Security

Security document (mortgage) form and content

What is the typical form of a security document over the aircraft and what must it contain?

The security document usually consists of a promissory note governed by Swedish law and the aircraft owner (registered with the Rights Register) is required to agree to the security granted in the aircraft by signing the security document or promissory note. The owner’s signature must be witnessed by at least two other persons. The promissory note must contain information about the nationality and registration mark of the aircraft, and the principal amount (in Swedish or foreign currency) to which the security relates. The interest should be specified. However, the security will not secure interest accumulated for a period extending three years. It is not a requirement to file a separate loan agreement if such an agreement coexists with the promissory note.

Security documentary requirements and costs

What are the documentary formalities for creation of an enforceable security over an aircraft? What are the documentary costs?

If the promissory note is in a language other than Swedish, Norwegian, Danish or English, a certified translation into one of those languages must be provided once filed in original form with the Swedish Transport Agency for registration with the Rights Register.

Security registration requirements

Must the security document be filed with the aviation authority or any other registry as a condition to its effective creation or perfection against the debtor and third parties? Summarise the process to register a mortgagee interest.

To create a security right, the owner must first be registered as the owner with the Rights Register, which requires that the aircraft be registered with the Operational Register. In addition, the promissory note in original form must be delivered to the mortgagee to be enforceable against the mortgagor, and the security must be registered with the Rights Register to obtain perfection against other creditors and third parties.

Registration of a security interest with the Rights Register requires that the following documents be submitted:

  • an original application form, signed by the owner;
  • the original security document or promissory note in original form; and
  • a certified copy of the owner’s birth certificate or, if the owner is a corporate entity, a certified copy of the certificate of registration not older than six months.

 

Upon registration, the original promissory note will be returned together with relevant documentation, such as a certificate or abstract from the Rights Register. The Swedish Transport Agency currently charges 10,000 Swedish kronor for registration of a security with the Rights Register in addition to any stamp duty that may apply.

The registration will be effected as of the date of filing if the registration is received by the Swedish Transport Agency before noon on a business day (provided that the application is granted) and, if received by the Swedish Transport Agency in the afternoon, it will be effected on the following day.

In addition, stamp duty of 1 per cent of the principal value secured by the security is levied and payable by the owner of the aircraft. However, pursuant to the Act regarding Sweden’s Accession to the 1948 Convention concerning International Recognition of Rights to Aircraft (1955), such stamp duty would not apply to a security (which, by nature, would be recognised in Sweden) that is transferred to the Rights Register upon the request of the mortgagee when the aircraft is transferred to the Operational Register. However, the aircraft must be registered in Sweden for three months for the transferred security’s priority right to be recognised under Swedish law.

Registration of security

How is registration of a security interest certified?

The rank or priority is stated on the Rights Register and can be evidenced by the certificate or an abstract from the Rights Register. The Swedish Transport Agency can, for a fee, issue additional certificates as regards security registered with the Rights Register. Provided that the security is registered, the certificate can be issued the day after the day on which the order is made.

Effect of registration of a security interest

What is the effect of registration as to third parties?

The registration of a security with the Rights Register perfects the security and thus creates priority and protection for the holder against third-party claims. If not registered, the mortgagee has no better right than unsecured creditors. The date of filing of the application for registration of the security with the Swedish Transport Agency determines the priority. If several applications are made during the same day, they rank equally. Third parties may rely on the Rights Register.

Security structure and alteration

How is security over aircraft and leases typically structured? What are the consequences of changes to the security or its beneficiaries?

Swedish law does not recognise the concept of trusts. However, a security agent may act on behalf of itself and the financiers provided that it has been duly appointed by the financiers. Security held by the security agent must be properly separated from the security agent’s own assets. Security is a right in rem and not in personam that is perfected through registration. The promissory note to be registered with the Rights Register will set out the identity of the mortgagee. However, it is not a requirement (although it is possible) that the details of the mortgagee are noted on the Rights Register to obtain perfection. In addition, there is a risk of clawback of the security if registered by the owner with the Rights Register within three months of the owner being declared bankrupt.

Security over spare engines

What form does security over spare engines typically take and how does it operate?

Engines and spare parts may not be registered separately on the Rights Register, and engines that are installed on a host aircraft on more than a purely temporary basis will be included in the registered mortgages if owed by the owner of the aircraft. This may also apply to engines installed by a lessor, although the legal situation in Sweden regarding this issue is not entirely clear. Security may also cover spare parts (including engines) belonging to the owner of the aircraft. The spare parts must then be described in terms of the characteristics as well as the approximate number thereof in the security document or in an appendix thereto and the spare parts must be stored at locations in Sweden or another state that has acceded to the Geneva Convention (1948). In addition, a certificate from a reliable person stating that the spare parts belong to the owner of the aircraft must be submitted to the Swedish Transport Agency. The spare parts must be clearly marked at the storage location as mortgaged, and provide details of the scope of the mortgage, the contact details of the mortgagee and that the mortgage has been registered with the Rights Register.

Notwithstanding that it is not possible to separately register engines with the Rights Register, such registration is possible with the International Registry currently kept by Aviareto Ltd.