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Italy

Aircraft finance and leasing in Italy

Table of contents
  1. PROPOSED TRANSACTION STRUCTURE
  2. SEARCHES
    1. Are there any public registers in the Relevant Jurisdiction where a search can be carried out to determine whether an order or resolution for any bankruptcy, bankruptcy protection or similar insolvency proceedings has been registered in relation to the Airline?
    2. If so, specify which public registers, how long such searches typically take and if the fees are more than USD 100, approximately what fees apply.
  3. RIGHTS AND EVIDENCE OF OWNERSHIP
    1. In the case of the transfer of title to an aircraft registered in the Relevant Jurisdiction:
    2. Other than Insolvency laws (see section 9) are there any laws which may have the effect of defeating the Owner’s right in the aircraft – for example, Government requisition? Do the laws of the Relevant Jurisdiction provide for any compensation in such circumstances?
  4. THE AIRCRAFT REGISTER – NATIONALITY OF AIRCRAFT
    1. Has the Relevant Jurisdiction ratified any of:
    2. If the Relevant Jurisdiction has ratified the Cape Town, see the Cape Town Convention Annex.
    3. If the Relevant Jurisdiction has not ratified the Cape Town Convention, has the Relevant Jurisdiction started official proceedings or given any other official indication that it will accede to or ratify the Cape Town Convention in the near future?
    4. Is there an Aircraft Register in the Relevant Jurisdiction and if so, what is it called and who operates it?
    5. If so, in relation to registration:
    6. Are there any restrictions on the legal status and/or nationality/domicile of parties seeking to register an aircraft on the Aircraft Register?
    7. In respect of aircraft transactions connected with the Relevant Jurisdiction generally, are there any foreign Aircraft Registers that are commonly used, or should be considered, as alternatives to or in addition to registration with the Relevant Jurisdiction’s Aircraft Register? If so, what is benefit of such registration?
    8. Are there any other filings or registrations necessary or desirable (other than the registrations already mentioned and Lease Registration – see section 6) in the Relevant Jurisdiction in order to ensure the validity, priority or enforceability of the transaction documents, or to perfect the interests of the Owner in the Aircraft or the transaction documents?
  5. LEASES
    1. Will the Relevant Jurisdiction recognise the concept of a lease over an aircraft?
    2. Would the choice of English law to govern the Lease be upheld as a valid choice of law in any action in the Relevant Jurisdiction? 
    3. Must the Lease be in a particular form if it is to be valid and enforceable in the Relevant Jurisdiction (for example, must it be in the language of the Relevant Jurisdiction or be notarised, legalised or have the apostille applied)?
    4. If the Lease must be in the language of the Relevant Jurisdiction, is it possible under the Relevant Law also to have an English version, and to provide that the English version should prevail in case of conflict with the Relevant Jurisdiction language version?
    5. Are there any special terms that the Lease must contain or that it is advisable for the Lease to contain?
    6. Are there any circumstances under which the Lease might be re-characterised under the laws of the Relevant Jurisdiction as:
  6. LEASE REGISTRATION
    1. Is there a separate register for aircraft leases in the Relevant Jurisdiction?
    2. If yes, then:
  7. ENFORCEMENT OF LEASES (ASSUMING AIRLINE IS NOT IN A FORM OF INSOLVENCY PROTECTION)
    1. On the occurrence of an event of default under the Lease, assuming that the Owner is permitted to do so under the terms of the Lease, can the Owner terminate the Leasing of the Aircraft under the Lease and enforce the Lease by taking physical possession of the Aircraft?
    2. If so, can the Owner take physical possession of the Aircraft without the need for judicial proceedings in the Relevant Jurisdiction?
    3. Where judicial proceedings in the Relevant Jurisdiction are necessary, please provide details of the proceedings, in particular:
    4. Where judicial proceedings are not necessary, please comment on the time limits relevant to taking possession of the Aircraft, in particular:
    5. Apart from the judicial proceedings described above and ignoring deregistration (see section 8), is the permission of any other party (including any official body) in the Relevant Jurisdiction required to take possession of the Aircraft?
    6. Is there any history of actual repossession of aircraft by Owners in the Relevant Jurisdiction? If so, please provide details of any matters or issues of which an Owner should be aware.
    7. Are there any circumstances in which the sums expressed to be payable under the Lease or obligations expressed to be assumed by the Airline in the Lease are or will be unrecoverable or unenforceable in the Relevant Jurisdiction?
    8. Are there any restrictions on the ability of the Owner to sell the Aircraft in the Relevant Jurisdiction during the term of the Lease or, following an event of default, on termination of the leasing or pending judicial enforcement of the Lease?
    9. Are there any export restrictions on export of a repossessed aircraft?
  8. DEREGISTRATION POWER OF ATTORNEY/EXPORTATION
    1. Can the Owner apply for deregistration of the Aircraft either at the end of the lease term or following successful repossession (with or without judicial proceedings) and is there any time period within which such application should be made?
    2. Is the consent of the Airline required to deregister the Aircraft either by law or as a matter of custom or practice?
    3. How long does deregistration take, both where there is co-operation from the Airline and where this is no co-operation from the Airline?
    4. Is it possible to obtain an export licence or export permit in advance?
    5. Approximately how long does it take to obtain an export licence or export permit? What are the costs involved?
    6. Is it possible to obtain a certificate of deregistration in advance?
    7. Will a power of attorney empowering the Owner to deregister and export the Aircraft from the Relevant Jurisdiction, either at the end of the lease term or following successful repossession (with or without judicial proceedings), be enforceable in the Relevant Jurisdiction? Will the courts recognise a power of attorney in the form of an IDERA and governed by English law?
    8. Upon the occurrence of a bankruptcy or insolvency of the Airline is the power of attorney still effective?
  9. INSOLVENCY
    1. In the event that the Airline were to become insolvent either on a balance sheet basis (assets less than liabilities) or unable to pay debts as fall due:
  10. TAXATION
    1. The decision to lease to an airline in the Relevant Jurisdiction assumes that the Owner will not be taxed on receipt of rentals or other payments (including maintenance reserves) under the Lease except by way of tax on its general income, profits or gains payable by the Owner in its place of incorporation or place of main business (if different). Will there be a requirement for the Owner to pay tax in the Relevant Jurisdiction on lease payments on basis that either the Owner is subject to taxation in the Relevant Jurisdiction by reason only of the leasing of the Aircraft under the Lease and is required to make payment itself;
    2. If there is a requirement in the Relevant Jurisdiction for the airline to withhold tax on lease payments, will the courts of the Relevant Jurisdiction recognise and permit enforcement of a “gross up” clause in the Lease requiring the payment by the Airline of an additional sum to ensure the Owner receives and is entitled to retain the same net amount as would have been received in the absence of the withholding, taking account of any further withholding on account of tax required in relation to such additional sum.
    3. Under Article 148(f) of the VAT Directive, an exemption from VAT is applied to “supplies” consisting of chartering or hiring of aircraft which are used by airlines operating for reward chiefly on international routes. Therefore:
    4. Is any stamp duty, notarial or other fee or equivalent payable in respect of the execution of the Lease, a de-registration power of attorney or any other lease related document concerning the aircraft? Will such stamp duty or fee still be payable if the relevant documents are executed and held outside the Relevant Jurisdiction? If any such amount is payable how much is it approximately?
    5. Can any form of consent, authorisation or licence be obtained exempting the payments referred to in this Section from such tax or duty? If so, how would it be obtained?
    6. Ignoring any taxation consequence already mentioned and any potential taxation issues if the Owner has any other connection to the Relevant Jurisdiction, is there any other Relevant Jurisdiction taxation consequence of the Owner:
  11. EXCHANGE CONTROLS
    1. Are payments to foreign owners by companies incorporated or registered in the Relevant Jurisdiction subject to any form of exchange or similar control?
    2. If yes, can any consents, authorisations or licences be obtained to exempt payments from any such control? How would these be obtained? Are such consents, authorisations or licences transferable?
  12. INSURANCE
    1. Is it a legal requirement to insure the Aircraft within the Relevant Jurisdiction?
    2. If so, is there any restriction on reinsurance of the primary insurance outside the Relevant Jurisdiction?
    3. Is it possible for local insurers to assign contracts of reinsurance?
  13. LIABILITY FOR DAMAGE
    1. . Can the Owner be strictly liable – liable without a requirement to prove fault or negligence – for any damage or loss caused by the Aircraft assuming Owner is an innocent owner with no operational control of the Aircraft?
  14. DETENTION/CONFISCATION
    1. Are there any rights to detain or sell the Aircraft pursuant to drug trafficking, tax or other laws or pursuant to rights of airport or air navigation authorities if the Airline fails to pay when due?
    2. If so, can the Aircraft be forfeited and sold without the Owner being made aware?
  15. SOVEREIGN IMMUNITY
    1. Is any Airline based in the Relevant Jurisdiction entitled to any form of sovereign or other immunity from suit which might restrict the Owner’s rights under the Lease?
    2. Can such immunity be validly waived in advance by contract?
  16. DISPUTE RESOLUTION AND RECIPROCAL ENFORCEMENT
    1. Do the laws of the Relevant Jurisdiction permit and recognise an “asymmetric” submission to jurisdiction clause under which the lessee submits to the exclusive jurisdiction of the Courts of England but the Owner has discretion to choose a jurisdiction other than the Courts of England?
    2. If the Lease is governed by English Law and a judgment is obtained by the Owner in the English courts, can that judgment be automatically enforced in the Relevant Jurisdiction or will the case have to be re-examined on its merits? If so what procedures must be complied with to enforce such a judgment?
    3. Is the Relevant Jurisdiction party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) or the 1965 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the Washington Convention)? Will the courts of the Relevant Jurisdiction recognise and enforce a decision of an arbitrator?
    4. What is the usual choice of dispute resolution in international supply contracts involving a lessor or buyer incorporated in or with its main place of business in the Relevant Jurisdiction?
  17. AIRCRAFT ENGINES
    1. If the equipment being leased to the Airline in the Relevant Jurisdiction was an Aircraft Engine either unattached to an airframe or attached to an airframe belonging to a party other than the Aircraft Engine Owner and being leased to the Airline under a separate engine lease agreement, would there be any significant changes to the responses set out above?
    2. In particular, does the Relevant Jurisdiction recognise the separate ownership of the Aircraft Engine by the Aircraft Engine Owner when the Aircraft Engine is attached to an airframe belonging to a person other than the Aircraft Engine Owner?
    3. Is there a register of Aircraft Engines and is the information given above in relation to registration of Aircraft and the ownership and leasing of Aircraft the same for registration of an Aircraft Engine and the ownership and leasing of such Aircraft Engine at the Aircraft Engine register?
  18. ADDITIONAL INFORMATION – IS THERE ANYTHING ELSE WE SHOULD HAVE ASKED?
Italy

1. PROPOSED TRANSACTION STRUCTURE

The Aircraft will be purchased by the Owner and leased on an operating lease basis to the Airline pursuant to the Lease.

Is this is the usual structure for transactions of this nature in the Relevant Jurisdiction?

Yes

2. SEARCHES

2.1 Are there any public registers in the Relevant Jurisdiction where a search can be carried out to determine whether an order or resolution for any bankruptcy, bankruptcy protection or similar insolvency proceedings has been registered in relation to the Airline?

Yes.

2.2 If so, specify which public registers, how long such searches typically take and if the fees are more than USD 100, approximately what fees apply.

Searches can be made at the competent Court or at the competent Companies’ Registry (to be identified on the basis of the place where the relevant Airline has its registered office).

On the same date of the application, the Court or the Companies’ Registry issues the so called “good standing certificate” giving evidence of any order or resolution for bankruptcy or insolvency proceedings in relation to the Airline.

The cost for obtaining such certificate is less than USD 100.

The Court decision of adjudication in bankruptcy of an airline must be also registered in the Italian Aircraft Registry.

3. RIGHTS AND EVIDENCE OF OWNERSHIP

3.1 In the case of the transfer of title to an aircraft registered in the Relevant Jurisdiction:

3.1.1 Is any particular form of transfer required for the transfer to be legally recognised?

According to Article 864 of the Italian Navigation Code (“INC”) the deeds of transfer of the ownership of aircrafs must be executed in writing in order to be valid.

Furthermore, for the purposes of the registration in the National Aeronautic Register (as better explained under 3.1.2) the relevant agreement must be notarized.

3.1.2 Must any particular conditions be satisfied for the transfer to be recognised?

The purchase of an aircraft is subject to the Italian Civil Code provisions relating to to the sale of registered movable assets. In particular, the deed of transfer of the ownership of an aircraft shall be registered in the National Aeronautic Register (“RAI”) held by Ente Nazionale per l’Aviazione Civile (“ENAC”) and for this purpose the agreement must be notarized.

3.1.3 Will such a transfer still be recognised by the courts of the Relevant Jurisdiction as legally valid where the relevant aircraft is located in another jurisdiction at the time of the transfer?

Assuming that the relevant agreement is executed before an Italian notary and is subject to Italian law, the location of the relevant aircraft is not relevant for the purposes of the validity of the transfer.

3.1.4 Are any duties, taxes or fees levied on such transfer of ownership?

Where an Aircraft is supplied in Italy VAT shall be payable. Generally zero rate VAT (i.e. exemption with the right to deduction) is applicable where the Aircraft will be used by an Airline operating flights for reward chiefly on international routes.

Aircraft Parts and equipment (including Aircraft Engines) supplied in Italy may be zero rated for VAT where they are of a kind ordinarily installed or incorporated in the propulsion, navigation or communications systems, or the general structure and are intended for incorporation or installation in an Aircraft operated by an Airline operating flights for reward chiefly on international routes.

See 10.3 for more details

3.2 Other than Insolvency laws (see section 9) are there any laws which may have the effect of defeating the Owner’s right in the aircraft – for example, Government requisition? Do the laws of the Relevant Jurisdiction provide for any compensation in such circumstances?

According to Italian Criminal Law, within the context of a criminal proceeding, the Public Prosecutor, in the course of the criminal investigations, may apply real precautionary measures against the Aircraft, such as orders freezing property (“sequestro probatorio”) pursuant to article 253 and seq. of the Italian Criminal Procedure Code, and preventive seizure (“sequestro preventivo”) pursuant to article 321 of the Italian Criminal Procedure Code. Such measures may be applied even if the Aircraft is owned by third parties. No compensation is provided.

Also, Italian Tax Authorities have the authority to seize goods (including Aircrafts) for unpaid taxes, with the possibility to request and obtain the sale of the goods through auction in case of persistent default to pay said taxes. Please note that seizure can be requested over the Aircraft for unpaid taxes due by the legitimate owner of the Aircraft, meaning that indebtedness vis-à-vis the Airline and the Tax Authority shall not entitle the latter to seize the leased Aircraft in the property of the Owner.

4. THE AIRCRAFT REGISTER – NATIONALITY OF AIRCRAFT

4.1 Has the Relevant Jurisdiction ratified any of:

The Chicago Convention of 1944 on International Civil Aviation?

Yes

The 1948 Geneva Convention on the International Recognition of Rights in Aircraft?

Yes

The 1933 Convention for the Unification of Certain Rules Relating to the Precautionary Arrest of Aircraft?

Yes

The 2001 Cape Town Convention on International Interests in Mobile Equipment and the associated Protocol on Matters Specific to Aircraft Equipment (the Cape Town Convention)?

No

4.2 If the Relevant Jurisdiction has ratified the Cape Town, see the Cape Town Convention Annex.

4.3 If the Relevant Jurisdiction has not ratified the Cape Town Convention, has the Relevant Jurisdiction started official proceedings or given any other official indication that it will accede to or ratify the Cape Town Convention in the near future?

There are no public notices available in this respect.

4.4 Is there an Aircraft Register in the Relevant Jurisdiction and if so, what is it called and who operates it?

In Italy aircraft are enrolled at the Italian Aeronautic Register (Registro Aeronautico Italiano “RAI”) held by National Civil Aviation Authority (Ente Nazionale per l’Aviazione Civile “ENAC”).

4.5 If so, in relation to registration:

4.5.1 Who is responsible for registering the Aircraft – is it an owner registry or an operator registry?

Both the owner and the operator must be registered in the RAI.
If the operator does not require the registration, the request can be filed by the owner.

4.5.2 What details would normally be recorded on the Aircraft Register upon registration of an aircraft in the Relevant Jurisdiction? If not normally recorded, is it possible to record the Lease and/or an Aircraft Mortgage on the Aircraft Register?

The following details are recorded in the RAI: (i) name, place of birth, nationality and domicile of the aircraft’s owner in case of natural person and details of the company in case of legal entity; (ii) registration mark of the aircraft and (iii) description of the aircraft.

Aircraft Mortgages and Leases are recorded in the RAI.

4.5.3 If the Aircraft Register is an operator register, is it possible to record the details of the aircraft owner/lessor and any financier with an Aircraft Mortgage?

Yes, the details of the of the aircraft owner/lessor and any mortgagee are registered in the RAI.

4.5.4 If the Aircraft Register is an owner register, is registration on the Aircraft Register definitive to determine ownership of the Aircraft?

Yes.

4.5.5 Are any distinctions made between aircraft employed on international routes and those used purely for domestic flights?

No

4.6 What documents and/or consents are required to obtain registration on the Aircraft Register and will these require any formalities (for example, notarisation, legalisation or application of apostille)?

In order to obtain the registration on the RAI the owner of the aircraft shall deliver the following documents to ENAC: (i) Mod. IM/URA (i.e. the application form for the registration on RAI); (ii) copy of the ID card of the signatory;(iii) notarial deed of transfer of the ownership of the aircraft recorded with the Italian Tax Revenue Office;(iv) certificate of deregistration or no-registration issued by the competent Authority of the State of origin of the aircraft (requested only in case of second hand aircraft); (v) copy of the application filed with the competent ENAC’s Operations Department (Direzione Operazioni) for the issuance of the Certificate of Airworthiness (Certificato di Navigabilità); (vi) proof of the owner’s nationality and (vii) receipt of stamp duties payment.

As regards the nationality/domicile of parties, according to Article 750 of the INC an aircraft can be registered under the RAI held by ENAC provided that national requirements set forth in article 756 of INC are met. Pursuant to Article 756 of the INC the national requirements are met if the aircraft belongs to: (i) the Italian State, region, municipalities and any other Italian or EU public or private entity; (ii) Italian or EU citizen or (iii) companies incorporated or having their registered office in Italy or in any other EU member State whose share capital is wholly or in majority part owned by Italian or EU citizens or Italian or other EU companies having the same shareholding and as whose Chairman, the majority of directors and managing director are Italian or EU citizens. According to Article 751 of the INC an aircraft cannot be registered in a foreign national aviation registry and on RAI at the same time.

4.8 In respect of aircraft transactions connected with the Relevant Jurisdiction generally, are there any foreign Aircraft Registers that are commonly used, or should be considered, as alternatives to or in addition to registration with the Relevant Jurisdiction’s Aircraft Register? If so, what is benefit of such registration?

No.

4.9 Are there any other filings or registrations necessary or desirable (other than the registrations already mentioned and Lease Registration – see section 6) in the Relevant Jurisdiction in order to ensure the validity, priority or enforceability of the transaction documents, or to perfect the interests of the Owner in the Aircraft or the transaction documents?

No.

5. LEASES

5.1 Will the Relevant Jurisdiction recognise the concept of a lease over an aircraft?

Yes.

5.2 Would the choice of English law to govern the Lease be upheld as a valid choice of law in any action in the Relevant Jurisdiction? 

Yes, the parties can freely choose the law governing the Lease. The choice of English law must not prejudice Italian law mandatory provisions.

5.3 Must the Lease be in a particular form if it is to be valid and enforceable in the Relevant Jurisdiction (for example, must it be in the language of the Relevant Jurisdiction or be notarised, legalised or have the apostille applied)?

In order to be valid and enforceable under Italian Law the Lease has to be executed in writing. Furthermore, for the purposes of the registration in the RAI the Lease must be notarized and therefore it has to be drafted in Italian language.

5.4 If the Lease must be in the language of the Relevant Jurisdiction, is it possible under the Relevant Law also to have an English version, and to provide that the English version should prevail in case of conflict with the Relevant Jurisdiction language version?

As mentioned under 5.3 above, since the Lease agreement has to be notarized in order to be registered in the RAI , it must be drafted in Italian. It is not possible to provide that the English version should prevail.

5.5 Are there any special terms that the Lease must contain or that it is advisable for the Lease to contain?

There are no specific terms that a Lease agreement must contain.

5.6 Are there any circumstances under which the Lease might be re-characterised under the laws of the Relevant Jurisdiction as:

5.6.1 a secured loan?

No, as a secured loan implies the creation of a security according to the relevant law provisions.

5.6.2 a finance (or capital) lease?

There might be a risk of re-cathegorization of an operating lease as financial lease (which is a restricted activity subject to licence requirements), where there is evidence that the purpose of the transaction is the sale of the aircraft rather than its use by the lessee (e.g. if there are clauses providing for the obligation of the lessee to exercise a purchase option at the end of the lease).

6. LEASE REGISTRATION

6.1 Is there a separate register for aircraft leases in the Relevant Jurisdiction?

No.

6.2 If yes, then:

6.2.1 What documentation and/or consents are required for the registration of the Lease?

N/A

6.2.2 What registration fees are payable (if any)?

N/A

6.2.3 What information is recorded on the register? How is the eventual discharge of the Lease recorded?

N/A

6.2.4 Does any registration in respect of the Lease remain valid throughout the tenure of the Lease or does such a registration require periodic renewal? If renewal is required when must this be done and what is the approximate cost of renewal?

N/A

7. ENFORCEMENT OF LEASES (ASSUMING AIRLINE IS NOT IN A FORM OF INSOLVENCY PROTECTION)

7.1 On the occurrence of an event of default under the Lease, assuming that the Owner is permitted to do so under the terms of the Lease, can the Owner terminate the Leasing of the Aircraft under the Lease and enforce the Lease by taking physical possession of the Aircraft?

Leasing is regulated under ordinary rules of Italian Law, meaning that event of default under the Lease may give right to the Owner to terminate the leasing of the Aircraft.

Also Ottawa Convention dated May 26, 1988 is applicable to leasing of aircraft, being excluded only by express agreement by the parties of the contract. Said convention provides for the possibility for the Owner to retake possession of the Aircraft following to termination of the Lease contract (Art. 13.2.a).

Under Italian Law the Owner can take physical possession of the Aircraft exclusively on the basis of a judicial order.

7.2 If so, can the Owner take physical possession of the Aircraft without the need for judicial proceedings in the Relevant Jurisdiction?

No. please see answer under 6.1 above.

Please note that following termination, if the Airline continues operating the Aircraft notwithstanding the notice of termination the Airline will not be exonerated from liabilities arising out of the use of the Aircraft. In case of late delivery of the Aircraft notwithstanding the notice of termination, Airline could also be liable vis-à-vis the Owner for further deterioration of the Aircraft.

Please also note that the judicial decision contains the order not to dispose of the Aircraft and not to move it from the place notified in the order.

7.3 Where judicial proceedings in the Relevant Jurisdiction are necessary, please provide details of the proceedings, in particular:

7.3.1 What documents would the Owner as lessor need to present in order to obtain possession of the Aircraft, both before and subsequent to judgment? Can documents be copies?

As a general rule, the Owner shall provide documentation evidencing title of property of the Aircraft as well as the Lease Contract and the service of the termination notice.

The documents must be original or certified copies.

7.3.2 What is the approximate cost of issuing proceedings?

The material costs for proceedings vary depending on the value of the claim, ranging from approximately Euro 250 to Euro 1.700, plus costs for notifications of the order issued, copies to be obtained by chanceries, etc.

7.3.3 Would the Owner be required to provide a bond, guarantee or other security in order to issue proceedings?

According to Italian Civil Code, a “bond” can be requested by the Judge in case of request of an order of attachment/arrest, to be issued in a so-called “urgent” procedure.

The aim is to provide for possible subsequent compensation for liabilities in favour of the Airline, if the attachment is found not to be due, and the amount of the bond is not fixed and is decided by the Judge.

7.3.4 What is an estimate of the normal duration of possession proceedings from time at which all required documentation is made available – if uncontested?

Attachment orders under urgent procedures are granted quickly and notification of the order is served also via telefax to the Captain of the Aircraft, ordering not to leave the airport where the Aircraft lays, with all relevant consequences and liabilities in case of violation by the Captain.

Ordinary proceedings aiming at obtaining a decision over the validity of the termination and the right to take possession of the Aircraft are longer and may last up to two years, though they may be anticipated by interim proceedings.

7.3.5 What is an estimate of the normal duration of possession proceedings from time at which all required documentation is made available – if contested?

Opposition by Airline may trigger a new proceeding or a sub-stage of the existing one, implying a timing ranging from two to three years.

However, usually the standard procedure is pursued by the Owner by obtaining very quickly an attachment order, following which the Airline seldom files opposition and normally allows the Owner to re-take possession of the Aircraft.

7.4 Where judicial proceedings are not necessary, please comment on the time limits relevant to taking possession of the Aircraft, in particular:

7.4.1 Is there a waiting period before action may be taken?

No, save for different contractual provisions.

In any case, termination of contract is typically anticipated by a “formal payment injunction” sent to the defaulting party, requesting it to perform the payment of overdue instalments/lease rentals within a deadline following which the contract will be automatically considered terminated. Such term is normally set in 15 days.

7.4.2 Is there a long stop date by which action must be taken?

Action for payment of instalment/lease rentals is subject to a long stop date equal to:

  • Five years in case of “leasing di godimento”, meaning a leasing contract whereby the rentals are paid solely for using the asset;
  • Ten years in case of “leasing traslativo”, meaning a leasing contract whereby a portion of the rentals consist in partial payment of the price for the future purchase of the asset.

Action for claiming restitution of the asset which is unduly retained by the lessee is subject to a long stop date equal to 20 years.

Please also be aware that according to the INC creditors of the Owner of the Aircraft are not entitled to start enforcement actions over the Aircraft while operated by an airline, unless a special authorisation by Italian Ministry of Transports is issued

7.4.3 Is a Public Auction of the aircraft required?

No.

7.5 Apart from the judicial proceedings described above and ignoring deregistration (see section 8), is the permission of any other party (including any official body) in the Relevant Jurisdiction required to take possession of the Aircraft?

No

7.6 Is there any history of actual repossession of aircraft by Owners in the Relevant Jurisdiction? If so, please provide details of any matters or issues of which an Owner should be aware.

No

7.7 Are there any circumstances in which the sums expressed to be payable under the Lease or obligations expressed to be assumed by the Airline in the Lease are or will be unrecoverable or unenforceable in the Relevant Jurisdiction?

According to Italian Law, obligations (including payment of sums expressed to be payable under the Lease) may result in unrecoverable or unenforceable if the obligation is validly challenged by the lessee for being illegal or contrary to mandatory laws, sovereign immunity and public policy, or being the result of mistake, fraud, incapacity of the lessee.

Also, limits to enforcement arise in case of insolvency of the lessee, which triggers an automatic stay of all enforcement actions already started or yet to be commenced.

7.8 Are there any restrictions on the ability of the Owner to sell the Aircraft in the Relevant Jurisdiction during the term of the Lease or, following an event of default, on termination of the leasing or pending judicial enforcement of the Lease?

The Owner is generally free to sell the Aircraft, unless the Lease agreement provides for an express prohibition. The Lease shall continue with the buyer as new lessor.

7.9 Are there any export restrictions on export of a repossessed aircraft?

No

8. DEREGISTRATION POWER OF ATTORNEY/EXPORTATION

8.1 Can the Owner apply for deregistration of the Aircraft either at the end of the lease term or following successful repossession (with or without judicial proceedings) and is there any time period within which such application should be made?

According to Article 760 of the INC, the request for deregistration of the Aircraft must be filed by the Owner or by the lessee by returning to the RAI the certificate of registration and the certificate of airworthiness of the Aircraft. The INC does not provides for any specific term within which the application for deregistration should be made.

No

8.3 How long does deregistration take, both where there is co-operation from the Airline and where this is no co-operation from the Airline?

There is no specific indication of the timing of the deregistration process which is quite straightforward. However if the Airline is still using the aircraft, the deregistration may prove to be difficult and probably would require Owner to take possession of the aircraft or obtain an arrest order by the Court.

8.4 Is it possible to obtain an export licence or export permit in advance?

Although there is no statutory provision preventing to Owner from seeking an export license (“certificato di navigabilità per esportazione”) from ENAC before the end of the lease term, please note that it is advisable to do so after said term.

Indeed, in order to issue the export license ENAC will carry out through inspections on the relevant aircraft, which needs to be at the Owner’s full disposal so to allow the appointed technicians to carry out the necessary checks.

Furthermore, please note that an export license has a 60 days validity counting from the issuing date. Therefore, in case the Owner requires such license after the said term, ENAC shall carry out further inspections and issue a new license.

8.5 Approximately how long does it take to obtain an export licence or export permit? What are the costs involved?

There are no statutory terms and that it mostly depends on the aircraft to be licensed and its maintenance condition:

  1. if the aircraft to be licensed is in a good state of repairs (e.g. recently used for flight services) and all the required documents are in order, then the procedure usually lasts no longer than 30 days;
  2. on the contrary, if the state of repairs is defective, the required documents are lacking and/or not in order and the aircraft has not been used for air navigation for a considerable time, more in-depth inspections (thus, a longer time to obtain the license) will be required. In this case, it is not possible to make estimation in advance: timing will differ on a case by case basis.

The costs involved are the fees for the ENAC technician assigned to carry out the necessary inspections to obtain the export license. The amount cannot be estimated in advance as such costs are usually determined on an hourly rate basis taking into account the actual time the appointed technician dedicated to the procedure.

8.6 Is it possible to obtain a certificate of deregistration in advance?

No.

8.7 Will a power of attorney empowering the Owner to deregister and export the Aircraft from the Relevant Jurisdiction, either at the end of the lease term or following successful repossession (with or without judicial proceedings), be enforceable in the Relevant Jurisdiction? Will the courts recognise a power of attorney in the form of an IDERA and governed by English law?

A power of attorney empowering the Owner to deregister and export the Aircraft from the Relevant Jurisdiction, either at the end of the lease term or following successful repossession will be recognised by Italian jurisdiction, and the Owner shall then obtain the export licence (please refer to 8.4 above).

Considering that Italy has not ratified the Cape Town Convention yet, Italian courts should not recognise a power of attorney in the form of an IDERA.

8.8 If the power of attorney was stated to be irrevocable would this be enforceable against the Airline or can the Airline revoke such power of attorney?

Under Italian Law a PoA may be irrevocable when it is also granted for the benefit of the appointed attorney. If the PoA is irrevocable the Airline cannot autonomously revoke it.

8.9 Upon the occurrence of a bankruptcy or insolvency of the Airline is the power of attorney still effective?

Yes but may be revoked by the Court appointed receiver. It must be noted that the declaration of bankruptcy does not imply the termination of the lease contract.

9. INSOLVENCY

9.1 In the event that the Airline were to become insolvent either on a balance sheet basis (assets less than liabilities) or unable to pay debts as fall due:

9.1.1 Would the airline be required to file for insolvency protection?

Yes. According to Italian bankruptcy law directors would face criminal liabilities if do not file for insolvency unlawfully delaying the bankruptcy declaration.

9.1.2 Do the available forms of insolvency protection in the Relevant Jurisdiction involve the appointment of either an officer of the court or a specifically court appointed official to take control of the Airline (an Insolvency Official) while in insolvency protection?

Yes/no If no, what other form is possible?

Yes. It would be either a Receiver appointed by the Court in case of standard bankruptcy or a Special Judicial Receiver appointed if the insolvent party is subject to the special rules set forth for major companies in terms of number of employees, specific sector operated, amount of revenues or turnover.

Said companies may be subject to Extraordinary Administration, implying surveillance of Italian Ministerial Authorities.

9.1.3 Does the Insolvency Official have authority to negotiate and reach agreement with the Owner in relation to matters such as the payment of unpaid rent, continuation or termination of the Lease and repossession of the Aircraft without the need for court approval?

Yes. The Insolvency Official or the Extraordinary Administration, as applicable, has the right to decide on continuation or termination of pending contracts, including Leasing agreements.

9.1.4 Does the commencement of insolvency protection involving the appointment of an Insolvency Official in the Relevant Jurisdiction have the effect of prohibiting the Owner from taking the following actions to enforce the lease after commencement of such protection:
  • (a.) Applying any security deposit held by the Owner against any unpaid amounts due under the Lease? Yes
  • (b.) Accepting payment of rent or other lease payments from:
    1. (i.) the Airline?  Yes
    2. (ii.) a guarantor?  No
    3. (iii.) a shareholder? No
  • (c.) Giving notice of default under the lease? No. It must be noted that according to Italian Bankruptcy law, contractual clauses providing for the termination in case of adjudication in bankruptcy are not enforceable.
  • (d.) Obtaining a judgment or arbitral award for unpaid lease payments? No, although in order to obtain payment of the due amounts the Owner shall file a proof of claim petition in the insolvency procedure.
  • (e.) Giving notice to terminate the leasing of the Aircraft? No, please see answer under 8.1.4(c) above.
  • (f.) Exercising rights to repossess the Aircraft? Yes. Enforcement-ad interim actions against bankrupt party cannot be started or are suspended following to declaration of bankruptcy.
9.1.5 Can the commencement of Insolvency Proceedings have retrospective effect in relation to any such actions taken before commencement? If so, for what period can there be a look back?

Yes, the lookback period may vary from six months to 1 year before commencement, depending on the relevant action and requires evidence that the counterparty was aware of the insolvency status of the bankrupt entity (which is assumed by operation of law under certain circumstances).

9.1.6 Is there, either under law or as a matter of practice in the Relevant Jurisdiction, a period of time within which the Insolvency Official will either “adopt” the lease and pay rent and other lease payments as an expense of the insolvency or “reject” the lease and permit the Owner to enforce such rights as it may have under the lease?

No. The Owner may request that the Insolvency Judge fixes a date within which the Receiver has to decide whether to continue or terminate the Lease.

9.1.7 If the lease is “adopted” will the Insolvency Official also pay any unpaid lease payments due as at commencement of the insolvency protection?

The matter is partially disputed. According to certain stances of case law, amounts accrued until the date the Insolvency Official communicates the “adoption” of the lease, will have to be inserted in the claims against the bankrupt party and will rank as secured/unsecured credits according to their title. According to other stances, in case of “adoption” of the lease, all amounts due for rentals accrued will have to be fully paid.

9.1.8 If not or if the lease is “rejected”, would the Owner’s claim for any outstanding sums rank equally with other ordinary unsecured creditors of the Airline?

Yes.

9.1.9 Are there certain types of preferred creditors whose claims will rank above claims of the Owner?

Yes. Credits arisen in the course of bankruptcy procedure are paid as preferential credits, as well as judicial expenses, or credits granted with special privileges such as, as a way of example, credits of employees.

9.1.10 If the Aircraft is in the possession of a person other than the Airline at the commencement of Insolvency Protection of the Airline, for example an independent maintenance facility, will such person be entitled, under the laws of the Relevant Jurisdiction, to assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline?

No.

9.1.11 Is a person other than the Airline, for example an airport authority, entitled under the laws of the Relevant Jurisdiction to seize possession of the Aircraft after commencement of Insolvency Protection and assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline.

Yes. ENAC may prevent the Aircraft to leave the airport under circumstances described under 4.1 below.

10. TAXATION

10.1 The decision to lease to an airline in the Relevant Jurisdiction assumes that the Owner will not be taxed on receipt of rentals or other payments (including maintenance reserves) under the Lease except by way of tax on its general income, profits or gains payable by the Owner in its place of incorporation or place of main business (if different). Will there be a requirement for the Owner to pay tax in the Relevant Jurisdiction on lease payments on basis that either the Owner is subject to taxation in the Relevant Jurisdiction by reason only of the leasing of the Aircraft under the Lease and is required to make payment itself;

Italian tax rules don’t provide with a specific taxation on lease payments, except if the Owner has a permanent establishment (PE) in Italy (in principle, lease payments only do not give rise to a PE).

or payment of such tax is by way of the airline being required to withhold and account for tax from lease payments, where:

According to art. 25, par.4 of Presidential Decree N° 600/1973 a withholding tax (Wht) equal to 30% applies on the lease payments in the benefit of a non-resident Owner, except if claiming protection by DTT may be invoked.

10.1.1 the Owner is incorporated and is tax resident in Ireland?

Yes. DTT Yes. No Wht applies;

10.1.2 the Owner is incorporated and is tax resident in the United Kingdom?

Yes. DTT Yes. Rate of 8%;

10.1.3 the Owner is incorporated and is tax resident in Hong Kong?

Yes. DTT Yes. Rate of 15%;

10.1.4 the Owner is incorporated and is tax resident in Singapore?

Yes DTT Yes. Rate of 15%;

10.1.5 the Owner is incorporated and is tax resident in Malta?

Yes DTT Yes. Rate of 10%;

10.1.6 the Owner is incorporated and is tax resident in the Channel Islands?

Yes. 30% DTT No;

10.1.7 the Owner is incorporated and is tax resident in the Isle of Man?

Yes. 30% DTT No;

10.1.8 the Owner is incorporated and is tax resident in Mauritius?

Yes DTT Yes. Rate of 15%;

10.1.9 the Owner is incorporated and is tax resident in Bermuda?

Yes. 30% DTT No;

10.1.10 the Owner is incorporated and is tax resident in the Cayman Islands?

Yes. 30% DTT No.

10.2 If there is a requirement in the Relevant Jurisdiction for the airline to withhold tax on lease payments, will the courts of the Relevant Jurisdiction recognise and permit enforcement of a “gross up” clause in the Lease requiring the payment by the Airline of an additional sum to ensure the Owner receives and is entitled to retain the same net amount as would have been received in the absence of the withholding, taking account of any further withholding on account of tax required in relation to such additional sum.

We are not aware of Supreme Italian Tax Court decisions on the topic.

10.3 Under Article 148(f) of the VAT Directive, an exemption from VAT is applied to “supplies” consisting of chartering or hiring of aircraft which are used by airlines operating for reward chiefly on international routes. Therefore:

New lease to airline operating for reward chiefly in domestic routes: VAT will be applied to lease rentals at current rate: 22%

New Lease to airline operating for reward chiefly on international routes: VAT will not be applied to lease rentals by reason of application of exemption: Yes

Sale of aircraft by an aircraft lessor to another aircraft lessor of an aircraft subject to a lease to an airline operating for reward chiefly in domestic routes: VAT will be applied to the purchase price. If the seller and the purchaser are both EU entities and the purchaser supplies its EU VAT Number to the seller then the VAT charge will be a reverse charge. Otherwise VAT will be applied to purchase price at current rate: 22%

Sale of aircraft by an aircraft lessor to another aircraft lessor of an aircraft subject to a lease to an airline operating for reward chiefly on international routes: VAT will be applied to purchase price: No.

If no, is this because of application of the exemption under Article 148(f) to the airline following the decision in ECJ Case C-33/2011? Yes, even if Italian Tax Authority has not recognized yet that earlier adverse resolutions are superseded by the ECJ Case C-33/2011.

If the transaction involves the first importation of the aircraft into the EU (and assuming the aircraft is intended for use as a civil and not military aircraft) what rate of Customs Duty will apply? Customs Duties are generally levied at 0% for civil Aircrafts.

Stamp duty applies on the Lease agreement and on the warranties released to the Leasing Company, for a fix amount of EUR 16 per agreement.

Also Notarial fees apply.

No

10.6 Ignoring any taxation consequence already mentioned and any potential taxation issues if the Owner has any other connection to the Relevant Jurisdiction, is there any other Relevant Jurisdiction taxation consequence of the Owner:

10.6.1 Being owner and lessor of an aircraft registered in the Relevant Jurisdiction and operated/leased by a company incorporated or registered in the Relevant Jurisdiction?

No.

10.6.2 Making available a lease facility to a company incorporated or regulated in the Relevant Jurisdiction?

No.

10.6.3 Receiving rent and other lease payments under the Lease from the lessee incorporated or registered in the Relevant Jurisdiction?

No.

10.6.4 Repossessing the aircraft and exporting the aircraft from the Relevant Jurisdiction?

No.

10.6.5 Selling the aircraft at a profit, whether such sale is after repossession or is subject to the Lease and the lessee’s rights?

Income Tax both for IRES and IRAP purposes applies on the gains realized by the seller at a rate of about 31 %, except if claiming protection by DTT may be invoked. The sale of Aircraft within the UK attracts a charge to VAT but, again, supplies of the Aircrafts that will be used by an Airline operating flights for reward chiefly on international routes will be zero-rated.

11. EXCHANGE CONTROLS

11.1 Are payments to foreign owners by companies incorporated or registered in the Relevant Jurisdiction subject to any form of exchange or similar control?

No

11.2 If yes, can any consents, authorisations or licences be obtained to exempt payments from any such control? How would these be obtained? Are such consents, authorisations or licences transferable?

N/A

12. INSURANCE

Yes. According to Article 798 of the INC, an aircraft cannot fly if it is not covered by a valid insurance. There is no requirement in the Relevant Jurisdiction that primary aircraft and/or liability insurances are placed with an Italian insurance company.

12.2 If so, is there any restriction on reinsurance of the primary insurance outside the Relevant Jurisdiction?

No

12.3 Is there a minimum percentage of cover which a local insurer is obliged to retain, and if so, what is it?

No

12.4 Is it possible for local insurers to assign contracts of reinsurance?

Yes

13. LIABILITY FOR DAMAGE

13.1. Can the Owner be strictly liable – liable without a requirement to prove fault or negligence – for any damage or loss caused by the Aircraft assuming Owner is an innocent owner with no operational control of the Aircraft?

According to Ottawa Convention as implemented in Italy, the Lessor is exempted by liabilities arising from the Aircraft vis-à-vis the Airline, save for cases when the possible damage arises from the legitimate reliance put by the Airline in the suitability of the Aircraft, which, in any case, represents a circumstance whereby the Airline has to prove fault or negligence by the Lessor.

Lessor is also exempted from damages to third parties arising from the use of the Aircraft, given that Lease contracts typically ensure that risks remains with the lessee

These provisions do not exclude the liability of the Lessor acting as owner of the Aircraft. In such case it may be held liable for manufacturing defects.

14. DETENTION/CONFISCATION

14.1 Are there any rights to detain or sell the Aircraft pursuant to drug trafficking, tax or other laws or pursuant to rights of airport or air navigation authorities if the Airline fails to pay when due?

If Airline fails to pay, according to the Italian Criminal and Civil Law, the Aircraft may be seized and may be confiscated.

14.2 If so, can the Aircraft be forfeited and sold without the Owner being made aware?

The property of the Aircraft in case of Lease Contract stays at the Owner. Also, according to Italian Law criminal liability is on a personal basis and cannot be extended to third parties which have not participated in the crime. Hence, the Aircraft legally owned by the Owner cannot be sold.

15. SOVEREIGN IMMUNITY

15.1 Is any Airline based in the Relevant Jurisdiction entitled to any form of sovereign or other immunity from suit which might restrict the Owner’s rights under the Lease?

No real “immunity” exists under Italian Law, although according to INC there are restrictions on possibility to start enforcement or ad-interim procedures against the Aircraft whenever it is used for:

  • (a.) government purposes;
  • (b.) serving flight lines, unless a specific authorisation by the Ministry of Transport is obtained;
  • (c.) transportation for consideration of person and/or goods, which are “ready to leave” or “currently flying”, unless the actions are proposed by a creditor due to airline’s debts related to the trip that the aircraft is about to start or is currently involved in.

The Aircraft is considered “ready to leave” when the captain has obtained authorisation from ENAC.
Also, according to INC, ENAC may prevent the Aircraft to leave an airport in case duties related to security obligations for navigation are not respected, as well as in case the Airline or the captain did not respect duties imposed by sanitary and customs rules.

ENAC may also prevent the Aircraft to leave the airport if obligations related to taxes, rights, tariffs, also due to ENAV (i.e. the Italian company which provides the Air Traffic Control service) are not respected by the Airline.

15.2 Can such immunity be validly waived in advance by contract?

No

16. DISPUTE RESOLUTION AND RECIPROCAL ENFORCEMENT

16.1 Do the laws of the Relevant Jurisdiction permit and recognise an “asymmetric” submission to jurisdiction clause under which the lessee submits to the exclusive jurisdiction of the Courts of England but the Owner has discretion to choose a jurisdiction other than the Courts of England?

As already mentioned, it is possible to register at RAI aircrafts which are not owned by the authorised airline, being merely leased by same. However, please note that according to INC, property and security rights over such kind of aircraft are expressly regulated by Italian Law.
Save for such aspects, it is possible for parties of the Lease contract to freely provide clauses on jurisdiction and applicable law, provided that compulsory Italian Laws regulating the matter are respected (such as the mentioned rules related to enforcement procedures or stop-orders by ENAC issued to the Airline).

16.2 If the Lease is governed by English Law and a judgment is obtained by the Owner in the English courts, can that judgment be automatically enforced in the Relevant Jurisdiction or will the case have to be re-examined on its merits? If so what procedures must be complied with to enforce such a judgment?

English Courts’ decision are validly recognised and enforceable in Italy provided that requirements of public order are respected and/or no violation of Italian substantial rules will arise from recognition of foreign decision. To have the foreign decision “accepted” in Italy or declared “enforceable” it is necessary to file to the competent Court of Appeal a request vested with a set of documents comprising the authenticated copy of the foreign decision. The Court of Appeal carries out checks on the “suitability” with Italian rules of the decision, which is not examined on the merits.

16.3 Is the Relevant Jurisdiction party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) or the 1965 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the Washington Convention)? Will the courts of the Relevant Jurisdiction recognise and enforce a decision of an arbitrator?

Yes, Italy is part of both mentioned Conventions. In Italy, foreign arbitral awards are recognised similarly as foreign decisions are (see previous answer), though recognition/enforcement of same is not possible in case the subject decided by arbitrator(s) could have not been decided by arbitrator(s) under Italian Law; or if the award contains statements in breach of Italian public order.

16.4 What is the usual choice of dispute resolution in international supply contracts involving a lessor or buyer incorporated in or with its main place of business in the Relevant Jurisdiction?

The choice of dispute resolution is typically “imposed” by the Owner/Lessor according to their jurisdiction, though specific airline sector may impose the choice of the Lessee’s governing law for various issues related to enforcement/ad interim measures. A preference for arbitration is often expressed, both for confidentiality and for the need to obtain quicker decisions/awards.

17. AIRCRAFT ENGINES

17.1 If the equipment being leased to the Airline in the Relevant Jurisdiction was an Aircraft Engine either unattached to an airframe or attached to an airframe belonging to a party other than the Aircraft Engine Owner and being leased to the Airline under a separate engine lease agreement, would there be any significant changes to the responses set out above?

No particular changes. Engines are considered as separate part of the Aircraft according to Art. 862 of INC, meaning that any right related to them shall result by written form and shall be registered at RAI in order to be publically notified to third parties.

17.2 In particular, does the Relevant Jurisdiction recognise the separate ownership of the Aircraft Engine by the Aircraft Engine Owner when the Aircraft Engine is attached to an airframe belonging to a person other than the Aircraft Engine Owner?

Yes. Please refer to answer under 16.1 above.

17.3 Is there a register of Aircraft Engines and is the information given above in relation to registration of Aircraft and the ownership and leasing of Aircraft the same for registration of an Aircraft Engine and the ownership and leasing of such Aircraft Engine at the Aircraft Engine register?

No. There is no specific register. Any information related to property or other rights over Engines shall be recorded at RAI in order to be publically notified to third parties claiming any right against the owner of the Aircraft.

18. ADDITIONAL INFORMATION – IS THERE ANYTHING ELSE WE SHOULD HAVE ASKED?

Are there any other matters, issues, recommended courses of action or steps which can be taken to protect and/or perfect the Owner‘s interests, as owner and lessor of the Aircraft in the Relevant Jurisdiction or of which the Owner should be aware when contemplating leasing an aircraft to a company incorporated and operating in the Relevant Jurisdiction?

N/A