Aircraft finance and leasing in Austria

Information current as of February 2020

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

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

Yes, the homepage of the Austrian Justice Department (www.edikte.justiz.gv.at) operates a data base which allows checking whether the airline has filed an application for insolvency. This service is free of charge. However, it does not state whether the prerequisites for insolvency at a certain company are fulfilled but only lists the filed insolvency applications. The result of the search is provided instantly.
In addition to the online search, a creditor may turn to the Austrian Creditor’s Protection Agency (Kreditschutzverband) and request information on a certain company. The costs for such information should not exceed EUR 100.

See above 2.1.

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

No particular form of transfer is required; the possession of the Aircraft must be transferred to the purchaser; the legal basis for the transfer of ownership is the purchase agreement. Please note that the Owner and evidence of ownership must be disclosed and submitted to Austro Control in the course of the registration of the Aircraft.

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

Under Austrian law, for a valid transfer of title to a moveable asset there must be (i) an agreement between seller and buyer that title is transferred to buyer and (ii) a transfer of physical possession of the property from seller to buyer. As under realistic scenarios a physical transfer of possession may not always be practical, Austrian law provides for various ways to substitute the need for a physical transfer of possession (e.g. by way of the seller assigning its contractual rights to reclaim possession from a third party). 

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?

Yes, provided that the transfer was executed in accordance with Austrian law, i.e. physical transfer of possession from the seller to the purchaser based on a purchase agreement.

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

VAT: Provided the Aircraft is supplied to an Austrian purchaser, the VAT-exemption rule may be applicable; hence, the supply of the Aircraft might be exempt from VAT in Austria.

§ 9 sec 2 Austrian VAT Act stipulates that the supply of an Aircraft is exempt from VAT if the purchaser of the Aircraft is an entrepreneur predominantly carrying out international air transportation or solely carrying out air transportation on routes outside Austria. It is however, not necessary that the respective Aircraft is utilized mainly on international routes but only required that the purchaser operates his other Aircraft mainly on international routes. The purchaser must prove that he fulfils the prerequisites for the VAT-exemption.

The VAT-exemption also applies to parts of the Aircraft as well as to fuel, lubricants, tools, food for the crew, airport services directly connected with flight operations etc.

Registration Fees: The Aircraft is subject to numerous fees in Austria. In this connection, AOC fees, registration fees and fees for the airworthiness certificate will be due. These fees are regulated in the Austro Control Fee Ordinance (Austro Control Gebührenverordnung, BGBl Nr. 2/1994).

Fees for obtaining an Aircraft Operator’s Certificate (“AOC”) may amount to EUR 41,370 (Performance Class A Aircraft exceeding 150,000 kg [330,693 lb]). Obtaining an AOC for a typical business Aircraft (5,701 kg [12,568 lb] – 20,000 kg [44,092 lb]) amounts to EUR 11,821.

Registration fees may vary between EUR 295 and EUR 2,957. Finally the fee for obtaining an airworthiness certificate varies between EUR 709 and EUR 21,748.

Please note that additional minor fees may apply.

1. Expropriation: Under extraordinary circumstances the Owner’s right in the Aircraft may be defeated. However, such expropriation is only permissible for public good and only if expropriation is the last resort. The Aircraft’s owner must be compensated in case of an expropriation.
2. Seizure by customs office: Under certain circumstances, the customs office may seize the means of transportation if they were used for trafficking of goods subject to customs and such customs were not paid.The customs authority is obliged to release the seized means of transportation after the prerequisites for the seizure cease to exist.The customs office is obliged to return the seized means of transportation to the person from whom the means of transportation was taken regardless of the ownership status.
3. Seizure by the prosecution: In case the Aircraft had been used for a criminal act (e.g. transportation of forbidden goods) the prosecution may order the confiscation of the Aircraft provided the Aircraft will be used as a piece of evidence in the following criminal proceedings. The Operator is obliged to surrender possession to the police.
4. Retention Rights: The Austrian Commercial Code grants a creditor a retention right on assets of the debtor which are in the possession of the creditor (e.g. maintenance company may retain the possession of an Aircraft for unpaid maintenance bills of the Aircraft Operator). 
5. Emission Certificate: In case of an infringement of the Austrian Waste Emissions Certificate Act, the environment minister is responsible to impose sanctions against the Aircraft Operator. If the measures taken are not able to keep an Aircraft Operator from committing infringements, the environment minister may request an operating ban for the Aircraft Operator (cf § 28 sec 7 EmissionsG).

The Chicago Convention of 1944 on International Civil Aviation?
Yes, Sept. 26, 1948

The 1948 Geneva Convention on the International Recognition of Rights in Aircraft?
No

The 1933 Convention for the Unification of Certain Rules Relating to the Precautionary Arrest of Aircraft?
Yes, Austria is a signatory state

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

There seem to be no efforts of the Austrian Government to ratify the Cape Town Convention any time soon. The European Union has already ratified the Cape Town Convention on 28th April, 2009.

Yes, it is called Austrian Aircraft register (Österreichisches Luftfahrzeugregister) and is operated by Austro Control GmbH based in Vienna which is working under the supervision of the Federal Ministry for Climate Action, Environment, Energy, Mobility, Innovation and Technology. Their website contains useful information (https://www.austrocontrol.at/en).

4.5.1 Who is responsible for registering the Aircraft – is it an Owner registry or an Operator registry?

The Aircraft Operator (Halter) is responsible for registering the Aircraft, not the owner. For certain aspects the participation of the owner is necessary (e.g. signature). However the owner does not appear on the certificate of registration nor in the public Aircraft register. Please note that the owner must be disclosed as well as the evidence of ownership upon registration of the Aircraft.
Please note that the Operator must be a person (physical or legal) residing within the European Union in order to register the Aircraft in Austria. In case the Operator is a resident of a third country, such Operator may transfer its Operator status to an Austrian or European Operator (Halterschaftsübertragung).

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 information is recorded by Austro Control

1. Details of the Operator(s)
2. Details of the Aircraft (registration number. type of Aircraft, MTOM, serial number)
3. Details of the Owner(s)
4. Last registration
5. Noise insulation

It is not possible to record the Lease and/or an Aircraft Mortgage on the Aircraft Register.

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?

Such entries are not allowed in Austria. However, the Owner has to be named in the application for registration; further the Operator must declare each transfer of ownership of the Aircraft to Austro Control.

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

The register is an Operator register. 

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

Not for registration purposes; but it makes a difference for VAT purposes (see above under 3.1.4);

For the registration on the Aircraft Register the following documents need to be submitted to Austro Control:

1. The Austro Control standard application form
2. Attached
   1. Proof of ownership (Austro Control standard form)
   2. Transfer of operatorship (if applicable) (Austro Control standard form)
   3. Proof of Operator’s citizenship
   4. Proof of owner’s citizenship
   5. Tax confirmation (sec. 27 (1) Austrian VAT Code) (if applicable)
   6. A certificate of deregistration (Löschungsbescheinigung) if the Aircraft has previously been registered in another Aircraft register or a certificate of non-registration (Nichteintragungsbescheinigung)
   7. Compliance Certificate in respect of noise development

Please note that in order to operate the Aircraft the airline required further approvals, such as approvals in respect of the Aircraft, insurance and crew. 

see under 4.5.1 above 

No

Austria does not have a pledge register or similar registers. The retention of title of the Owner is not entered into any register.

Yes; although a lease (in German: Leasing) is not regulated as a separate type of agreement, such agreement is recognized by the Austrian legal doctrine and the Austrian court practice.

English law may govern the lease agreement. However, if the lease is closely related to one country, English law may not overrule mandatory provisions of the country to which the lease is closely connected.

No, there are no formal requirements in Austria applicable to a Lease.

As the Lease does not have to be registered, the English version of the agreement could prevail. However, the Lease agreement needs to be disclosed to Austro Control when evidencing the operatorship of the Operator. We recommend a bilingual agreement with German as the prevailing language.

There are no mandatory terms which need to be included in a Lease. Hence, the terms of the Lease may be negotiated between the parties. The term of the lease should be specified in the lease agreement. Further, it is recommended to include events-of-default and acceleration provisions and a repossession procedure which applies after the premature termination of the lease agreement. Finally, it should be stated that the lessor bears the stamp duty tax triggered by the lease agreement. As an Aircraft lease agreement is usually concluded for long term, the advice of experienced Austrian legal and tax counsel is highly recommended.

5.6.1 a secured loan?

Yes, the Austrian Supreme Court has re-characterised a sale and lease back agreement into a secured loan. In this specific case, it was never intended that the leased assets return to the lessor after the expiry of the lease. Therefore, the specific agreement was qualified as a secured loan.

5.6.2 a finance (or capital) lease?

The distinction between a finance lease and an operating lease is mainly significant for tax purposes. A finance lease is treated as a purchase; i.e. Operator needs to recognise the Aircraft in its balance sheet. The lease payments are not recognized as rental payments. In case of an operating lease, the Operator is a lessee and therefore the Operator may deduct the monthly lease payments as expenses. The Austrian Tax authority generally recognizes a lease as an operating lease if the lessee may purchase the asset after the expiry of the lease term for at least the book value minus 20% of the book value.
If, on the basis of these responses a proposed transaction appears to have constituents which could suggest a re-characterisation risk, we recommend detailed advice is obtained.

5.7 Is there a separate register for Aircraft leases in the Relevant Jurisdiction?

There is no separate register for Aircraft leases.

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

Not applicable

5.8.2 What registration fees are payable (if any)?

Not applicable 

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

Not applicable

5.8.4 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? 

Not applicable

If the Owner validly terminates the Lease, the Operator is obliged to return the Aircraft to the Owner. However, the Owner as a general rule cannot enforce this claim for repossession by himself without the consent of the Operator without taking judicial proceedings (i.e. filing of a suit and subsequently enforcing the judgment through a bailiff). Please note that in case of an physical repossession by the Owner without prior judicial proceedings the Operator may file an action for trespass (Besitzstörungsklage).

No, if the Operator does not return the Aircraft to the Lessor the Owner is generally not allowed to take physical possession of the Aircraft but has to take judicial proceedings, see 6.1.

6.3.1 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?

The Owner would have to present the lease agreement and prove to the court the chain of title from the first owner of the Aircraft. In addition the Owner would have to sufficiently substantiate the fact that the Operator has failed to fulfil its obligations under the lease agreements. The documents may be submitted as copies as long as the opposing party does not dispute the content of, or the authenticity of the signature under, the document. If the opposing party does so, the court may request the Owner to present original documents. Foreign documents should be translated into German.
After a judgment is rendered by the court, only the official copy of the judgment is to be presented to the bailiff to enable him to enforce the judgment.

6.3.2 What is the approximate cost of issuing proceedings?

This depends on the value of the Aircraft and may only be assessed on a case-to-case basis. 

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

Generally not. However plaintiffs who are domiciled outside the European Union can be required to provide security for the costs of the proceedings unless international agreements state otherwise.

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

If the claim is uncontested, proceedings should not last more than six months.

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

If the claim is contested, proceedings could last between 1.5 and several years.

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

The Owner cannot take possession of the Aircraft itself but has to institute proceedings against the Lessee. Prior to the termination of the lease agreement, the lessee should be notified of the default and given a reasonable period of time to make good the default before the Owner dissolves the lease agreement.

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

The claim of the Owner for restitution of the Aircraft becomes time-barred after three years from the end of the year in which the Lease was terminated, unless there are circumstances that interrupt or restart the limitation period (such as the institution of legal proceeding, an acknowledgement of the claim by the other party, negotiations between the parties, a right of the other party to refuse the restitution or other events).

6.4.3 Is a Public Auction of the Aircraft required?

No 

There are practical issues such as clearance to repossess an Aircraft which is “airside” at an Airport. Generally a specialist aviation consulting firm with familiarity of such issues would be used to effect repossession. There is, however, no formal permission required – simply compliance with ground security and similar requirements. 

We are not aware of any published case in Austria dealing with the repossession of an Aircraft or an Aircraft engine.

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?

Whenever the airline files for opening of insolvency proceedings, there is a stay on enforcement of rights, so the lessor would not be allowed to take any legal actions against the airline. Besides, there is a payment stop for the lessee (for further information regarding insolvency proceedings see section 9). Another reason which affects the recoverability is the illegality of the contents of the contract. The Operator could successfully defend a claim of the Owner in case the statute of limitation has lapsed. Further, the Owner could not claim sums payable under the agreement in case the Operator has claims vis-à-vis the Owner and the lease agreement does not exclude the right of set-off for the Operator. Other grounds on which the enforceability of obligations under a lease may be challenged by a lessee include mistake fraud, incapacity of the lessee, illegality, sovereign immunity and public policy. 

Provided the lessee is not in Administration, as a matter of law, the Owner is free to sell at any time (subject to the lease and taking account of the warranty of quiet enjoyment and peaceful possession if the lease has not been terminated for default). Contractually the lease could restrict the Owner’s ability to sell or to assign the lease but this is a matter of contract rather than law. The lease agreement, on the other hand, could also allow for the Aircraft to be sold in the course of the Operator’s insolvency.

For the export of an Aircraft, an Export Certificate of Airworthiness (“CofA”, in German: Lufttüchtigkeitszeugnis) is required. This certificate will be issued by Austro Control if all requirements are fulfilled. Procedures and requirements are different depending on whether the Aircraft is exported to another EASA country, to the US/Canada or to another non-EASA-country. Within the EASA area a CofA will not be needed, outside the EASA area it will be required. Please visit the Austro Control website or call Austro Control for further information.

As the Austrian Aircraft Register is an Operator register; the Operator is responsible for deregistration of the Aircraft. The Owner would not be entitled to apply for deregistration, unless the Owner is authorized by way of a power of attorney. 

The Operator is responsible for deregistration of the Aircraft; without its consent, deregistration would not be possible. I.e. if the Airline is a different entity as the Operator, the Airline’s consent is not required.

It mainly depends on the applicant (normally the Operator) and on the time he needs to provide all documents necessary for deregistration. When all documents have been received by Austro Control, the process will be finished within a few business days, depending on their capacities.

In general, an export license is not required. However, an export licence may be required if embargoes imposed by the United Nations or other international organisations, the European Union (to the extent applicable in Austria) or by Austria itself have to be complied with or if parts of the Aircraft qualify as a Dual-Use Item in the meaning of Council Regulation (EC) No. 428/2009 or the Austrian Foreign Trade Act (Außenwirtschaftsgesetz). Such permit would have to be applied for by the exporter and granted by the competent authority – the Federal Ministry for Economy (Bundesministerium für Wirtschaft) – prior to the export of the Aircraft. Special regulations apply in case that an Aircraft is specially designed for military purposes.
Further, prior to the export of the Aircraft, a Certificate of Airworthiness (“CoA”) must be obtained. Such CoA is issued by Austro Control. 

As soon as the applicant provides all documents necessary to obtain a CoA, the process will be finished within a few business days. The costs depend on the weight of the Aircraft any may vary between EUR 110 (up to 1,200 kg) and EUR 3,512 (above 20,000 kg).

No. Austro Control will deregister an Aircraft when the Operator fails to meet the requirements for registration, the Operator requests that the Aircraft be deregistered or when the Aircraft is registered elsewhere. Please note that a certificate of deregistration is issued by Austro Control only upon request.

Yes.

Will the courts recognise a power of attorney in the form of an IDERA and governed by English law?

As Austria is not a signatory state to the Cape Town Convention, Austrian law does not know a power of attorney in the form of IDERA (Irrevocable De-Registration and Export Request Authorization). Generally, power of attorneys may be governed by foreign laws. Nevertheless, to date IDERA has not been discussed in Austria.

In principle, a power of attorney is always revocable. However, if stated to be irrevocable and coupled with a security interest, then it will be irrevocable.

Insolvency proceedings cause all powers of attorney regarding the insolvency estate to extinguish. The liquidator is the only person who is entitled to deal with the insolvency estate.

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

According to Austrian law, a debtor is obliged to file an application for opening of insolvency proceedings “without culpable delay”, but at the latest within 60 days after he is unable to pay his debts. The obligation applies to the directors of the Airline or, under certain circumstances, to a controlling partner of the company; in case of a violation of their duties, the directors are opened up to personal liability for any damage caused to the company’s creditors due to the prolonging of insolvency.

8.1.2 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, an Insolvency Official will be nominated at the beginning of insolvency proceedings. Under certain circumstances the debtor may administrate the insolvency procedure by himself (Selbstverwaltung). The insolvency proceedings do not subdivide to Administration and Liquidation. The Insolvency Official’s primary goal shall be to restore solvency while continuing the business; closure is only the last resort in case it is the only way to prevent the creditors from being damaged. After closure, the Insolvency Official has to liquidate the company (detect the assets/liabilities, recover debts etc.). He is supervised by the insolvency court.

8.1.3 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?

Generally the Insolvency Official does have the authority to do so, but for certain legal transactions, such as fulfilment or annulment of contracts worth more than EUR 100.000, he has to ask the committee of creditors for a written statement and inform the Insolvency Court about the planned transactions to be safeguarded in his internal relationship with the company.

8.1.4 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? This question will depend on the precise terms under which the security deposit is paid. Generally there is a moratorium on enforcement of rights under a Lease following the commencement of Administration and, if not properly constructed, this would apply to the security deposit arrangements. However, if properly constructed there is a strong argument that the security deposit is Financial Collateral and subject to the Financial Collateral Regulations which permit appropriation of the deposit to satisfy unpaid amounts without regard to the moratorium. There are no restrictions in Liquidation.
• (b.) Accepting payment of rent or other lease payments from:
  1. (i.) the Airline? The directors are not allowed to make payments after gaining knowledge of the insolvency to prevent belittlement of the insolvency estate for the benefit of single creditors. The other creditors and the Insolvency Official could contest the payment; besides, disregarding the prohibition exposes the directors to personal liability towards the company.
  2. (ii.) a guarantor? Assuming the guarantor is not itself in insolvency proceedings then there is no limitation on accepting payments under the guarantee from the guarantor; the guarantor is even obliged to pay in case the Airline does not. Through payment the guarantor is subrogated to the rights of the Airline and therefore has a right of redress; he can file his claim to the insolvency proceedings.
  3. (iii.) a shareholder? Assuming the shareholder is not itself in insolvency proceedings then there is no limitation on accepting payments from the shareholder. Such payments may be vulnerable to being set aside if the shareholder is insolvent at the time of payment and within a defined period is subject to formal insolvency proceedings.
• (c.) giving notice of default under the lease? Notice of default may be given.
• (d.) obtaining a judgment or arbitral award for unpaid lease payments? After commencement of the insolvency proceedings, it is prohibited to take legal action against the Airline. A pending lawsuit against the Airline will be stayed and the suitor has to assert his claim to be taken into account during the insolvency proceedings.
• (e.) giving notice to terminate the leasing of the Aircraft? Generally, the Owner is prohibited from terminating the Lease after commencement of the insolvency proceedings except for cause or the consent of the Insolvency Official. The prohibition ends six months after commencement of the insolvency proceedings. There is no such prohibition in Liquidation. 
• (f.) exercising rights to repossess the Aircraft? During the first six months of the Insolvency Proceedings, the Owner cannot demand the Aircraft back if this would endanger the continuation of the business as a going concern, unless consented to by the Insolvency Official . The Owner will receive either the contractual payment or a reasonable fee for use as insolvency claims. There is no such prohibition in Liquidation.

8.1.5 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? 

The commencement of Insolvency Proceedings itself does not have a retrospective effect, but the Insolvency Official has the right to annul some legal acts taken by the Airline with the intention to discriminate certain creditors. The period of time varies from six months up to ten years in special cases. In most cases the right of contest will affect contracts signed within six months before commencement of the insolvency proceedings.

8.1.6 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?

Generally, the insolvency estate adopts the lease at commencement of the insolvency proceedings, but the Insolvency Official has the right to terminate the lease agreement any time within the statutory notice period or a shorter period of notice if this is agreed in the lease agreement. If he terminates the lease even earlier, the Owner has a claim against the insolvency estate for damages being caused by the early termination. There is no specific time limit but in practice Insolvency Officials try and make such decisions quickly after taking office. The Administration process should ordinarily not extend beyond a year in total so the Insolvency Official has a finite time to achieve the aims of the Administration. The primary purpose of an Administration is to rescue the insolvent company as a going concern. To achieve that aim it is usually essential to decide what assets are required and which are not at an early stage. There may well be a dialogue with the Insolvency Official or the Insolvency Official’s legal advisers which may be helpful in determining whether the Insolvency Official will continue with the lease or not.

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

Rent due before commencement of the insolvency proceedings has to be filed in the proceedings and will not be paid by the Insolvency Official. Rent due after commencement of the insolvency proceedings, however, will be paid in full; creditors of such claims will be satisfied prior to creditors whose claims became due at or before commencement of the insolvency proceedings.

8.1.8 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

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

Yes, there is such a ranking. At first, creditors can separate their property from the insolvency estate. Next, the secured creditors (pledgees etc.) will be satisfied; then creditors can assert their set-off claims. In the next step, creditors of claims arising after commencement of the insolvency proceedings will be paid. Within this group of claims, a certain order has to be maintained if the insolvency estate does not cover all of those claims. All other insolvency creditors whose claims arose before commencement of the insolvency proceedings will be satisfied last.

8.1.10 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?

Under Austrian law, an entrepreneur has a right to retention in respect of the goods he is holding with another entrepreneur’s intention to safeguard claims against him. He can also exploit such goods in the same way as pledgees. This right, however, does not affect third parties having a right in rem. As the Airline is not the actual Owner of the Aircraft, a person other than the Airline possessing the Aircraft is not entitled to retain or exploit it.

8.1.11 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.

No, under Austrian law, liens can only be asserted by persons who are in possession of an item. Therefore, a person other than the Airline is not entitled to assert a lien.

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

See response below.

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

See response below.

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

See response below.

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

See response below.

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

See response below.

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

See response below.

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

See response below.

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

See response below.

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

See response below.

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

See response below.

The lease payments are not subject to withholding tax in Austria regardless of where the Owner is incorporated. If the Owner leases the Aircraft to an Austrian Operator, the income derived from the rental (lease) payments are not taxed in Austria, provided the Owner does not have a permanent establishment in Austria.

n/a; even if the Owner has a permanent establishment in Austria, the Owner’s income would be taxable in Austria; the Owner would be obliged to file a tax return in Austria; even in this case no withholding tax on the rental payments would apply. A tax “gross up” is however, recognized in Austria as market standard.

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

20%

9.3.2 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 

9.3.3 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 (i.e. Purchaser pays VAT in its resident state). Otherwise VAT will be applied to purchase price at current rate:

20%

9.3.4 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

If yes, is this because the Relevant Jurisdiction does not apply the decision in ECJ Case C-33/2011? 

Not applicable 

9.3.5 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 rate at 0%, however, customs registration is required. Such registration is done online by a haulage contractor.

Stamp Duty Tax: Leasing agreements concluded in Austria or concerning an asset located in Austria are subject to Austrian stamp duty tax. In case the lease agreement is concluded for a limited term, the tax amounts to 1 % of the remuneration due for the entire term, e.g. lease agreement concluded for ten years, monthly lease payment: EUR 20,000; entire remuneration for ten years: EUR 2,400,000; thereof 1 % = EUR 24,000 stamp duty tax.

Stamp duty tax may be avoided, e.g. in case the Owner, being a non-Austrian company, concludes the lease agreement with the Operator outside of Austria and keeps the lease agreement outside of Austria. Stamp duty may be also avoided in case the Owner offers the conclusion of the lease agreement and the Operator accepts the offer by paying the first lease payment, i.e. the lease agreement is in fact not signed by the Operator. These tax-avoidance scenarios are legal in Austria and do not constitute any kind of tax fraud.
However, each of these scenarios carries risks in case of a tax audit. Diligent care and counsel’s guidance is recommended in case of proposed mitigation of stamp duty tax

9.6.1 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?

n/a

9.6.2 making available a lease facility to a company incorporated or regulated in the Relevant Jurisdiction?

n/a

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

If the VAT exception does not apply, the lease payments would be subject to VAT in Austria due to reverse charge. However, the Owner would have to register in Austria for VAT purposes, especially, if the Owner could claim input VAT in Austria.

9.6.4 Repossessing the Aircraft and exporting the Aircraft from the Relevant Jursidiction?

The repossession of the Aircraft might have VAT consequences, especially in case of a finance lease (which is treated for VAT purposes as a purchase); the export is VAT exempt.

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

The profits derived in Austria from the sale of the Aircraft are likely to be taxable in the country where the Owner (seller) is a tax resident.

Generally, payments to foreigners are free from control. Hence, there are no restrictions on movement of capital, except for those specified in Articles 57 to 60 of the EC treaty. However, the Austrian National Bank may lay down regulations or resolution by which certain transactions with foreigners are restricted. For example, in 2014, the Austrian National Bank prohibited certain type of transactions with numerous Ukrainian citizens. Other transactions with Ukrainian citizens were subject to approval by the Austrian National Bank.
Please note that transactions made without an approval are void unless such transaction was permitted retrospectively.

If a certain transaction is subject to prior approval, such approval is to be obtained from the Austrian National Bank. An approval is not transferrable as the approval depends on the reliability of the party holding the approval.

Yes, there is an obligation to insure the Aircraft based on international treaties, regulations of the European Union and national laws partially complementing these provisions.
The obligation to insure initially affects air carriers and Aircraft Operators as defined in Regulation (EC) No. 785/2004 being directly applicable in Austria. Regulation (EC) No. 785/2004 assumes that the person in whose name the Aircraft is registered is the Aircraft Operator, unless such person provides evidence that a different person is the Operator of the Aircraft.
Further, sec. 164 Austrian Air Traffic Act (Luftfahrtgesetz) stipulates that every Operator is required to have liability insurance for damages caused to passengers, baggage, cargo and third parties or assets (not being a part of the Aircraft or its cargo).
Austrian law does not stipulate that the insurer must be an Austria Institution. Hence, as long as the requirements set out above are met, the insurer may be located outside of Austria.

The Austrian Air Traffic Act does not stipulate any restrictions on reinsurance.

There is no such obligation stipulated in the Regulation (EC) No. 785/2004 or in the Austrian Air Traffic Act.

Reinsurance agreements are governed by the general Austrian Civil Code as the Austrian Insurance Act excludes reinsurances from the scope of its application. Thus, there is no obstacle in assigning contracts of reinsurance. So far, Austrian courts have not dealt with the enforceability of a cut-through clause. In our view, such clauses should be generally permitted under Austrian law.

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?

The liability for damages caused by an Aircraft is based on the Austrian Air Traffic Act, unless international treaties apply. Generally, the Owner is not strictly liable for any damage or losses derived from the Aircraft.

The Operator is strictly liable for damages caused by an Aircraft. According to sec. 156 of the Austrian Air Traffic Act, the Owner is strictly liable for personal damages of passengers up to a maximum amount of 113.100 SDR. Operator’s liability for property damages caused by the Aircraft requires fault or negligence of the Operator.

The Operator of the Aircraft may only be liable for property and personal damages of passengers and carried goods and only according to the general liability principles as set out in the Austrian Civil Code. The Operator’s liability amount depends on the Aircraft’s Maximum Take-Off Mass (MTOM).

13.1 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?
One has to distinguish between several cases:

• Confiscation by Prosecution: The Aircraft could be seized under the Austrian Code of Criminal Procedure (Strafprozessordnung) either temporarily as evidence or permanently in case of confiscation (Konfiskation), forfeiture (Verfall) or deprivation (Einziehung) of the object as laid down in the Austrian Criminal Code (Strafgesetzbuch). However, confiscation and deprivation orders with respect to third party property generally require either some degree of involvement in criminal or regulatory offences, or that the object constitutes a danger to the public or there is a risk that the object will serve the commission of unlawful acts. In the latter two cases, adequate compensation is generally provided unless there is some degree of responsibility attributable to the third party. For example, the Owner may be deprived of the Aircraft, if it has been used as a vessel for drug trafficking, in which the Owner is involved.
• Confiscation by Police: Austrian police is authorised under the Federal Police Act (Sicherheitspolizeigesetz) to seize an Aircraft, if necessary to avert an imminent danger and keep it in custody until the danger is averted. In case the Aircraft may not have been returned to the Owner within six months (because the danger was not averted) or no one claimed the Aircraft, such Aircraft is forfeited. In such case, the Aircraft needs to be sold and the proceeds transferred to the Owner. The Owner may claim the proceeds from the sale three years of the day of the forfeiture.
• Tax and Customs Authorities: The Austrian tax authority may take enforcement measures against the Aircraft (as immovable asset) to enforce tax debt of the Owner. The Austrian Tax Code (Bundesabgabgenordnung) refers to the rules of compulsory judicial execution and public sale laid down in the Austrian Tax Execution Code (Abgabenexekutionsordnung -AbgEO) and also to the general rules of compulsory judicial execution and public sale laid down in the Austrian Execution Act (Exekutionsordnung) and its related statutes. In most cases the tax authority refers to the Austrian Execution Act. The procedure of public sale as such is not different than it would be in case of a private creditor’s enforcement against the Aircraft following a civil court decision. This is a highly formalised procedure including notification of the Owner of the upcoming public sale. As a general rule, enforcement measures can only be undertaken against assets of the respective tax debtor. Where the tax debtor is not the Owner of the Aircraft (e.g. the airline), enforcement measures may be undertaken against the rights and claims of the tax debtor only (e.g. rights and claims against the Owner, incl. right to transfer of title). Additionally, the customs office may seize the Aircraft from the Operator in case the Aircraft was used for customs fraud.
• Unpaid airport fees may lead to the formalised procedure of compulsory judicial enforcement in favour of the creditor (e.g. the airport operating company) under the Austrian Execution Act. Interim measures in favour of the creditor may be admissible in order to prevent frustration of (payment) claims.

Generally, the Owner will be notified in case the Aircraft is at risk of being forfeited. Other measures such as confiscation or deprivation may generally not commence against assets of third parties unless such third party is a part of the respective criminal act. Hence, it is very unlikely that the Aircraft would be forfeited and sold without the Owner being aware of it.

No.

Not applicable.

There is no explicit provision in Austrian permitting such an “asymmetric” submission to jurisdiction clause, but it is recognised by Austrian courts.

Such judgements will be recognized in Austria according to the provisions Council Regulation (EC) No. 44/2001 (Bruxelles I); judgements cannot be recognized only for the reasons listed in the Regulation. To enforce a judgement, no special procedures must be complied with. Pursuant to Article 36 of the Regulation, a judgement must not be re-examined on its merits.

Will the courts of the Relevant Jurisdiction recognise and enforce a decision of an arbitrator? Yes, based on the New York Convention.

The choice of arbitration under the Vienna Rules (VIAC) is commonly used in international transactions. However, ICC rules often are chosen for international disputes as well. 

The answers above apply to Aircraft Engines as well as Aircraft. Engines are separate parts different from the Aircraft (see below 16.2).

We believe that the Aircraft engine forms a separate part of the Aircraft and hence may be owned by a different Owner. However, please note that we are not aware of any Austrian Supreme Court Decisions dealing with the qualification of the Aircraft engines as dependent or independent parts of the Aircraft. According to Austrian tax courts Aircraft engines are to be treated as separate parts of the Aircraft and therefore, may be subject to separate transactions. Hence, Aircraft engines are under Austrian (tax) law separate and independent parts from the Aircraft and may be subject to evaluation and depreciation (for accounting and tax purposes). It could be argued that also under civil law, the Aircraft engine is a separate part of the Aircraft. In such case, the Owner of the Aircraft does not become automatically the Owner of the Aircraft engines but the owner of the engines would remain Owner of the Aircraft engines.

There is no Aircraft Engine register in Austria.

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?