to the Spanish authorities.

A lease agreement can be modified under the principle of freedom of contract to cover subsequent additions to the aircraft such as replaced parts and spare parts.

Engines are movable properties under Spanish law and are generally considered separate or detachable parts of aircraft. Engines may, and usually are, purchased, leased and disposed of separately from the airframe, and can be removed from the airframe without detriment to either the airframe or the engines themselves.

Spain is not a party to the Hague Convention on Trusts 1986. The concepts of “trust” and “trustee” are unknown under Spanish law and not recognised by the Spanish property registers.

The interest of the owner or a lessor of an aircraft may be noted in the relevant Spanish register.

In Spain there are two registers:

• The Aircraft Register is an operator and administrative register that provides a Spanish registration mark to an aircraft, granting it Spanish nationality under the Chicago Convention (1944).
• The Movable Assets Register is a register of title ownership and encumbrances/liens that provides evidence regarding the status of ownership and liens over the relevant aircraft/engine, upon which third parties can rely.

The Aircraft Register is an operator register, therefore the aircraft is registered domestically in the name of the operator as the lessee or owner.

There is no specific register for leases concerning aircraft.

The leases must be recorded both in the Movable Assets Register and the Spanish Aircraft Register. There are no leases subject to consent from the Spanish government.

To obtain provisional registration marks, the lessee must file the necessary documents with the Aircraft Register. Subsequently, to acquire definitive markings, the lease must be recorded with the Spanish Register of Goods and Chattels and then with the Aircraft Register. The process of recording a lease typically takes four to eight weeks.

The signatures on the lease must be attested by a notary and apostilled in accordance with the Hague Convention of 1961, or certified by a Spanish consul in the country where the lessor is domiciled. See 1.1.2 Enforceability Against Domestic Parties.

In Spain, the registration of a lease is not subject to the payment of specific taxes. However, there are certain costs associated with the registration of the lease contract, such as administrative fees, registrar's fees and notary fees.

A popular alternative country where Spanish-based aircraft are sometimes registered is Ireland, as it has favourable tax regimes and regulations for aircraft registration and is known for attracting aircraft registrations from different parts of the world. Regulation (EC) 1008/2008 allows an EU air carrier to be registered not only in the country that granted the operating license but in the register of another EU country. However, this is subject to certain limitations; eg, the Spanish Civil Aviation Authority may insist that registration in such EU country be cancelled or may only allow it for a specific period of time.

The Spanish Aircraft Register only requests copies since documents are filed by electronic means. Documents need to be translated and notarised and/or authenticated. Also, the Aircraft Register request proof of previous submission and registration in the Movable Asset Registry as these two registries work in co-ordination in this area.

Foreign lessors are not required to pay any income or capital gains or other taxes upon leasing an aircraft or engine to a domestic lessee.

Foreign lessors will not be deemed to be resident, domiciled or carrying on any commercial activity or business in Spain or subject to any tax in Spain solely as a result of the execution, delivery and performance of the lease.

The liabilities regarding aircraft or engine maintenance and operations rely on the lessee but each situation should be analysed on a case-by-case basis, as the relevant lease may contain clauses that are prejudicial to the lessors.

The general rule of Spanish law is liability by fault or negligence (culpa o negligencia). However, the Law on Air Navigation (Law 48/1960) is based on strict liability, which arises even if the liable party has acted with all proper due diligence, but in such an event the amount of recoverable damages is limited by the Law on Air Navigation in accordance with the weight of the aircraft.

The Law on Air Navigation and the Montreal Convention of 28 May 1999 state that the lessee is liable for damages caused during a flight.

Although Spanish law only refers expressly to the aircraft operator and any other party as being directly responsible for injury, the lessor may also be considered vicariously liable (responsabilidad subsidiaria), either due to the broad application of the rules of the Civil Code (Article 1908 CC: “the owner is responsible for damages caused by machines which have not been serviced with due diligence”) or the application of the analogy criteria of the Convention of Rome of 7 October 1952. The Rome Convention is applicable to international flights.

An aircraft is the property of the owner, not the lessee.

No third party is entitled to seize an aircraft or engine due to debts incurred by the lessee, except where the seizure is declared in line with administrative, tax, labour, or social security rules.

A mortgage beneficiary’s right will take priority over a lessor’s right.

Insurances can be placed with Spanish insurance companies and EU or European Economic Space (EEA) insurance companies.

Insurances must comply with the requirements set forth by European Regulation (EC) No 785/2004 of 21 April 2004, as amended by the European Regulation (EU) No 285/2010 of 6 April 2010 and the Regulation (EU) 2020/1118 of 27 April 2020 and, at national level, Articles 126 et seq. and the Third Final Provision of the Air Navigation Law 48/1960 of 21 July 1960 (Ley sobre Navegación Aérea).

Reinsurances can be placed outside Spain up to 100% coverage since the Spanish insurer does not need to retain a minimum percentage of coverage.

Regarding reinsurances, cut-through clauses are not permitted by virtue of Article 78 of the Law on Insurance Contracts (Ley del Contrato de Seguro), which prohibits direct claims by the insured against the reinsurer. Therefore, these clauses are unenforceable in Spain if the insurance contract is governed by Spanish law.

Assignments of insurances/reinsurances are permitted.

If the lessor seeks to repossess an aircraft before the expiration of the lease, and the lessee consents, the parties must sign a lease termination agreement that authorises the lessor to appear as the legal holder of the aircraft before the Spanish Air Safety Agency and the Aircraft Registry. This agreement (i) must bear the notarised signatures of the parties (and be apostilled if applicable) and (ii) be submitted to the Spanish Aircraft Matriculation Registry, if deregistration of the aircraft is required.

If the lessee does not consent, the lessor, aiming to deregister the aircraft, can enforce an irrevocable deregistration and export request authorisation (IDERA) if it is properly recorded with the Spanish Aircraft Register. Following an event of default the lessor can enforce such IDERA after sending notice to the lessee. Deregistration via enforcement of the IDERA takes around two to three business days if the IDERA is properly recorded in Spain. If there is no IDERA in place, the only remedy will be court action. “Self-help” remedies are severely restricted under Spanish law. 

If the aircraft is exported to a non-EU country, customs clearance through a DUA ( Documento Único Administrativo), form submission is necessary. DUA clearance is granted as a matter of course except in a contested repossession, where the troubled lessee has been declared insolvent. The aircraft does not need to be physically in Spain at the time of termination of the lease, re-export or sale of the aircraft after such termination. However, the sale of the aircraft could be construed under the Spanish tax law as the lessor being established in Spain for tax purposes and therefore subject to local corporate tax.

A lessor/owner is not entitled to repossess/foreclose by taking physical possession of the relevant aircraft without the consent of the lessee.

If the lessor/owner/lender is seeking to repossess the aircraft following the occurrence of an event of default, it is required to pursue its claim through judicial proceedings. In such a case, the lessor/owner/lender would have to formally declare an event of default by serving official notice to the lessee, and if the lessee fails to redeliver the aircraft and/or spare parts, the lessor/owner/lender would have to start a declaratory action and at the same time apply for interim relief in the form of a provisional measure to arrest the aircraft. The lessor/owner/lender would be required to post a substantial bank guarantee with the Spanish court to indemnify any damage caused to the lessee. The amount of the guarantee is fixed by the court, and the judge has full discretion in this respect. The amount would be based on the judge’s subjective estimate of the likely damages for the lessee.

A Spanish court would base its decision in respect of an injunction or an interim order regarding the repossession of the aircraft on two requirements:

• the lessor/owner/lender submitted to the court a document evidencing the existence of its claim against the lessee; in other words, it must show that it has good legal right to take action against the lessee (fumus boni iuris); in this case such evidence would be the lease together with the notices of default, grounding notices and termination; and
• a risk exists, termed periculum in mora, that any delay in passing a judgment could seriously disadvantage the lessor/owner/lender; the lessee may have dissipated all or a large part of its assets before the lessor/owner/lender is able to obtain a final judgment on its claim; this risk is always difficult to prove and it depends very much on the subjective criteria of the relevant court.

Aviation disputes follow an effective summary procedure, processed by the civil courts.

Under Spanish law, there is an effective summary procedure for certain types of documents and agreements, such as court judgments and notarial deeds (Article 517 et seq. of the Spanish Civil Procedure Law). Consequently, this process would only be available if the agreement had been notarised by a public notary. Lease agreements are seldom notarised due to the cost of notaries’ fees. This procedure is advisable only when enforcing liquid claims, which are uncommon in the claims of a lessor/owner/lender claims, where the amount of the claim is subject to a further calculation of the debt being enforced as well as to potential counterclaims by the lessee.

See 2.1.2 Application of Foreign Laws.

Spanish courts recognise and enforce final judgments of foreign courts or an arbitral award.

EU Court Judgments

Any judgment issued by an EU court or tribunal in favour of a lessor can be enforced in Spain in accordance with the provisions of Regulation (EC) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.

A judgment issued in a member state must be recognised in the other member states without any special procedure being required.

If the parties, regardless of their domicile, have agreed that a court or the courts of a member state will have jurisdiction to settle any disputes that have arisen or that may arise in connection with a particular legal relationship, the court or those courts must have jurisdiction, and this jurisdiction must be exclusive unless the parties have agreed otherwise.

Non-EU Court Judgments

For non-EU court judgments, local courts will apply Law 29/2015 of 30 July on international judicial co-operation regarding civil and commercial matters. To recognise and/or enforce a non-EU court judgment/resolution in favour of a lessor, the lessor must bring exequatur proceedings.

Any judgment/resolution issued by an EU or non-EU court will not be recognised in Spain in certain circumstances such as if the recognition is manifestly contrary to Spanish public policy or if the judgment was issued in default of appearance or the judgment is irreconcilable with a judgment given in a dispute between the same parties in Spain, among others.

Arbitral Award

A foreign arbitral award (eg, a US award) would be recognised and enforced in Spain if it satisfies the requirements of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards; ie, the judgment must not be contrary to Spanish public policy, the subject matter must be capable of being settled by arbitration under the laws of Spain, proper notice of the appointment of the arbitrator or of the arbitration proceedings must have been served upon the defendant, etc.

According to the Article 46 of the Spanish Arbitration Law, the procedure for recognition of a foreign arbitral award is the same as that established for foreign judgments by the Spanish Civil Procedure Law of 1881. The timing for enforcement may take several months (three to nine months), depending on the backlog of work of the court of competent jurisdiction. The application has to be addressed to the high court of justice (Tribunal Superior de Justicia) of the region where the defendant is domiciled. The office of the public prosecution must give a written opinion on the application for recognition. If the high court of justice grants the recognition of the award, its enforcement will be carried out by the court of first instance where the defendant is domiciled.

Aside from the above, the grounds for annulment of an award are very restricted under Spanish law.

The judgment may be expressed in a foreign currency but for enforcement purposes it has to be converted into euros, with the conversion date being the date of the Spanish enforcement order.

A Spanish court may find the default interest rate (or the way it is calculated) rather excessive taking into account limitations on usury. A Spanish court has the power to mitigate (or grant relief on) any clause in a contract which may be considered as being punitive.

The lessor does not need to pay taxes in connection with the enforcement of the lease. The lessor only needs to pay lawyers’ fees, court agent fees, or register fees.

There is no mandatory notice period under Spanish law.

However, it is common practice to serve a notice of default using a notarial or burofax service before actually sending the notice of termination.

The lessee is not entitled to claim sovereign or any other immunity from legal action or proceedings in Spain. However, pursuant to Article 132 of the Air Navigation Law of 1960, the attachment of an aircraft of a Spanish airline may not interrupt the public service operated by it. This legal provision may be applicable to the lessee to the extent that the aircraft is operated in certain domestic scheduled services where a public service obligation has been imposed.

In relation to the above, there are not known to be any judgments of the Spanish courts or judicial statements which clarify the scope of “public service” or “interruption” for this purpose. Council Regulation (EU) No 1008/2008 of 24 September 2008 provides for the rules under which any member state may impose on an air carrier a public service obligation in respect of scheduled air services to an airport serving a peripheral or development region in its territory or on a less frequented route to any regional airport in its territory, any such route being considered vital for the economic development of the region in which the airport is located, to the extent necessary to ensure on that route the minimum provision of scheduled air services satisfying certain requirements of continuity, regularity, capacity and pricing.

It is possible that a Spanish court might (i) adopt a similarly restrictive interpretation of “public service” in relation to the provisions described above, and/or (ii) deem that the repossession of a single aircraft by a lessor in the rightful exercise of contractual rights did not constitute “interruption” for this purpose. However, it is not possible to give a definitive view on this matter due to the lack of precedent in Spanish courts.

Waiver of this immunity would not be permitted as it is based on mandatory law protecting the public interest.

Spain has adopted the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).

A foreign arbitral award (eg, a US award) would be recognised and enforced in Spain if it satisfies the requirements of such Convention.

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

Concepts of contractual assignment and novation are recognised in Spain under Articles 1203 and 1526 of the Spanish Civil Code.

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, the agreements governed by English or New York Law would be held valid by a Spanish court. Under Spanish law, the consent of the lessee is necessary.

For enforcement purposes, the lease assignment and assumption/novation can be enforced without the lease being translated, certified, notarised or legalised. However, a Spanish judge will request translated copies of both the lease assignment and assumption/novation and the lease. For recordation purposes, lease assignment and assumption/novation will need to be translated by a certified translator, certified, notarised or legalised.

See 2.3.4 Registration of Leases With the Domestic Aircraft Registry.

As an assignment and assumption/novation agreement is between business operators, it is exempted from Spanish stamp duty (or other tax) according to Article 7.5 of Law ITP and AJD (Ley del Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados).

Under the assignment and assumption/novation agreement, there would be no VAT payment by the lessee. Rent renewed by the new lessor would be exempted from the Spanish withholding tax provided that the Spanish lessee operates an international route representing more than 50% of the total distance flown by the Spanish lessee’s fleet (Article 14.1(g) of Law IRNR (Ley del Impuesto sobre la Renta de No Residentes).

Such transfer would constitute a sale and would need to be recorded in Spain in certain circumstances.

There are certain situations where an aircraft can be deregistered in Spain (Article 31, Royal Decree 384/2015); for example, the loss of the aircraft, or its registration in a foreign country.

In order to deregister and export the aircraft, the consent of the lessee is required, except where an IDERA is duly recorded in the Spanish Aircraft Register. This means that the lessee must apply for the deregistration of the aircraft upon the expiry of the term of the lease or upon the execution of an early termination agreement.

An aircraft owner, mortgagee or lessor cannot apply for the deregistration of the aircraft without the lessee’s or operator’s consent, except in the case of a duly recorded IDERA.

The enforcement of the IDERA requires:

• a copy of the IDERA enforcement document that must be registered in the Aircraft Register; and
• a notice addressed to the defaulting party sent by an authenticated mode of communication.

The exportation of the aircraft outside the EU also has to be cleared through Spanish customs.

In amicable situations, it is quite possible to process the deregistration of an aircraft and obtain an export certificate of airworthiness in around two weeks. However, in adversarial situations, the delays can be considerable, particularly if the Spanish operator has been declared insolvent or if it is necessary to take legal action in the Spanish courts. Deregistration through the enforcement of the IDERA takes around two to three business days.

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

The aviation authority fees payable for 2024 are as follows:

The maximum take-off weight of the aircraft is shown in kg, while the fee for deregistration of the aircraft is shown in euros:

• less than 2,000 kg – EUR77.79;
• 2,000–5,700 kg – EUR116.68;
• 5,701–15,000 kg – EUR155.55;
• 15,001–50,000 kg – EUR194.48; and
• 50,001 kg or more– EUR233.34.

Deregistration power of attorney (DPOA) is not recognised locally for deregistration purposes whereas an IDERA is effective in Spain. The Spanish Aircraft Register is an operator register and, as a consequence, the DPOA has to be granted by the lessee and not the lessor. However, this is a minor issue because the Spanish register will not remove an aircraft on the basis of a DPOA even if granted by a lessee. In summary, a DPOA has limited value in this jurisdiction.

In any case, the DPOA should be notarised. There is no need to register or file it with any register or government entity.

No additional documents are required to enforce a DPOA, but it must be notarised.

A DPOA can be governed by a foreign law, but it would need to meet certain formal requirements, such as notarisation by a notary public and provision of the Apostille per the Hague Convention of 5 October 1961. However, such a power of attorney may not provide sufficient assurance and security in the event of a default.

Under Spanish law, a power of attorney can be irrevocable if this has been expressly agreed by the principal and provided that there is an underlying contractual reason for such irrevocability. However, enforceability of the power of attorney against the lessee would require Spanish court action, since the application of “self-help” remedies is very restricted under Spanish law.

Unless an IDERA is duly recorded with the Spanish Aircraft Register, an aircraft owner, mortgagee or lessor cannot export an aircraft without the lessee’s consent.

The Spanish Air Authorities will issue the Export Certificate of Airworthiness about 15 days after the redelivery of the aircraft. An Export Certificate of Airworthiness is not necessary if the country of new registration is a member country of the European Aviation Safety Agency (EASA).

The costs/fees for exporting an aircraft are minimal.

There are no significant practical issues that an aircraft owner or mortgagee or lessor should be aware of in respect of the deregistration of aircraft in Spain.

In Spain, any aspect affecting a contract in which one of the parties (either the lessor or the lessee) is facing insolvency will be regulated by the Royal Legislative Decree 1/2020 of 5 May 2020, which approves the Revised Version of the Insolvency Law (Texto Refundido de la Ley Concursa or TRLC).

From the moment a company becomes insolvent, it will have to apply for one of the two procedures regulated in the TRLC:

• Pre-insolvency proceedings (preconcurso): When a company is facing current, imminent (expected insolvency within three months) or probable insolvency (expected insolvency within the next two years), it may issue a make a formal communication announcing the commencement of negotiations with its creditors, or the intention to initiate them (the “Communication”), with the aim of formulating a restructuring plan to mitigate the insolvency situation (the “Restructuring Plan”).
• Insolvency proceedings: When a company is facing actual or imminent insolvency, it may file for insolvency proceedings, which are organised into two phases:
1. A “common phase” (fase común): The debtor is placed under court protection to determine its assets and liabilities and to identify potential pathways for reaching an agreement with creditors, or determine if the company is no longer financially viable due to consistent lack of profitability or insurmountable debt levels that significantly outweigh assets. In the latter scenario, the company may need to be liquidated. 
2. This is followed by a second phase, either the “agreement phase” (fase de convenio) if the debtor is deemed financially viable, or the “liquidation phase” (fase de liquidación) if the company is not deemed financially viable.

Insolvency proceedings may be requested by the insolvent company itself (voluntary insolvency proceedings) or by a creditor (mandatory insolvency proceedings). In the latter case, the corporate directors are usually removed and replaced by the insolvency administrator, who is always appointed by the court regardless of whether the insolvency proceedings are voluntary or necessary.

As an EU member country, the regulation contained in TRLC will be applied without prejudice to the provisions of Regulation (EU) 2015/848 of the Parliament and of the Council of 20 May 2015 on insolvency proceedings.

The TRLC prescribes the application of Spanish insolvency law to insolvency proceedings initiated in Spain, based on jurisdictional rules that grant Spanish courts authority when the debtor’s centre of main interests is located within Spain.

Should the debtor possess assets or rights overseas, it is permissible to seek the initiation of territorial proceedings in the relevant foreign country. In such cases, the proceedings declared in Spain are considered the primary proceedings.

Likewise, the TRLC establishes the requirements for a foreign resolution declaring insolvency proceedings to be recognised in Spain, necessitating adherence to the exequatur procedure regulated in Law 29/2015 of 30 July 2015 on international legal co-operation in civil matters. This stipulates that the foreign resolution must meet the following criteria:

• that the resolution refers to collective proceedings based on the insolvency of the debtor, by virtue of which its assets and activities are subject to the control or supervision of a foreign court or authority for the purposes of its reorganisation or liquidation;
• the judgment is final;
• the jurisdiction of the court or authority that opened the insolvency proceedings is based on any of the criteria contained in this law or on a reasonable connection of an equivalent nature, and mainly that the proceeding is initiated as a result of the debtor’s insolvency and not for other reasons;
• the decision has not been rendered in the debtor’s absence or, if it was, it was preceded by a proper delivery or notification of a summons or equivalent document, allowing sufficient time for opposition; and
• the decision is not contrary to Spanish public order.

Regarding co-ordination principles, since they do not have the status of a law, Spanish judges could apply them as a way of facilitating the co-ordination of procedures, but without any obligation to do so or any consequences for non-compliance.

From the date the court declares insolvency proceedings, any powers of attorney granted by the lessee that allow the management of property will be invalid. This is because the insolvency administrator will now be responsible for managing the lessee’s assets and authorising any transactions that affect them.

If the lessee, in addition to facing insolvency proceedings, is undergoing liquidation, the powers of attorney that allow the management of property will be revoked. This is because the insolvency administrator will now have exclusive control over the lessee’s assets and will be responsible for authorising any transactions that affect them.

There is a risk that the IDERA would be re-characterised under Spanish law as a deregistration power of attorney, in which case the IDERA would not survive the declaration of insolvency of the relevant lessee. Spain has not made any declaration in respect of Article XI of the Cape Town Treaty (Remedies on Insolvency), which means that decisions on repossession and deregistration will be in the hands of the Spanish receiver and the insolvency judge.

All lease contracts are considered successive tract contracts, which means that these contracts can be terminated once the insolvency proceedings have been declared both for prior breaches (eg, non-payment of rent) and for breaches subsequent to the insolvency proceedings.

• The liquidation of the insolvent company will entail the termination of all contracts, including the lease.
• When the liquidation phase of the insolvent company is initiated, the receiver will be solely responsible for returning the aircraft. This should be done immediately, as any delay will unnecessarily increase the liabilities of the insolvent company.
• In no case shall the leased aircraft be considered the property of the insolvent lessee.
• Any claims in favour of the lessor from the lease will be contingent on the outcome of the insolvent company’s liquidation process. Rental payments that remained unpaid prior to the initiation of the insolvency proceedings will be treated as ordinary claims, meaning they do not have any priority in terms of collection. However, unpaid rents arising after the insolvency proceedings began will be classified as claims against the estate, which hold preference over other insolvency claims, barring those with special privileged status. Such special privileges grant priority over any other claims on the property for which the privilege has been conferred (eg, mortgages).

In the event of the lessee’s insolvency, the main risk for the lender is the delay that the insolvency proceedings may entail for the effective repossession of the aircraft. The ensuing damages would include unpaid rent, lost profits, and potential harm to the aircraft.  The claims arising from these defaults would be subject to the outcome of the insolvency proceedings, in which the probability of recovering any amount, even partial, is very low.

Despite this, the insolvency administration tends to be efficient in returning the aircraft when it does not see the viability of the insolvent company. This expeditious return helps to prevent an escalation of liabilities. During the common phase, the lease agreement remains in effect, which means that the lease rent is payable from the insolvent estate’s funds. Termination of the lease agreement must be agreed with the lessor and approved by the Spanish judge upon application by the insolvency administrator.

Ultimately, the speed with which the aircraft is repossessed will depend on a number of factors, including whether the insolvent company considers that the maintenance of the aircraft lease is necessary for the continuity of its business.

In the event of insolvency of a guarantor, the lender would potentially not be able to recover any amounts due from the guarantor, as these claims would also be subject to the outcome of the insolvency proceedings.

• Protection during the pre-insolvency proceedings: From the moment the communication is issued, the insolvent company is protected against its creditors for a period of three months, extendable for a maximum of three additional months (the “Protection Period”), during which:
1. Foreclosures against necessary assets may not be initiated and those initiated shall be suspended. Likewise, the insolvent company may ask the court at any time to extend this suspension on foreclosure to other assets or rights as and when required for the successful completion of the negotiations.
2. For contracts with outstanding mutual obligations, any clauses calling for suspension (such as a lease contract), alteration, resolution, or early termination will not be considered activated solely because the insolvent company has made the communication or requested suspension of executions. However, these actions (suspension, modification, resolution or early termination) can be initiated if requested by the creditor under circumstances not previously mentioned, unless the contract pertains to necessary assets. In this case, such actions cannot be initiated until the protection provided by the communication has ceased. However, the counterparty retains the right to contest the classification of necessary assets if they believe this status is unwarranted.
3. No application filed by a creditor (concurso necesario) for insolvency proceedings will be processed.

If, after the protection period has elapsed, the insolvent company has not been able to approve a restructuring plan, it will be obliged to file for insolvency proceedings within the following month.

• Protection during the insolvency proceedings: When a company is facing actual or imminent insolvency, it may file for insolvency proceedings, which may or may not be preceded by pre-insolvency proceedings. From the moment the court issues the order declaring the insolvency proceedings, the insolvent company will be protected against its creditors as follows:
1. Foreclosures may not be initiated against the assets and rights of the insolvent company, and those already initiated will be suspended, with the following two exceptions: (i) liens for labour-related claims or public claims made prior to the insolvency proceedings on assets not necessary for the continuity of the activity of the insolvent company (“non-necessary assets”); and (ii) the enforcement of security interests on non-necessary assets prior to obtaining the declaration of the court on such nature or on any assets, necessary or not necessary, if an agreement proposal that does not affect such foreclosure is approved.
2. The limitation set forth in the preceding paragraph shall also apply to (i) actions for rescission of the sale and purchase of real estate properties for failure to pay the deferred price; (ii) actions to recover property sold in instalments or financed with reservation of title by means of contracts recorded in the Registry of  Goods and Chattels (Registro de Bienes Muebles); and (iii) actions to recover property leased by means of contracts recorded in the Property or Registry of Goods and Chattels or formalised in a document that entails execution.
3. The accrual of legal or contractual interest is suspended.
4. The offsetting of claims is prohibited except for those that existed prior to the insolvency proceedings and those derived from the same legal relationship. This could lead to the insolvency administrator requesting the return of security deposits in the hands of the lessor, as under Spanish law the title to deposits remains with the lessee.
5. The right of claim to withhold the assets and rights of the insolvent company are suspended.
6. Clauses that establish the counterparty’s right to suspend, modify, terminate or extinguish a contract due to the declaration of insolvency proceedings or the opening of the liquidation phase shall be deemed not to have been included.
7. The declaration of insolvency, by itself, will not affect the validity of the contracts with reciprocal obligations pending fulfilment by both the insolvent company and the other party. Both parties will have to fulfil the agreed-upon services, with obligations incumbent on the insolvent company classified as claims against the estate. However, these contracts may be terminated if there's a breach of contract following the declaration of insolvency.
8. Only successive contracts may be terminated for non-compliance prior to the declaration of insolvency proceedings.
9. If the right to terminate the contract for breach has been exercised, the court may order the contract to be upheld in the interest of the insolvency proceedings, including the payment of the amounts due. Likewise, even if there is no cause for termination, the termination of the contract may be agreed in the interest of the insolvency proceedings.
10. Likewise, in the interest of the insolvency proceedings, the court may agree to the rehabilitation of financing contracts, contracts for the acquisition of movable or real estate property with deferred consideration or price and urban leasing contracts.

The judge will always appoint an insolvency administrator (receiver) for the resolution of the insolvency proceedings. This insolvency administrator will supervise all the actions of the corporate directors (intervention of powers), or will directly replace those that are removed (suspension of powers). The latter usually occurs when the insolvency proceedings are requested by a creditor.

Ipso facto clauses – clauses that allow a party to terminate upon the occurrence of certain events of default such as a counterparty’s insolvency or restructuring – are not enforceable under Spanish law. As a result, such contractual clauses providing for the automatic termination of an aircraft lease based solely on the existence of a court declaration of insolvency are not enforceable under Spanish law.

This means that the aircraft lease agreement may remain in effect if the receivers decide to continue the flight operations of the troubled airline (“cherry pick”). In such cases, the lease rentals become an obligation of the insolvency estate as it is a necessary cost for the continuation of the business; ie, they will be given preference over the claims of common and preferred creditors.

If a domestic lessee is wound up by a court or administration proceeding, this would impact the aircraft, lease rentals, lease security deposit and maintenance reserves as follows.

The Aircraft

The liquidation will entail the termination of all contracts, including the lease of the aircraft, the repossession of which should be immediate.

Lease Rentals

Any claim derived from the contract will be contingent on the outcome of the insolvent company’s liquidation process. Rental payments that remained unpaid prior to the initiation of the insolvency proceedings will be treated as ordinary claims, meaning they do not have any priority in terms of collection. However, unpaid rents arising after the insolvency proceedings began will be classified as claims against the estate, which hold preference over other insolvency claims, barring those with special privileged status. Such special privileges grant priority over any other claims on the property for which the privilege has been conferred (eg, mortgages). In Spain, it is common for receivers to swiftly agree to return the aircraft to the lessor in order to prevent further rental accruals that would be payable from the insolvency estate.

Lease Security Deposit

The lessor should be able to apply the deposits to the collection of unpaid rent or other claims derived from the liquidation of the lease. However, it is possible that the insolvency administration may seek the return of the deposit in respect of rents accrued before the declaration of insolvency, in which case, it should file an incidental lawsuit to determine the claims and obligations of the parties derived from the termination of the lease and the consequent application of the deposit to the liquidation of the claims in favour of the lessor.

Maintenance Reserves

The lessor should be entitled to proper settlement of accounts in respect of maintenance of reserves assumed by the lessee in the lease that were pending fulfilment at the time of termination of the lease, but not later ones. Set-off of maintenance reserves against other obligations not fulfiled by the lessee (eg, non-payment of rents) will not be permitted unless the lease expressly permits it.

Spain acceded to the Cape Town Convention on 20 June 2013. The instrument of accession was published in the Spanish State Gazette on 4 October 2013. The Aircraft Protocol entered into effect for Spain on 1 March 2016 and was published in the Spanish State Gazette on 1 February 2016. For all legal purposes, the Cape Town Convention has been legally effective for aircraft matters since 1 March 2016.

Pursuant to Article XIX of the Protocol, Spain designated the Spanish Register of Goods and Chattels as the authorising entry point for registration of security interests over aircraft in the International Registry. The Spanish Register of Goods and Chattels will provide the party seeking registration with a unique authorisation code (authorising entry point code, or AEP code), which must be included in the information submitted to the International Registry to register an interest. Since 10 April, AEP codes are provided within one business hour from their request and will be valid for five business days at a price of EUR47.25 per code (AEP codes are required for International Register filing purposes; the Spanish Register of Goods and Chattels must subsequently be informed of their effective use within five business days of their issuance, otherwise they will charge an additional EUR47.25).

The declarations that Spain has made under the Convention or the Protocol are the following:

• Article 39(1)(a) of the Convention: priority of non-consensual rights or interests over registered international interests;
• Article 39(1)(b) of the Convention: priority of amounts owed to public bodies relating to the provision of public services;
• Article 40 of the Convention: court orders permitting attachment of aircraft objects and tax liens shall be registrable under the Convention;
• Article 53 of the Convention: competence of Spanish courts;
• Article 54.2 of the Convention: prohibition of self-help remedies, except for IDERA;
• Article XIX of the Protocol: The Registry of Good and Chattels is designated as an “authorising entry point”;
• Article XXX (I) of the Protocol: applicability of IDERA instrument in Spain; and
• Article XXIX of the Protocol: applicability of the Convention and Protocol to Gibraltar, which is limited to the latter government’s internal competencies.

Article XIII of the Protocol does apply domestically. The IDERA must be submitted in the Aircraft Register and subsequently the Registry will proceed to record it. If it is submitted on its own, the IDERA must be notarised, but if submitted along with other transaction documents, the Spanish Aircraft Register will accept a signed IDERA without notarisation.

So far, there has not been any intervention of Spanish courts enforcing the Convention or the Protocol.

The Kingdom of Spain is a party to the 1933 Rome Convention but not the 1948 Geneva Convention.

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

See 2.1.3 Restrictions Concerning Payments in US Dollars.

Borrowers in Spain may grant security to foreign lenders. As a general rule, under Spanish law it is necessary that the person (borrower) who creates any security (mortgage or pledge) be the owner of the asset. The security must be created to guarantee a pre-existing valid and enforceable obligation.

Any security/mortgage created under US law or the laws of a third country cannot be enforced over a Spanish registered aircraft, unless the security or mortgage has been recorded in the Register of Goods and Chattels. Security registration in the Register of Goods and Chattels requires the prior recording of the ownership title (and fulfilling reciprocity requirements) and will attract around 1% stamp duty on the amounts secured by the mortgage. The Register of Goods and Chattels will also require that the security/mortgage conform to Spanish law, which will involve a redrafting of the document.

Intragroup guarantees (downstream, upstream and/or cross-stream guarantees) are permitted under Spanish law.

It is not usual in aircraft finance transactions to take security over the shares of a domestic SPV set up to own the financed aircraft. Lenders usually prefer to take security directly over the specific asset.

Pledges over shares are recognised in Spain pursuant to Articles 1857, 1863 and 1865 et seq of the Spanish Civil Code.

Although there is no specific legal provision referring to the negative pledge in Spain, it is possible for the parties to include negative pledge clauses. A negative pledge is considered a contractual obligation and does not establish a property right (jus in rem).

Inter-creditor arrangements are commonly entered into when different classes of creditors are involved, especially in syndicated finance. Contractual subordination of debt by inter-creditor agreements where senior and junior creditors agree on the priority of payment is only enforceable between the parties.

The concept of agency and the role of an agent are recognised in Spanish law under the mandate contract rules provided in the Civil Code. However, bank agency contracts are not specifically regulated by ad hoc legislation.

The security interest must be granted in favour of all the secured parties and be duly accepted by all of them. However, lenders under a syndicated loan usually appoint one lender/creditor to be the agent of the whole syndicate and stipulate its rights and obligations contractually. The effect of this is that the agent is the title holder of the security for the purposes of registration and enforcement.

The parties may contractually agree to subordinate a debt in relation to other existing debts (contractual subordination).

Also, a lender may lend to several companies at different levels in a group (structural subordination).

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 Spain.

Spanish law has a general prohibition on usury that is provided in the Law of 23 July 1908 on the nullity of usurious loan contracts. Whether a situation is deemed usurious hinges on two factors: the interest rate being significantly above the market rate, or the debtor agreeing to the interest rate under circumstances of financial distress.

Given the formalities and costs associated with establishing Spanish security, such as a Spanish law aircraft mortgage, it is uncommon for such security to be granted in aviation finance transactions. Since Spain’s accession to the Cape Town Convention (1980), most lessors and banks deem the creation of international interests sufficient for protection.

All types of security creating property rights (jus in rem) can be taken over an aircraft and engines. With respect to warranties and insurances, contractual assignment in Spain does not create a definitive form of security that is enforceable against third parties.

See 2.2.5 Recognition of the Concepts of Trust/Trustee.

A borrower may assign its rights to the aircraft or under a lease (including in relation to insurances) pursuant to an aircraft mortgage or security assignment. See 3.2.2 Types of Security Not Available.

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

Under Spanish law, a security assignment of a lease may not establish a definitive security, or the creation of a jus in rem. To serve this purpose, a security assignment must be revised as a pledge of rights and formalised as a Spanish public deed. A security assignment under New York/English law will only function in terms of contract law, establishing only personal rights (jus in personam) between the parties involved.

A security assignment would have to be redrafted as a pledge of rights and formalised as a Spanish public deed.

Cape Town filings provide more efficient and more economic protection than the Spanish local filings. In this respect, just AEP codes are needed. Domestic law security is subject to stamp duty (around 1% of the value of the aircraft). Moreover, Spanish notary translators and registers charge considerable fees, which depend on the value of the aircraft.

A security assignment would have to be redrafted as a pledge of rights and formalised as a Spanish public deed.

The transfer of security interests over an aircraft and/or engines is recognised and permitted.

Should the identity of a secured party change, the security interests are not jeopardised as long as this change is duly documented.

Spanish law does not envisage purely parallel debt structures where “parallel obligations” which mirror the obligations of the underlying debt owed by such borrower are created in favour of the security trustee for the same amount and payable at the same time as the underlying debt.

A secured party under a security assignment would not be deemed to be resident or domiciled in Spain.

As to fees/taxes, only notarial fees and registration charges apply (if the pledge is in respect of future rights and is recorded in the Register of Goods and Chattels).

Recording a security assignment (as a re-characterised Spanish mortgage) incurs a 1% stamp duty assessed on the amount of the payment obligation (loan) secured plus an amount of interest that cannot exceed the amount of interest accrued during a period of five years. If re-characterised as a pledge of rights without delivery of possession, no Spain stamp duty would apply. There are also considerable notarial fees and registration charges. Enforcing a security assignment entails user fees payable to the Spanish court system, capped at EUR6,000.

To enforce a domestic law mortgage over an aircraft or engine, it must be recorded in the Register of Goods and Chattels. This process requires granting a notarial deed, a 1% stamp duty on the value of the asset, and registration. The security is perfected upon registration. Spanish registers will meticulously verify the security document’s compliance with Spanish law.

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

Under a pledge agreement, a pledge can be created over the credit rights derived from a bank account. In this case, the perfection of security is achieved via the notarial deed of pledge and the transfer of credit rights to the secured party.

Under Spanish law, unpaid airport landing and parking charges would not create a legal lien over the aircraft. However, the lessor might be prevented by local airports from flying the aircraft if outstanding airport fees remain. This would occur when there has been a change of operator while the aircraft is grounded at a Spanish airport. Consequently, the airport has a retention right under administrative law.

Strictly speaking, air navigation, landing and parking charges are Spanish user fees (tasas), enforceable through tax procedures, including aircraft seizure and sale via public auction, but the aircraft owner may regain possession of the aircraft by taking court action, considering that liability for landing and parking fees generally lies with the operator.

In the case of repairer’s charges, Spanish law would consider that a workshop is entitled to a retention right over the aircraft by virtue of Article 1600 of the Civil Code.

Furthermore, under Article 32.2 of the Worker’s Statute, claims for unpaid salaries of a Spanish company rank higher than the claims of any other creditors in respect of “goods made by the employees while they are still legally owned or in the possession of the employer”. However, the Spanish courts have interpreted this broadly in the past, so this risk cannot be completely ruled out.

To discharge a mortgage under Spanish law, a deed of release must be granted before a local notary, a clearance regarding the stamp duty exemption obtained, and the discharge recorded in the Register of Goods and Chattels. The entire process typically takes around one to two months.

The Register of Goods and Chattels is the register of mortgages and charges. The primary effect of registration in this Register is to confer evidence and priority concerning ownership status and liens over the aircraft. Under Spanish law, an aircraft mortgage is perfected upon its registration in this register.

Certain statutory liens, which arise by operation of law, allow for the arrest of an aircraft, although their nature and impact can be contentious.

Liens on a fleet-wide basis do not exist since the principle is that a lien, security, attachment or retention right must be created over a specific object.

Article 133 of Spanish Air Navigation Law states that certain debts should be considered preferential debts over the aircraft (eg, taxes due over the previous and current year; unpaid wages; and costs and expenses incurred in giving assistance to, or rescuing, the aircraft).

A potential purchaser of an aircraft should request a search in the Register of Goods and Chattels to verify that an aircraft is free of encumbrances, liens and mortgages.

Generally, security assignments, loans or guarantees can only be enforced by pursuing the appropriate court action.

If the enforcement of the security is to be undertaken by the security trustee, the security trustee must be so authorised through a notarised and apostilled (or legalised) power of attorney; ie, the security assignment alone will not suffice for this purpose. Enforcement always requires court action; “self-help” is not allowed. The Spanish courts would recognise contractual effects (not creating a true security) to the relationships between the lessor, security trustee and the counterparty.

A choice of a foreign law to govern a finance or security document will be upheld as a valid choice of law by the Spanish law Courts subject and pursuant to Article 3 of Regulation (EU) No 595/2008 of 17 June 2008 (Rome I).

A foreign arbitral award (eg, a US award) would be recognised and enforced in Spain.

“Self-help” is not allowed under Spanish law. Therefore, if a Spanish lessee does not co-operate during the repossession, a secured party would have to seek court assistance to enforce its rights.

Enforcement actions under a security agreement/aircraft mortgage will be processed through the Spanish court system.

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, but this is only possible if the relevant security document has been duly notarised before a local notary, or if the conditions for injunctive relief are met (see 2.6.2 Lessor Taking Possession of the Aircraft).

The judgment may be expressed in a foreign currency; however, for enforcement purposes it has to be converted into euros. The conversion is dated at the time of the Spanish enforcement order.

The secured party has to pay court fees, court agent fees, lawyers’ fees in order to enforce its claim with a court. Enforcement does not attract Spanish taxes.

Court fees are determined in accordance with an official schedule, and lawyer fees are based on the ad valorem guidelines of the local bar associations.

There are no other relevant issues.