Information current as of February 2020
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.
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?
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.
There is a general database for insolvency proceedings in Germany which can be found under: www.insolvenzbekanntmachungen.de. The online access is free of charge and usually permanently available. The database, among other information, reveals if an insolvency proceeding has been commenced relating to the estate of a person or if preservation measures (Sicherungsmaßnahmen) have been ordered by the relevant insolvency court. Also, information as to distributions to creditors and dates for hearings (examination of filed claims etc.) are available.
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?
No. In particular, there is no requirement under German law for documentary proof in form of a bill of sale. Please note however that the German Aviation Authority (Luftfahrtbundesamt – "LBA") requires proof of ownership by a bill of sale for purposes of registering an aircraft in the Aircraft Register (Luftfahrzeugrolle)(cf. 4.6 below).
3.1.2 Must any particular conditions be satisfied for the transfer to be recognised?
Under German 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, German 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. Pursuant to Article 45 of the Introductory Act to the German Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuch) rights in aircraft are generally governed by the laws of the country where the aircraft is registered (lex registri). Therefore, German law would apply to the transfer of title even if the aircraft at the time of title transfer is located outside Germany (unless the laws of another jurisdiction have a materially closer connection with the matter).
3.1.4 Are any duties, taxes or fees levied on such transfer of ownership?
From a tax perspective the transfer of title to an aircraft would be subject to German income taxation if the seller is German tax resident or maintains a permanent establishment in Germany. An aircraft lessor carrying on the trade of leasing in Germany may be liable to German income taxes on its profits or gains. Specific advice is recommended if this is likely to be the case.
For VAT position, see 10.3.
From a German tax perspective no other fees or taxes should be levied on such transfer of ownership.
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?
Under extraordinary circumstances may the Owner’s right in the aircraft be defeated. According to the German Constitution (Grundgesetz) an expropriation by governmental entities is only permissible for public good and may only be ordered by or pursuant to a law that determines the nature and extent of the compensation.
The Aircraft may be subject to requisition and similar rights pursuant to the German Emergency Laws (Bundesleistungsgesetz) for defence purposes and in order to avert an imminent danger to the free and democratic fundamental order of Germany and may be subject to public orders under the laws on the protection of the public security and order (polizeiliche Eingriffsmaßnahmen). However, the German Constitution (Grundgesetz) provides for protection of property from expropriation without adequate compensation. The German Emergency Laws (Bundesleistungsgesetz), for instance, contain detailed provisions for compensation in case of requisition.
Please further note, that the aircraft may also be seized under the German Code of Criminal Procedure (Strafprozessordnung) either temporarily as evidence or permanently in case of confiscation (Verfall) or deprivation (Einziehung) of the object.
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?
The 1948 Geneva Convention on the International Recognition of Rights in Aircraft?
The 1933 Convention for the Unification of Certain Rules Relating to the Precautionary Arrest of Aircraft?
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)?
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?
We are not aware of any indication that Germany will ratify the Cape Town Convention in the near future.
4.4 Is there an Aircraft Register in the Relevant Jurisdiction and if so, what is it called and who operates it?
Yes, there is a register for aircraft in Germany. The register is called Luftfahrzeugrolle (Aircraft Register) and it is operated by the German Civil Aviation Authority (Luftfahrtbundesamt – "LBA") located in Braunschweig. In addition to the Aircraft Register, there is a separate register for small sport aircraft (Verzeichnis der Luftsportgeräte) which is maintained by individual air sport clubs (Luftsportverbände).
A fee is payable on registration of the aircraft with the Aircraft Register. The amount depends on the weight (Höchstmasse) of the aircraft. For an aircraft with a maximum take-off weight exceeding 150 tons the fee is EUR 4,500. If only the registered owner changes the cost would be approximately EUR 70.
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?
The owner of the Aircraft is responsible for registering the Aircraft. The Aircraft Register is an owner registry.
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 on the Aircraft Register.
- Aircraft type and model, serial number of the airframe
- Nationality and registration mark of the aircraft
- Number of the page on which the aircraft is registered
- If applicable, the number of the page on which the aircraft is listed in the Aircraft Mortgage Register (cf. below)
- Name and address of the owner and (if different) the operator
- Regular location of the aircraft
- Use of the aircraft
- Type of engine, equipment, emergency equipment, and verifications
- Noise insulation
- Information regarding liability insurance
- Date of registration of the aircraft
It is not possible to record the Lease and/or an Aircraft Mortgage on the Aircraft Register. Aircraft Mortgages can only be registered in the Aircraft Mortgage Register (Luftfahrzeugpfandrechtsregister) which is a different register as the Aircraft Register. The Aircraft Mortgage Register is maintained by the local court (Amtsgericht) of Braunschweig. A fee will be payable for the registration of the Aircraft Mortgage with the Aircraft Mortgage Register The amount depends on the value of the mortgage. In addition, notary fees for the creation of the mortgage will occur.
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?
4.5.4 If the Aircraft Register is an owner register, is registration on the Aircraft Register definitive to determine ownership of the Aircraft?
No. The registration is part of the LBA‘s duty to monitor the safety of air traffic in Germany. The registration, therefore, constitutes an act of public administration but will not provide conclusive or even prima facie evidence of title to the Aircraft.
4.5.5 Are any distinctions made between aircraft employed on international routes and those used purely for domestic flights?
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)?
For the registration on the Aircraft Register the following documents need to be submitted to the LBA:
- The LBA standard application form.
- Copies of the owner‘s constitutional documents (depending on the jurisdiction of incorporation this may be a commercial register extract, certificate of incorporation, certificate of good standing, memorandum and articles of association or similar documents). The documentation must evidence that the owner is a validly existing entity and that the persons signing the registration documents are duly authorised to act on behalf of the owner. The LBA usually requires that documents are provided in notarised and (in case of non-German owners) apostilled form.
- A declaration of ownership (for instance a bill of sale issued in favour of the owner who is to be registered). The bill of sale will need to be submitted in original form (and will be returned upon request). In some cases, in particular in connection with the registration of older aircraft, the LBA may request documentary proof regarding the previous owners and ask for copies of all bills of sale dating back to the bill of sale issued by the manufacturer of the aircraft. From our experience, the LBA in practice usually does not request that the bills of sale will be notarised and apostilled or translated. Please note however, that the LBA has a wide discretion as regards the documents to be submitted in connection with the declaration of ownership. It is therefore advisable to liaise with the relevant person in charge and to confirm what documentation has to be submitted and which form is required.
- A declaration of the owner stating, inter alia, that (i) it will comply with the provisions of the German Air Traffic Act (Luftverkehrsgesetz) and the Air Transport Licensing Regulation (Luftverkehrszulassungsordnung – LuftVZO), (ii) the aircraft will be leased on the basis of an operator agreement with a minimum term of 6 months, (iii) the aircraft will, on a regular basis, be operated from Germany and (iv) that the owner will notify the LBA immediately should any of the conditions above change. The document needs to be submitted in original form.
- In case of a non-German owner: Appointment of a German domiciled authorised receiving agent (Zustellungsbevollmächtigter). The document needs to be submitted in original form.
- A certificate of deregistration (Löschungsbescheinigung) if the aircraft has previously been registered in another aircraft register or a certificate of non-registration (Nichteintragungsbescheinigung). The certificates have to be submitted in original form unless sent directly to the LBA as facsimile by the relevant foreign authority.
- Copies of the lease agreement including any head leases and sub leases. The LBA accepts leases in German or English language. If the document is in a different language the LBA may require a certified translation of the relevant documents by a registered translator.
Please note that for the airline to be able to operate the aircraft a separate approval (Luftverkehrszulassung) from the LBA is required. The approval and the registration in the Aircraft Register are usually applied for and granted at the same time. However, in exceptional circumstances the aircraft can be registered prior to the airline having obtained approval to operate the aircraft. For the approval to operate the aircraft, various other documents (mostly relating to the technical condition of the aircraft and insurance and customs‘ matters) need to be submitted to the LBA (e.g. a statement of insurance according to the Air Transport Licensing Regulation (LuftVZO), a noise certificate and a copy of the permission from the radio communication authority (Genehmigung zur Luftfunkstelle), customs‘ certificates etc.).
A checklist with all the required documentation for the registration/approval to operate the aircraft can be found on the LBA‘s website under www.lba.de/SharedDocs/Downloads/DE/Formulare/T4/Info/Info03.html?nn=569538
Other than the consent of the LBA no further consents are required.
4.7 Are there any restrictions on the legal status and/or nationality/domicile of parties seeking to register an aircraft on the Aircraft Register?
In principal, the following aircraft can be registered in the Aircraft Register:
- Aircraft not registered in any other aircraft register and exclusively owned by German individuals or entities.
- Aircraft not registered in any other aircraft register and owned by foreign citizens or foreign entities which are leased to a German individual or entity for a period of at least 6 months.
- Aircraft which have been purchased by a German individual or entity (and title has not yet been transferred).
An entity is considered to be a German entity when its seat is located in Germany and over 50 % of its assets or capital and the effective control is held by German citizens and if the majority of its authorised representatives or personally liable persons are German citizens. In this context, citizens of the European Union and citizens of states in which the EU Air Traffic Law (Luftverkehrsrecht der Europäischen Gemeinschaft) applies are treated like German citizens. In our experience, however, the LBA refuses to register an aircraft owned by a non-German EU owner unless the aircraft is operated by a German airline.
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?
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?
Other than the filing with the Aircraft Register and the Aircraft Mortgage Register, no other filings are necessary.
5.1 Will the Relevant Jurisdiction recognise the concept of a lease over an aircraft?
Yes, German law recognizes the concept of a lease over an aircraft. Operating leasing is deemed to be a form of rental agreement and, therefore the provisions of the German Civil Code (Bürgerliches Gesetzbuch – BGB) relating to rental agreements are also applicable to operating lease agreements. According to the German Federal Court of Justice (Bundesgerichtshof) a finance lease constitutes an atypical form of rental agreement to which, primarily, the provisions of the German Civil Code (BGB) relating to rental agreements applies.
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?
The Brexit may have a substantial influence on the answer to this question which cannot be clearly foreseen at the current point in time. It should be noted that there is a transition period (currently to last until 31 December 2020) where the UK, although not an EU member state anymore, is generally treated as if it still was a EU member state. The current (and pre-Brexit) situation is as described below. After the end of the transition period it is possible that a similar situation will be maintained due to (bilateral) treaties but this is currently unclear. In any case, any implications of the Brexit must be reviewed and assessed on a case-by-case basis and subject to the current developments. The choice of foreign law to govern the Lease contract will normally be recognised and given effect by German courts in accordance with (EC) No. 593/2008 ("Rome I"). This regulation provides that the parties to a contract are generally free to choose the applicable law, provided that the choice of foreign law may not be given effect by German courts to the extent that: (i) the parties have not validly agreed on the choice of law according to the law chosen by the parties, (ii) the application of the law chosen by the parties or any term of the Lease is manifestly incompatible with the German public policy (ordre public) in accordance with Article 21 Rome I, (iii) there are overriding mandatory provisions of German or European Community law which pursuant to Article 3 (3) and (4) Rome I and Article 9 (2) Rome I cannot be derogated by the parties, (iv) overriding mandatory provisions (Eingriffsnormen) of the country or state where the Lease has been or is to be performed render its performance illegal in accordance with Article 9 (3) Rome I and/or (v) conflict of law rules contained in international treaties require the application of a law other than the law chosen by the parties.
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)?
Assuming the Lease has been agreed in writing, German law does not require a specific form or language for the Lease to be valid and enforceable. If the Lease has to be presented in front of a German court in the course of legal proceedings, the court may require for the Lease to be translated into German. The German Civil Aviation Authority (Luftfahrtbundesamt – "LBA") accepts a lease agreement in German or English language and may, if the Lease is in a different language, require a certified translation.
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?
5.5 Are there any special terms that the Lease must contain or that it is advisable for the Lease to contain?
Generally (and ignoring any specific tax or accounting requirements), it must be clear that the lessor leases the aircraft to the lessee and that the lessee takes the aircraft on lease from the lessor and the lessor and the lessee must agree a lease rental.
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?
In our view it is unlikely that a lease (which contains the typical elements of an operating lease agreement) will be re-characterised by German tax authorities as a secured loan. However, this may be different in case of a sale and lease back transaction where the lease qualifies as a finance lease or the structure of the transaction resembles a secured loan rather than a lease transaction. In this case, detailed advice should be obtained to analyse any potential risk of a re-characterisation of the lease and its tax consequences.
5.6.2 a finance (or capital) lease?
What constitutes a finance lease for tax purposes is defined by the German Federal Ministry of Finance (decree dated 19 April 1971, IV B/2-S 2170-31/71, 23 December 1991, IV B 2 – S 2170-115/91). As a general rule, a finance lease is given if (i) the contract is agreed for a fixed period of time and the contract may in this time period not be terminated in case of contractual fulfilment of the obligations (Grundmietzeit) and (ii) the lessee (partially) covers with the payments in the fixed period of time at least the production and manufacturing costs as well as all ancillary costs including the costs of financing of the lessor (so called full amortisation leasing and partial amortisation leasing). This shall also be true in case of the lease of immovable goods, such as aircraft (decree dated 21 March 1972, F/IV B 2 – S 2170-11/72). Consequently, if the lease fulfils the above mentioned requirements it may be re-characterised from a tax perspective.
Financing leasing (Finanzierungsleasing) within the meaning of Sec. 1 para. 1a sentence 2 no. 10 German Banking Act (Kreditwesengesetz - KWG) within or into Germany is subject to regulation under the German Banking Act (KWG) and the lessor, as a general rule, requires a permit from the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin). The German Banking Act (KWG) provides for exceptions, e.g. in case of special purpose companies (Leasingobjektgesellschaften) provided certain additional requirements are fulfilled.
6. LEASE REGISTRATION
6.1 Is there a separate register for aircraft leases in the Relevant Jurisdiction?
No. In Germany there is no separate register for aircraft leases.
6.2 If yes, then:
6.2.1 What documentation and/or consents are required for the registration of the Lease?
6.2.2 What registration fees are payable (if any)?
6.2.3 What information is recorded on the register? How is the eventual discharge of the Lease recorded?
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?
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?
If the Owner validly terminates the Lease, the Lessee 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 Lessee (which can also be expressed in advance in the Lease, but only in individually agreed contracts, not in General Terms and Conditions of the Owner) without taking judicial proceedings (i.e. filing of a suit and subsequently enforcing the judgment through a bailiff).
7.2 If so, can the Owner take physical possession of the Aircraft without the need for judicial proceedings in the Relevant Jurisdiction?
No. If the Lessee does not return the Aircraft to Lessor the Owner is generally not allowed to take physical possession of the Aircraft but has to take judicial proceedings, cf. 7.1.
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?
To receive a judgment against the Lessee, the Owner as lessor needs to convince the court that he is the owner of the Aircraft, that he had leased the Aircraft to the Lessee (or that the Lessee is still in possession of the Aircraft) and that the Lease was validly terminated. He has to submit sufficient proof for these facts if and insofar as the Lessee denies those points. Proof can be given for example by presenting the lease agreement and the notice of termination. Copies of the relevant documents are usually sufficient 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.
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.
7.3.2 What is the approximate cost of issuing proceedings?
Under German law, court fees are subject to statutory provisions and depend on the value in dispute (which, in this case, would be the value of the aircraft). However, court fees do not increase proportionally by the value of the claim but there is a degression. Court fees have to be paid up front by the plaintiff (this is different in case of interim measures, cf. 7.3.5). Ultimately, the party that loses the lawsuit has to bear the court fees. The same applies for the fees for the enforcement of a judgment, which also depend on the value in dispute. However, please note that even if the plaintiff wins the lawsuit, he remains liable for the payment of the court fees if the opposing party fails to pay the same (e.g. due to insolvency).
7.3.3 Would the Owner be required to provide a bond, guarantee or other security in order to issue proceedings?
Generally, the plaintiff of a lawsuit is not obliged to provide security in order to issue proceedings as the court fees have to be paid up front.
However, Plaintiffs who are domiciled outside the European Union can be required to provide security for the costs of the proceedings. This does not apply if (i) international treaties provide that no such security deposit may be demanded, (ii) the right of the defendant for reimbursement of the costs would be enforceable in the country of domicile based on international treaties; or (iii) the plaintiff possesses real estate assets, or claims secured in rem, in Germany that the value of which suffice to cover the costs of the proceedings.
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?
If the defendant does not contest the claim a judgment by acknowledgement (Anerkenntnisurteil) will be issued immediately (i.e. within a few days after the defendant has acknowledged the claim). In this case, there will be no oral hearing.
If the defendant does not react to the statement of claim at all or does not appear at an oral hearing, a default judgment (Versäumnisurteil) will be held immediately after the elapse of a deadline set by the court to react or within the oral hearing in which the party does not appear. After such default judgment was rendered, the defendant is entitled to enter a protest (Einspruch) against the judgment within two weeks after the default judgment was served. If the protest is admissible and entered in due time, the proceedings continue.
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?
Our cautious estimate with respect to the duration of main proceedings at the court of first instance is that this may vary between 4 to 14 months. However, the actual duration depends on the actions of the respective parties and is subject to no other circumstances prolonging the proceedings, such as insolvency proceedings being opened in relation to the lessee. An interim measure may be available - depending on the circumstances – within (a) day(s).
The duration for proving ownership in court proceedings depends on the specific circumstances, in particular documentary and other evidence which might be submitted.
In general, interim measures are available in Germany in the form of a writ of seizure or a preliminary injunction (Arrest oder einstweilige Verfügung), depending on the nature of the claim (a purely monetary claim or a retention or repossession claim). No particular form of the lease is needed in order for interim measures to be available, assuming, however, that the lease complies with form and other legal requirements under the applicable law.
Being able to obtain an interim measure for money or retention (i.e. repossession of an asset) depends on whether the plaintiff is able to demonstrate grounds for a writ of seizure to be issued in the case of seizure against the assets of a potential debtor or grounds for an interim injunction (Arrest-, Verfügungsgrund), i.e. that the plaintiff can demonstrate the statutorily required urgency. Possible causes include threatened disposal or stashing away of the asset, the excessive use of the asset or if a German title would have to be enforced in a foreign country where reciprocity is not ensured. Please note that even if an interim measure for money or repossession can be obtained, the registration court or the bailiff will only seize the asset and register the seizure in the registry or take the aircraft or engine into custody (which, in the case of an engine, could entail storage fees) until a final judgment has been obtained. Neither an aircraft nor an engine would be handed over to the Lessor based on interim measures.
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?
The Owner cannot take possession of the Aircraft himself but has to institute proceedings against the Lessee (cf. 7.1) However, if the Lease terminates and the Lessee does not fulfil its contractual obligation to return the Aircraft the Owner may institute proceedings immediately.
7.4.2 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 3 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).
7.4.3 Is a Public Auction of the aircraft required?
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?
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.
There seems to be only one published court resolution in Germany dealing with the recovery of possession of an aircraft (Higher Regional Court (Oberlandesgericht) Brandenburg, of 23 May 2008, 7 U 111/06). However, very little can be drawn from this decision as the basis for this decision was an owner of an aircraft claiming damages against an unpaid MRO-organisation for delaying return of the aircraft.
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?
(Ignoring any restrictions in case of any insolvency of the Lessee) the obligations of the Lessee may be unrecoverable if the Lease is invalid for any reason, for example if one of the parties had no legal capacity (geschäftsunfähig) when the Lease was concluded, if the Lease is void due to usury (Wucher) according to the principles of German law or if the Lease violates applicable German law.
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?
No. The Owner is entitled to sell the Aircraft at any time.
7.9 Are there any export restrictions on export of a repossessed aircraft?
Generally, there are no restrictions on export of a repossessed aircraft. The owner may, however, require an export licence before exporting the aircraft from Germany (cf. 8.4).
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?
Yes. At the end of the lease term or following a successful repossession the Owner of the Aircraft can apply for deregistration. There is no legal procedure for the deregistration of the Aircraft, however, the Owner has to inform the German Civil Aviation Authority (Luftfahrtbundesamt – "LBA") immediately about every change regarding the information registered in the Aircraft Register (Luftfahrzeugrolle) (cf. 4.5.2 above), if the operator of the Aircraft changes and a new lease agreement is entered into with the new operator. Therefore, no fixed time period within which such application must be made exists, however, the term "immediately" in German law means that the application must be made without undue delay. In practice, the application for deregistration is often submitted to the LBA at the commencement of the redelivery procedure (or when there is certainty as regards the redelivery date). If the owner of the Aircraft is not of German/EU nationality, the LBA will be aware that the lease to the German Airline has terminated and may request the foreign owner to promptly submit an application for deregistration or prove that the Aircraft will be operated by another German Airline on the basis of a lease agreement with a term of more than six months. The LBA has discretion to set a time limit for deregistration and if no action is taken by the Owner, the LBA has the power to deregister the Aircraft ex officio.
8.2 Is the consent of the Airline required to deregister the Aircraft either by law or as a matter of custom or practice?
The consent of the Airline is not required for the deregistration of the Aircraft.
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?
Usually, deregistration does not take very long. From our experience, deregistration can be effected within one or two days. It is advisable though to contact the relevant person at the LBA in advance and to preposition the deregistration application with the LBA. Usually, the LBA agrees to effect the deregistration (and, thereafter, to provide a deregistration certificate) on short notice after it has received instructions to do so. Since no consent of the Airline is required the process should not be delayed. However, we cannot rule out that if the Airline were not to co-operate the process would not be delayed. For instance, there is a requirement to return to the LBA together with the deregistration application form, the original certificate of registration, noise certificate and certificate of airworthiness. Those documents are usually with the Airline. If the Airline wants to hamper the deregistration process it could do so by refusing to hand over the documents mentioned above.
8.4 Is it possible to obtain an export licence or export permit in advance?
Usually, a Certificate of Airworthiness for Export (C of A for Export – Export Lufttüchtigkeitszeugnis) is applied for not earlier than 30 days prior to the redelivery of the aircraft/deregistration from the Aircraft Register. The LBA issues the C of A for Export on the basis of an airworthiness review certificate (European Aviation Safety Agency ("EASA") Form 15a or 15b) issued by the relevant Continuing Airworthiness Management Organisation ("CAMO") or the LBA itself on the basis of a recommendation of the CAMO.
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 Germany) or by Germany 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 German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung). Such permit would have to be applied for by the exporter and granted by the competent authority – the Federal Authority for Economy and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle) – prior to the export of the aircraft. Special regulations apply in case that an aircraft is specially designed for military purposes.
8.5 Approximately how long does it take to obtain an export licence or export permit? What are the costs involved?
From our experience, it usually takes approximately 5-6 days to obtain a C of A for Export. However, there is no general rule and the process may take longer/shorter depending on the individual situation. The fee for issuing the C of A for Export is 50% of the fee applicable to the registration of the aircraft, which in return depends on the weight (Höchstmasse) of the aircraft. For an aircraft with a maximum weight of more than 20 tons but not more than 100 tons the fee for the C of A for Export is EUR 500. For an aircraft with a maximum weight of more than 100 tons but not more than 150 tons the fee is EUR 1,250 and for an aircraft with a maximum weight of more than 150 tons the fee is EUR 2,250.
8.6 Is it possible to obtain a certificate of deregistration in advance?
No. The LBA will deregister an aircraft when the owner fails to meet the requirements for registration, the owner requests that the aircraft be deregistered or when the aircraft is registered elsewhere.
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?
In general, a power of attorney which has been validly executed will be enforceable under German law. Article 8 of the German Introductory Act to the Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuch – EGBGB) generally stipulates with effect as of 17 June 2017 that the choice of law in a power of attorney is recognised subject to the other party being aware of the choice of law. However, there is no decision of the German Federal Court of Justice (Bundesgerichtshof) or any Higher Regional Court (Oberlandesgerichte) as to the question whether the choice of law in a power of attorney in the form of an IDERA (Irrevocable De-Registration and Export Request Authorization) governed by English law is recognised. Due to the generality of Article 8 EGBGB it is very likely that a power of attorney in the form of an IDERA will be recognized by German courts, subject to the conditions described above in 5.2 and 8.8 below.
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?
In general the concept of irrevocability will be recognised under German law. But the courts may limit the scope of this concept by applying restrictions for cause (wichtige Gründe) so that e.g. material changes in the underlying situation of the respective concerned party may entitle it to withdraw a right irrevocably granted or a notice, instruction or other declaration of intent (Willenserklärung) which was stated to be irrevocable.
8.9 Upon the occurrence of a bankruptcy or insolvency of the Airline is the power of attorney still effective?
No. On the commencement of insolvency proceedings (Eröffnung des Insolvenzverfahrens) any power of attorney granted by the Airline, which pertains to those assets which are subject to the insolvency proceedings (that are, basically, most of the assets), would extinguish.
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 and payable:
9.1.1 Would the airline be required to file for insolvency protection?
In the event that the Airline is either insolvent on a balance sheet basis or unable to pay its debts when due and payable, the Airline is required to file for insolvency proceedings under German law. However, it is not required to do so, if the ability to pay its debt has not occurred and is only imminent (drohend).
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, upon filing (petition) for commencement of insolvency proceedings and, provided, that sufficient liquidity is available at the debtor to pay the minimum costs of insolvency proceedings, the Insolvency Court appoints either a (preliminary) insolvency administrator (an "Insolvency Official") or, upon request of the debtor, the Insolvency Court rules that the debtor shall manage its affairs under supervision of an insolvency monitor (Sachwalter), provided, that no circumstances are known which lead to the expectation that the creditors of the debtor would be disadvantaged through such debtor in possession proceedings (Eigenverwaltung).
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?Whether the Insolvency Official has such authority depends on certain circumstances:
A preliminary Insolvency Official (vorläufiger Insolvenzverwalter) generally does not have such authority by virtue of law. In general, a preliminary Insolvency Official is appointed by the Insolvency Court, if the court deems the appointment to be necessary, e.g. in case that the debtor‘s business is still ongoing and/or if substantive assets are available at the debtor.
Nevertheless the Insolvency Court has the authority to impose a prohibition on the debtor (Airline) to dispose of its assets. In such case, the authority and ability to dispose of the assets is transferred to the preliminary Insolvency Official. In this case, the preliminary Insolvency Official would have the authority to negotiate contracts, to take legal acts regarding these contracts (e.g. to terminate the lease), claim rights regarding the Airline, e.g. (re-)possession of the Airline, etc. However, if such authority remains with the debtor (Airline), the preliminary Insolvency Official is entitled to request the insolvency court's approval for such acts. In this case, legally, the acts would be taken by the debtor (Airline) with the approval of the preliminary Insolvency Official and the Insolvency Court. The basic premise for the Insolvency Court to approve such acts, which have been submitted to it, is whether such acts are required to continue the business of the debtor.
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:
- (a.) Applying any security deposit held by the Owner against any unpaid amounts due under the Lease? Yes, the Owner is prohibited from taking such acts.
- (b.) Accepting payment of rent or other lease payments from:
- (i.) the Airline? It has to be distinguished between the following periods:
- upon commencement of preliminary insolvency proceedings (Insolvenzeröffnungsverfahren) the answer is no. The Owner is not prohibited from accepting payments from the Airline. However, when accepting payments from the Airline the Owner runs the risk that, upon commencement of insolvency proceedings (Insolvenzverfahren), the Insolvency Official will claw back (zurückfordern) any such payments made by the Airline prior to the date of said commencement (this risk occurs even if the preliminary Insolvency Official approved such payment by the Airline, as the Insolvency Official is legally not bound by the decision of the preliminary Insolvency Official).
- upon commencement of insolvency proceedings (Insolvenzverfahren), not only preliminary insolvency proceedings (Insolvenzeröffnungsverfahren), the answer is yes, the Owner is prohibited from accepting payments (rent or other lease payments) as disposals of the assets (including cash payments) by the debtor (Aircraft) are void by virtue of law (the Owner would only be entitled to obtain rights in rem, provided that he acted in good faith (Sec. 81 para. 1 sentence 1 of the German Insolvency Statute (Insolvenzordnung – InsO) in connection with Sec. 16, 17 German Act Governing Rights in Aircraft (Gesetz über Rechte an Luftfahrzeugen - LuftFzgG). However, the Insolvency Official is obliged to pay the rent to the Owner until termination of the lease contract has been effectuated (i.e. for a minimum period of three months following the commencement of insolvency proceedings) provided that the insolvency estate has sufficient funds to compensate it's preferential creditors (Massegläubiger).
- (ii.) a guarantor? The Owner is not prohibited from accepting payments either during preliminary insolvency proceedings or after commencement of insolvency proceedings.
- (iii.) a shareholder? Same as for (ii): The Owner is not prohibited from accepting payments either during preliminary insolvency proceedings or after commencement of insolvency proceedings.
- (c.) giving notice of default under the lease? No. However, if insolvency proceedings have been filed for, the Owner (Lessor) may only terminate the lease contract due to defaults that occurred after the filing for commencement of insolvency proceedings.
- (d.) obtaining a judgment or arbitral award for unpaid lease payments? No. However any such judgment would not be enforceable (vollstreckbar) if it has been obtained during the month before the filing (petition) for commencement of the insolvency proceeding or after such filing (petition) as such enforcement would be void by virtue of law. Upon commencement of insolvency proceedings (Insolvenzverfahren), any pending lawsuit will be suspended and only be continued if the Insolvency Official makes an affirmative statement as to the continuation of such lawsuit. The same applies during the preliminary insolvency proceeding, provided, that a preliminary Insolvency Official has been appointed and the ability to dispose of the assets has been transferred to the preliminary Insolvency Official.
- (e.) giving notice to terminate the leasing of the Aircraft? Yes, the termination of the lease contract by the Lessor is not permitted upon commencement of the insolvency proceeding because the German law provides for continuation of contracts that pertain to immovable assets, which includes lease contracts regarding aircrafts. However, a termination right for the Lessor remains in case it is due to defaults that occurred after the filing of insolvency proceedings. The Insolvency Official on the other hand has a right to terminate such contract (Sec. 109 InsO) with a notice period of three months.
- (f.) exercising rights to repossess the Aircraft? It has to be distinguished between the following periods:
- Upon commencement of insolvency proceedings (Inslvenzverfahren), not only preliminary insolvency proceedings (Inslvenzeröffnungsverfahren), the Owner is prohibited from repossessing the Aircraft given that the lease contract continues by virtue of law, unless the Insolvency Official makes use of his statutory right to terminate the contract with three months period of notice, in such case, the right of the Owner (Lessor) to repossess the Aircraft occurs upon effectiveness of such termination by the Insolvency Official or, alternatively, if the Insolvency Official fails to fulfill the debtors' contractual duties to pay rent or make any other lease payments during the continuation of the lease contract, the Owner (Lessor) would have his contractual rights with regard to the lease contract.
- upon commencement of preliminary insolvency proceedings the answer is no, the Owner is not prohibited from exercising rights to repossess the Aircraft, unless the Insolvency Court has ruled that such asset (Aircraft) shall remain with the debtor in order for the debtor (or the preliminary Insolvency Official respectively) to continue its business. Such ruling by the Insolvency Court will only be granted if the asset(s) at issue (Aircrafts) are critical for continuing the debtor‘s business. If such court ruling has been issued and, consequently, the assets have not been transferred to the Owner, the Owner would have a claim for compensation of loss in value (Wertverlust) incurred through continuation of the use of the aircraft by the debtor.
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, generally, related to two types of actions:
- The filing (petition) for insolvency proceedings effects that enforcement actions/measures (Vollstreckungsmaßnahmen) are void by virtue of law, provided, that (i) such actions have taken place during the last month prior to the filing (petition) and (ii) resulted in a security right relating to an asset of the debtors‘ insolvency estate (e.g. security right relating to the aircraft).
- In case the Insolvency Official exercises claw back rights (Insolvenzanfechtung) against the Owner, such rights cover the period of three months prior to the filing (petition) date or up to 10 years prior to the filing (petition) date in case of wilful misconduct.
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?
Yes, the German insolvency law (Sec. 108 para. 1 InsO) provides that the lease contracts continues during the insolvency proceeding, unless the Insolvency Official terminates such agreement with a period of notice (Kündigungsfrist) of three months, regardless of any longer contractually defined period of notice (Sec. 109 InsO). The Insolvency Official will regularly have to make that decision at an early stage of the insolvency proceedings because if he decides not to terminate the agreement, he will have to make the lease payments to the Lessor as a priority expense (Masseverbindlichkeit) even though he would have a statutory termination right to end the agreement and to save costs for the estate.
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?
In such case, i.e. if the lease contract continues ("the lease is adopted"), the Insolvency Official is only obliged to make lease payments as priority expenses regarding the period after the commencement of insolvency proceedings. All due lease payments arising from before the commencement of insolvency proceedings are classified as general (ordinary) unsecured claims only entitled for pro rata share (equally with all other general unsecured claims).
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, the Owner would claim for a rank equally with other ordinary unsecured creditors of the Airline (unless the Owner has a security right).
9.1.9 Are there certain types of preferred creditors whose claims will rank above claims of the Security Trustee/Owner?
Generally, as the Owner‘s claims rank equally with all other general (ordinary) unsecured claims, those claims which are classified as preferential liabilities (e.g. claims which are the result of legal acts taken by the Insolvency Official and his costs, creditors committee's costs, insolvency court fees, fees for servicers/advisors engaged throughout the Insolvency Proceedings etc.) rank above. In case that the Owner‘s claims rank as priority claim (Masseverbindlichkeiten) (see above during the continuation of the lease contract until the termination of the lease contract by the Insolvency Official), these claims rank equally with all other priority expense claims (see the types above); only in case that the assets available at the debtor are not sufficient to pay all expenses, the expenses regarding the Insolvency Proceeding (i.e. Insolvency Official‘s costs, creditors committee‘s costs, insolvency court fees) would rank above all other priority liabilities (such as the claims of the Owner).
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?
Such person could be entitled to assert a lien which would lead to a preferred right upon commencement of the insolvency proceeding: Sec. 75 through 77 of the LuftFzgG recognize a lien in favour of a person, provided, that such person has a claim for compensation due to extraordinary disbursements (Aufwendungen) in order to maintain/protect the aircraft. Such lien would result in a preferred right in the insolvency proceeding entitling such person to receive the proceeds from liquidation of the Aircraft (Sec. 49, 50 InsO).
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 (Proceedings) and asset a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline.
Provided, that the person has a security right pursuant to Sec. 75 et. seq. LuftFzgG, such person has a right for segregation in insolvency proceedings (Sec. 47 InsO). However, such right can only be enforced through foreclosure relating to the Aircraft. The provisions on enforcement of immovable assets (Immobiliarvollstreckung) apply (Sec. 49 InsO), Sec. 171a German Act Governing Auctions and Sequestrations of Immovables (Gesetz über die Zwangsversteigerung und die Zwangsverwaltung – ZVG) and Sec. 88 para. 1 LuftFzgG). Hence, the Owner is not entitled to use the Aircraft, but is only entitled to initiate foreclosure.
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; or payment of such tax is by way of the airline being required to withhold and account for tax from lease payments, where:
10.1.1 the Owner is incorporated and is tax resident in Ireland?
No. DTT: yesThere will be a limited tax liability of the Owner under German tax law. However, no withholding tax will be withheld by the airline on the lease payments. Income from lease payments is generally subject to tax at the place of actual management or seat of the company (Art. 7, 8 Double Taxation Treaty ("DTT") Ireland). As a result, the lease payments should not be subject to tax in Germany.
10.1.2 the Owner is incorporated and is tax resident in the United Kingdom?
No. DTT: yesThere will be a limited tax liability of the Owner under German tax law. However, no withholding tax will be withheld by the airline on the lease payments. Income from lease payments will be subject to tax at the place of management or the seat of the company (Art. 8, 7 DTT-UK). As a result, the lease payments should not be subject to tax in Germany.
10.1.3 the Owner is incorporated and is tax resident in Hong Kong?
Yes. DTT: noThere will be a limited tax liability of the Owner under German tax law. However, no withholding tax will be withheld by the airline on the lease payments. There is no DTT between Germany and Hong Kong. Assuming that the Owner is subject to corporate and trade tax, the tax rate should amount to approximately 30% of the income. Please note that a tax exemption may apply in case that the Owner derives commercial income from the lease of the aircraft, the country of residence does prescribe a corresponding tax exemption for German tax residents for such income and that the German Ministry for Transport, Building and Urban Development considers the tax exemptions as harmless for transport political purposes.
10.1.4 the Owner is incorporated and is tax resident in Singapore?
No. DTT: yesThere will be a limited tax liability of the Owner under German tax law. However, no withholding tax will be withheld by the airline on the lease payments. Income from lease payments will be subject to tax at the place of actual management of the company (Art. 8 DTT-Singapore). As a result, the lease payments should not be subject to tax in Germany.
10.1.5 the Owner is incorporated and is tax resident in Malta?
No. DTT: yesThere will be a limited tax liability of the Owner under German tax law. However, no withholding tax will be withheld by the airline on the lease payments. Income from lease payments will be subject to tax at the place of actual management or the seat of the company (Art. 8, 7 DTT-Malta). As a result, the lease payments should not be subject to tax in Germany.
10.1.6 the Owner is incorporated and is tax resident in the Channel Islands (Jersey and Guernsey)?
Yes. DTT: no.There will be a limited tax liability of the Owner under German tax law. However, no withholding tax will be withheld by the airline on the lease payments. There is no DTT between Germany and Guernsey. There is a DTT between Germany and Jersey. However, the DTT has no effect on the case at hand. Thus, Jersey can be treated as if there is no DTT.. Assuming that the Owner is subject to corporate and trade tax, the tax rate should amount to approximately 30% of the income. Please note that a tax exemption may apply in case that the Owner derives commercial income from the lease of the aircraft, the country of residence does prescribe a corresponding tax exemption for German tax residents for such income and that the German Ministry for Transport, Building and Urban Development considers the tax exemptions as harmless for transport political purposes.
10.1.7 the Owner is incorporated and is tax resident in the Isle of Man?
Yes. DTT: no.There will be a limited tax liability of the Owner under German tax law. However, no withholding tax will be withheld by the airline on the lease payments. There is no DTT between Germany and the Isle of Man. Assuming that the Owner is subject to corporate and trade tax, the tax rate should amount to approximately 30% of the income. Please note that a tax exemption may apply in case that the Owner derives commercial income from the lease of the aircraft, the country of residence does prescribe a corresponding tax exemption for German tax residents for such income and that the German Ministry for Transport, Building and Urban Development considers the tax exemptions as harmless for transport political purposes.
10.1.8 the Owner is incorporated and is tax resident in Mauritius?
No. DTT: yes.There will be a limited tax liability regarding the Owner under German tax law. However, no withholding tax will be withheld by the airline on the lease payments. Income from lease payments will be subject to tax at the place of actual management of the company (Art. 8, 7 DTT-Mauritius). As a result, the lease payments should not be subject to tax in Germany.
10.1.9 the Owner is incorporated and is tax resident in Bermuda?
Yes. DTT: no.There will be a limited tax liability regarding the Owner under German tax law. However, no withholding tax will be withheld by the airline on the lease payments. There is no DTT between Germany and Bermuda. Assuming that the Owner is subject to corporate and trade tax, the tax rate should amount to approximately 30% of the income. Please note that a tax exemption may apply in case that the Owner derives commercial income from the lease of the aircraft, the country of residence does prescribe a corresponding tax exemption for German tax residents for such income and that the German Ministry for Transport, Building and Urban Development considers the tax exemptions as harmless for transport political purposes.
10.1.10 the Owner is incorporated and is tax resident in the Cayman Islands?
Yes. DTT: no.There will be a limited tax liability regarding the Owner under German tax law. However, no withholding tax will be withheld by the airline on the lease payments. There is no DTT between Germany and the Cayman Islands. Assuming that the Owner is subject to corporate and trade tax, the tax rate should amount to approximately 30% of the income. Please note that a tax exemption may apply in case that the Owner derives commercial income from the lease of the aircraft, the country of residence does prescribe a corresponding tax exemption for German tax residents for such income and that the German Ministry for Transport, Building and Urban Development considers the tax exemptions as harmless for transport political purposes.
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.
Not applicable, since there should be no legal basis for withholding taxes in Germany.
10.3 VAT: European Union country: under Article 148(f) of the VAT Directive (2006/112/EG), 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:
10.3.1 New lease to airline operating for reward chiefly in domestic routes: VAT will be applied to lease rentals at current rate: 19%
10.3.2 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 (due to Sec. 8 para. 2 of German VATA)
10.3.3 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. Otherwise VAT will be applied to purchase price at current rate: 19%
No VAT if the sale qualifies as transfer of a whole business/partial business within the meaning of Sec. 1 para. 1a German VATA).
10.3.4 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:
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 (But under German VATA, the tax exemption was already applicable before the ECJ decision.)
10.3.5 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?
The rate of Costums Duty for a fixed wing aircraft (Starrflügelflugzeug) with a weight of more than 2 tons amounts to 2.7%. An exemption from Costums Duty may be possible. Whether or not the exemption is applicable, has to be verified on on a case-by-case basis.
10.4 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?
There should from a tax perspective be neither a stamp duty, nor any other fee or equivalent payable in respect of the execution of the Lease or any of the other documents referred to above.
10.5 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?
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?
The Owner should principally be subject to a limited tax liability in Germany with his income from the lease of the respective aircraft and with his profit from a sale of the aircraft, if any, unless a respective DTT prescribes that the right of taxation is with the country of residence/management of the Owner.
10.6.2 making available a lease facility to a company incorporated or regulated in the Relevant Jurisdiction?
The Owner should principally be subject to a limited tax liability in Germany with his income from the lease of the respective facility and with his profit from a sale of the facility, if any, unless a respective DTT prescribes that the right of taxation is with the country of residence/management of the Owner.
10.6.3 Receiving rent and other lease payments under the Lease from the lessee incorporated or registered in the Relevant Jurisdiction?
The Owner should principally be subject to a limited tax liability in Germany with his income from the rent and other lease payments under the Lease from the lessee unless a respective DTT prescribes that the right of taxation is with the country of residence of the Owner.
10.6.4 Repossessing the aircraft and exporting the aircraft from the Relevant Jurisdiction?
The repossession and export of the aircraft from Germany following the end of the Lease should principally not give rise to any tax consequences in Germany. The export of the aircraft should be value added tax exempt in Germany and with respect to customs, the above mentioned should apply vice versa (cf. 10.3.)
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?
The owner should principally be subject to a limited tax liability in Germany with the profit derived from the sale of the aircraft unless a respective DTT prescribes that the right of taxation is with the country of residence/management of the Owner.
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?
Generally speaking, payments to foreigners are free from control. However, pursuant to Sec. 67 para. 1 German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung – AWV) as a general rule currency transfers made for the account of foreigners have to be notified to the German Federal Bank (Deutsche Bundesbank). Exceptions apply for (i) payments that do not exceed a threshold of EUR 12,500, (ii) payments for the import, export or transfer of goods, and (iii) payments for the granting, receipt or repayment of loans, including the justification and repayment of credit balances, with an originally agreed term or termination deadline of not more than twelve months (cf. Sec. 67 para. 2 German Foreign Trade and Payments Ordinance (AWV)). The reporting requirement does not imply a licensing requirement.
For domestic financial institutions, i.e. financial institutions incorporated in Germany, Sec. 70 German Foreign Trade and Payments Ordinance (AWV) imposes specific reporting requirements vis-à-vis the Deutsche Bundesbank. Inter alia, financial institutions have to report incoming and outgoing payments for interest payments and similar revenues and expenses excluding interest on securities received from or made to foreigners on their own account (Sec. 70 para. 1 no. 3 German Foreign Trade and Payments Ordinance (AWV). To the extent that payments pursuant to Sec. 70 para. 1 German Foreign Trade and Payments Ordinance (AWV) must be reported, Sec. 67 shall not apply (Sec. 70 para. 5 German Foreign Trade and Payments Ordinance (AWV).
To fulfil the reporting requirements special forms have to be used and reporting deadlines have to be obeyed.In addition to the general reporting requirement pursuant to the German Foreign Trade and Payments Ordinance, embargo regulations imposed by the European Union may provide for licensing or reporting requirements, if payments are made or are received from a sanctioned country/entity. In this case, the Deutsche Bundesbank is the competent authority for granting the respective licences.
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?
Sec. 73 German Foreign Trade and Payments Ordinance (AWV) provides for the possibility that the German Federal Bank (Deutsche Bundesbank) permits simplified reports or derogations of reporting deadlines or procedures for individual persons or groups of persons required to submit reports or exempt on a temporary or revocable basis individual persons or groups of persons required to submit reports form a reporting requirement.
Licences granted under export control laws generally are not transferable as they depend on the reliability of the party holding the license.
12.1 Is it a legal requirement to insure the Aircraft within the Relevant Jurisdiction?
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 Germany. 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. Such different person notably may be the lessee in which case only the lessee is obligated to maintain appropriate insurance.
In addition, a duty to insure also exists in Germany for "Luftfahrzeughalter" (aircraft keepers) as defined in German law. "Luftfahrzeughalter" is the person who has the aircraft in use for its own account and who has physical control (Verfügungsgewalt) over the aircraft. The term "Luftfahrzeughalter" is thus not completely identical with that of the aircraft operator as defined in Regulation (EC) No. 785/2004. However, if on the basis of the underlying lease agreement between the owner and the lessee physical control of the aircraft is with the lessee, the duty to insure solely affects the lessee.
The obligation to maintain liability insurance primarily relates to aircraft third party (bodily injury/property damage), passenger (including passengers‘ checked and unchecked baggage and personal effects), cargo and mail legal liability and liability for delayed conveyance.
12.2 If so, is there any restriction on reinsurance of the primary insurance outside the Relevant Jurisdiction?
No, however the primary insurance contract must be concluded with an insurer who is authorised to perform business operations in the aviation insurance lines (Luftfahrtversicherungssparte) in Germany. It may be a German insurer, a non-German insurer with an authorised branch in Germany or an EU/EEA insurer who has notified its business activities in Germany in accordance with European regulatory law.
Insurance with a foreign insurer which does not fulfil the requirements set out in the preceding paragraph is only permitted for an aircraft registered outside Germany provided the relevant foreign state recognizes the insurance of German aircraft with an EU/EEA insurer (principle of reciprocity). The principle of reciprocity is supposed to avoid a situation where the aircraft keeper (Luftfahrzeughalter) must conclude national insurance which complies with both the relevant foreign and German law requirements.
12.3 Is there a minimum percentage of cover which a local insurer is obliged to retain, and if so, what is it?
In our view, also full transfer of the risk and thus also mere fronting by the primary insurer authorised to carry out insurance business in Germany is possible. However, the law does not expressly regulate this issue.
12.4 Is it possible for local insurers to assign contracts of reinsurance? If not, is a cut-through clause enforceable?
Primary insurers may assign their claims under reinsurance contracts to the original insured. In addition, from the perspective of the original insured, a cut-through clause is generally enforceable.
In case of an insolvency of the primary insurer, however, in both scenarios there is a risk that the insolvency administrator may successfully contest payment of the reinsurer to the original insured and for this reason such payment would have to be given back. Thus, the concrete structuring of the relevant clause is determinative particularly when it comes down to the cut-through scenario.
Whether the reinsurer is prepared to agree a cut-through clause is ultimately also an economic issue. From a legal perspective, a reinsurer may refuse to agree on a cut-through clause arguing that there is a risk that the German insurance regulation authority could deem such arrangement to be primary insurance business requiring a permission under applicable German law. However, we are not aware of any case in which the German regulatory authority has taken such view.
13. LIABILITY FOR DAMAGE
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?
Liability by law:
Since the Owner has no operational control of the Aircraft, the operator of the Aircraft is in principle the addressee of any compensation claims. In line with that, pursuant to Sec. 33 of the German Air Traffic Act only the operator is liable for personal injuries and material damages that have arisen through the operation of the Aircraft.
Furthermore, it can be regarded as market practice in Aircraft leasing contracts that the operator bears sole responsibility.
Nevertheless, the liability of the Owner vis-à-vis third parties could result from the German Product Liability Act (Produkthaftungsgesetz - ProdHaftG) and/or from Sec. 823 para. 1 of the German Civil Code (Bürgerliches Gesetzbuch – BGB).
Strict liability of the Owner could arise from a violation of the German Product Liability Act (ProdHaftG) if the Owner is the importer of the Aircraft from outside the EEA. The law provides for a liability without fault for damages - namely for personal injuries and damages to personal property - arising from the use of a defective product. The definition of a "defective" product is the essence of the product liability. A product (here: Aircraft) can only be regarded to be defective if it does not provide the safety which a user is entitled to expect. The time when the product is placed on the (EEA-) market is decisive.
Any liability under the German Product Liability Act (ProdHaftG) is limited to EUR 85 Million per case. This also applies to cases involving foreign parties, provided that the German Product Liability Act (ProdHaftG) applies.
If the injured party has a valid claim against the Owner and another third party (e.g. the manufacturer of the Aircraft), the Owner and such other third party will generally be jointly liable and - depending on the respective case – the Owner may be entitled to compensation from the third party who is ultimately responsible for the damages.
Sec. 823 para. 1 of the German Civil Code (BGB) may apply if the Owner violates its duties of care. The main duty of care is to maintain the Aircraft in an appropriate manner so that it does not endanger any people or property. This duty can be transferred to the lessee contractually. In addition, liability under Sec. 823 of the German Civil Code (BGB) could result from the (wrongful) selection or supervision of the persons to whom the duties of care are transferred. However, any liability based on (wrongful) selection or supervision requires the fault (i.e. negligence or wilful intent) of the Owner under German law.
Liability by contract:
If the lease agreement is governed by German law the lessee could assert warranty claims against the Owner for defects of the Aircraft pursuant to Sec. 536a of the German Civil Code (BGB). This liability does not require fault of the Owner if the defect of the Aircraft already existed at the time the lease agreement was concluded. However such claims can be excluded or limited in the warranty provisions of the lease agreement and – as already mentioned above - excluding or at least limiting the liability can be regarded as being quite common.
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?
The Aircraft could be seized under the German Code of Criminal Procedure (Strafprozessordnung) either temporarily as evidence or permanently in case of confiscation or deprivation (Einziehung) of the object as laid down in the German 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 to some degree. In serious cases of narcotics offences, the German Narcotics Act (Betäubungsmittelgesetz) eases the requirements for confiscation of objects acquired as result of the unlawful acts (incl. surrogates) or for the purpose of committing them by lowering the standard of proof.
German police are authorised under the Federal Police Act (Bundespolizeigesetz) to seize an aircraft, if necessary to avert an imminent danger and keep it in custody until the danger is averted. The aggrieved party is to be notified of the seizure. In case of police custody being unbearable or in case of rejection of the aggrieved party to take back the aircraft, the aircraft can be sold to the public. In that case, the aggrieved party has to be heard before the sale and the proceeds of the auction are to be paid out to him or her.
Under extraordinary circumstances, primarily for defence purposes and in order to avert an imminent danger to the free and democratic fundamental order of Germany, the Aircraft may be subject to requisition by governmental entities under the German Emergency Laws (Bundesleistungsgesetz).
The German tax authority may take enforcement measures against the aircraft (as immovable asset) to enforce tax debt of the Owner. The German Tax Code (Abgabenordnung) refers to the general rules of compulsory judicial execution and public sale laid down in the German Code of Civil Procedure (Zivilprozessordnung – ZPO) and its related statutes. 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 this tax debtor does have (e.g. rights and claims against the Owner, incl. right to transfer of title).
Other governmental entities may also be authorised to enforce public law debts other than tax debts of the Owner of the aircraft (e.g. air navigation fees). The same procedure as with tax authorities applies under the Administrative Enforcement Act (Verwaltungsvollstreckungsgesetz).
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 German Code of Civil Procedure (ZPO). Interim measures in favour of the creditor may be admissible in order to prevent frustration of (payment) claims.
14.2 If so, can the Aircraft be forfeited and sold without the Owner being made aware?
If the formal procedures as described under 14.1 are complied with and the third party rights of the Owner are recognised, the Owner should be notified. Where enforcement measures are taken (erroneously) against title or other rights of the Owner in compulsory judicial enforcement procedures that are actually directed against a third party, the Owner has a legal remedy in form of a suit to intervene and to ensure its rights (Drittwiderspruchsklage).
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?
An Airline is generally not entitled to any right of sovereign immunity from judicial proceedings in Germany. Please note however that certain aircraft may not be arrested. According to the law on the inadmissibility of arrest of aircraft (Gesetz über die Unzulässigkeit der Sicherungsbeschlagnahme von Luftfahrzeugen) this applies to aircraft which (i) are exclusively used for state or postal services, (ii) are actually in service on a regular line of public transport or are indispensable reserve aircraft, or (iii) are used for the carriage of persons or goods for consideration, where they are ready to start on such carriage.
15.2 Can such immunity be validly waived in advance by contract?
16. DISPUTE RESOLUTION AND RECIPROCAL ENFORCEMENT
As a general remark, it should be noted that the Brexit may have a substantial influence on the answer to the questions below which cannot be clearly foreseen at the current point in time. The United Kingdom has exited the European Union on 31 January 2020, 12am CET. It should be noted that there is a transition period (currently to last until 31 December 2020) where the UK, although not an EU member state anymore, is generally treated as if it still was a EU member state. The current (and pre-Brexit) situation is as described below. After the end of the transition period it is possible that a similar situation will be maintained due to (bilateral) treaties but this is currently unclear. In any case, any implications of the Brexit must be reviewed and assessed on a case-by-case basis and subject to the current developments.
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?
1. Whether an "asymmetric" submission to jurisdiction clause will be recognized depends - in the first place - on the recognition of a submission to a foreign jurisdiction.
Generally, German courts will recognize and give effect to the choice of a foreign forum subject to the requirements of EU Regulation No. 1215/2012 dated 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters ("EU No. 1215/2012") if such foreign place of jurisdiction is located within the EU, the leasing agreement does not concern immovable property and provided that the agreement of the parties to the lease to submit to the jurisdiction of an EU court is valid under the law applicable to the lease agreement. Note that certain formal requirements apply in respect of a valid choice of jurisdiction in accordance with EU No. 1215/2012 for example, the place of jurisdiction must normally be agreed in a (written) document executed by all parties.
There is to our knowledge no higher court ruling in Germany on the question whether an aircraft is movable or immovable property within the meaning of EU No 1215/2012. However, the question does not only arise in relation to EU No. 1215/2012 but also in relation to Article 4 and Article 11 Rome I where the same wording is used. Regarding both regulations there is no common position among German legal scholars. Very few scholars take the position that an aircraft should be treated as an immoveable property. Other scholars take the position that the question has to be answered in accordance with the lex rei sitae, i.e. in accordance with the law of the country where the property is situated. However, according to the prevailing opinion of German legal scholars which we consider to be correct, an aircraft is considered as moveable property within the meaning of EU No. 1215/2012 (and Rome I).
If the lease parties have agreed to a place of jurisdiction outside the EU, German courts will accept the jurisdiction of such foreign forum subject to Sec. 38, 40 of the German Code of Civil Procedure (Zivilprozessordnung) provided that all parties to the lease are merchants (i.e. not consumers), the lease does not concern immovable property and the agreement to submit to the jurisdiction of an non-EU court is valid under the law applicable to the lease agreement.
2. Regarding "asymmetric" clauses in particular, we note that the French Cour de Cassation and the Bulgarian High Court have ruled that "asymmetric" jurisdiction clauses are void. However, the French Cour de Cassation did not explicitly state whether its ruling is based on local French law or on EU No. 1215/201 The Italian Corte di Cassazione in 2012 as well as the High Court of Justice in England and Wales in 2017, however, upheld a "asymmetric" jurisdiction clauses.
We are not aware of any decision of the German Federal Court of Justice (Bundesgerichtshof) regarding "asymmetric" jurisdiction clauses. Whether or not the German Federal Court of Justice (Bundesgerichtshof) would follow the opinion of the French Cour de Cassation and the Bulgarian High Court cannot be said with certainty. There are indications that the Higher Regional Court of Dresden (Oberlandesgericht Dresden) accepted such a clause and according to the prevailing opinion of German legal scholars such a clause should be valid in Germany.
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?
Generally, German courts will not re-examine foreign judgments on the merits prior to the recognition and enforcement in Germany, save for an ordre public test which is applied in most cases. The procedures to be adhered to and the grounds for opposing the recognition and enforcement of a foreign judgment in Germany vary depending on the country of origin of the judgment since different statues, EU regulations or international treaties may apply.
The recognition and enforcement of a final and conclusive judgement (Anerkennung und Vollstreckung rechtskräftiger Urteile) rendered by a court of another EU member state (the Brexit-transition period to be observed) is subject to the requirements and limitations of (i) EU Regulation No. 1215/2012 dated 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters ("EU No. 1215/2012") and Sec. 1112 et seq. of the German Code of Civil Procedure (Zivilprozessordnung – ZPO) or (ii) in the case of an enforcement of uncontested claims, subject to Regulation (EC) No. 805/2004 of the European Parliament and the Council of 21 April 2004 creating a European Enforcement Order for uncontested claims ("EC No. 805/2004").
To enforce a judgment from another EU member state, the judgment creditor must file with the competent enforcement authority in Germany (i) an enforceable copy of the foreign judgment, the authenticity of which can be verified, and (ii) a certificate pursuant to Article 53 of EU No. 1215/2012, certifying that the judgment is enforceable and containing an extract of the judgment as well as, where appropriate, relevant information on the recoverable costs of the proceedings and the calculation of interest. The competent authorities for enforcement in Germany are the bailiffs (Gerichtsvollzieher), the local courts (Amtsgerichte) and the offices of the land register (Grundbuchämter), depending on the nature of the claim to be enforced.
The judgment debtor may successfully challenge the order for enforcement of a foreign judgement from another EU-member state in Germany in accordance with EU No. 1215/2012:
- (i.) if recognition and enforcement of the judgment is manifestly contrary to German public policy (ordre public),
- (ii.) where the judgment was given in default of appearance, if the defendant was not served with the document which instituted the proceedings or with an equivalent document in sufficient time and in such a way as to enable him to arrange for his defence, unless the defendant failed to commence proceedings to challenge the judgment when it was possible for him to do so,
- (iii.) if the judgment is irreconcilable with a judgment given in a dispute between the same parties in the member state in which recognition is sought,
- (iv.) if the judgment is irreconcilable with an earlier judgment given in another member state or in a third country or state involving the same cause of action and between the same parties, provided that the earlier judgment fulfils the conditions necessary for its recognition in the member state addressed.
The foregoing does not apply in respect of the enforcement of uncontested claims pursuant to an European Enforcement Order made in accordance with EC No. 805/2004. In this case, compliance with ordre public is not controlled. The enforcement of a judgment confirmed by a European Enforcement Order may only be refused if the judgment is irreconcilable with an earlier judgment given in another member state or in a third country or state involving the same cause of action and between the same parties, provided that the earlier judgment fulfils the conditions necessary for its recognition in the member state addressed.
It is currently unclear and should be assessed on an up to date and case-by-case basis how the situation will change after the Brexit transition period.
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?
Germany is a party to the New York Convention and the Washington Convention.
As a general rule, German courts will recognise and enforce the decision of an arbitrator. The enforcement of awards of arbitral tribunals situated outside Germany is subject to the German Code of Civil Procedure (ZPO), the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New Yorker Übereinkommen über die Anerkennung und Vollstreckung ausländischer Schiedssprüche (New Yorker-Übereinkommen)) of 10 June 1958 and certain other international agreements. Awards of arbitral tribunals situated in Germany are enforced in Germany in accordance with the German Code of Civil Procedure (ZPO).
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?
Dispute resolution choices vary from company to company. From our experience, most aircraft lease agreements are governed by either English or New York Law and as such the parties submit to the jurisdiction of the courts of England and Wales or New York respectively. Lease agreements involving only German parties often contemplate jurisdiction of German courts.
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?
See 17.2 and 17.3. Subject to 17.2 and 17.3 generally, no significant changes are required in relation to Aircraft Engines.
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?
Under German law, ownership of an airframe automatically extends to any parts (such as engines), if (i) such parts are attached to the airframe in a manner that they form an integral component (wesentlicher Bestandteil within the meaning of Sec. 93 of the German Civil Code (Bürgerliches Gesetzbuch - BGB)) of the airframe and (ii) the airframe is considered to be the main part (Hauptsache) (Sec. 947, 93 of the German Civil Code (BGB)). Integral components (wesentliche Bestandteile) cannot be the object of separate legal rights. Parts of a thing (Sache) are considered to be integral components if the parts cannot be separated from each other without physically destroying one or the other (or both) or changing the nature of one or the other (or both). The prevailing opinion in legal literature is that aircraft engines (given that they can typically be separated and interchanged from the airframe relatively easily) do not form integral components of the airframe and that, therefore, title to a German registered airframe does not automatically extend to an Engine installed on such airframe if full legal title (Eigentum) to the Engine rests with a third party. We share this view, but note however that, as far as we are aware there is no recent decision from a higher regional court (Oberlandesgericht) or the German Federal Court of Justice (Bundesgerichtshof) which supports this view.
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?
There is no separate register in Germany for Aircraft Engines.
Please note that it is not possible to register a mortgage over an engine with the German Aircraft Mortgage Register (Luftfahrzeugpfandrechtsregister). However, an Engine can be the subject of other security interests (such as statutory liens and contractual liens).
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?