To which major air law treaties is your state a party?
France is a party to the Chicago Convention on International Civil Aviation (1944) and the Geneva Convention on the International Recognition of Rights in Aircraft (1948), the Montreal Convention for the Unification of Certain Rules for International Carriage by Air (1999). France is also a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). It should be noted, however, that although France has signed the Cape Town Convention on International Interests in Mobile Equipment (2001), it has not yet ratified it, and therefore it is not in effect in France.Domestic legislation
What is the principal domestic legislation applicable to aviation finance and leasing?
The Transport Code (the Code), in particular Part VI in respect of civil aviation, is the principal piece of domestic legislation that governs aviation finance and leasing. Also of relevance are the Civil Code, the Commercial Code, the Customs Code and the General Tax Code. National legislation is supplemented by international conventions and European regulations.Governing law
Are there any restrictions on choice-of-law clauses in contracts to the transfer of interests in or creation of security over aircraft? If parties are not free to specify the applicable law, is the law of the place where the aircraft is located or where it is registered the relevant applicable law?
As a very general principle, there are no such restrictions on choice-of-law clauses for such contracts in France. Therefore, as a general rule, aircraft purchase agreements, bills of sale and leases can be, and often are, governed by a foreign law. We would, however, recommend that for French-registered aircraft the mortgage is governed by French law.
In addition, there are a few exceptions to this general principle, particularly relating to public order policy. The most relevant exception for day-to-day aircraft finance transactions is that bank account pledges and pledges over a company’s shares where such accounts or companies are domiciled in France need to be governed by French law.
Title transferTransfer of aircraft
How is title in an aircraft transferred?
Title to an aircraft is generally transferred through a bill of sale, which is an effective mode of title transfer in France. Generally, it should be noted that for purposes of the registration of the ownership of an aircraft on the French aircraft registry (the Register) maintained by the French civil aviation authorities (DGAC), a bill of sale would either need to be countersigned or accepted by the buyer or be accompanied by a separate certificate of acceptance.
It should be noted that the Register is an owner register, and therefore the owner must apply for registration with the DGAC. Article L6121-1 of the Code provides that inscription of the aircraft on the Register serves as proof of title. To effect a change in ownership of an aircraft, the following documents need to be submitted to the DGAC, along with the necessary French government administrative form (CERFA):
- an original bill of sale from the previous owner to the new owner. It should be signed by the buyer as well as the seller, and if it does not reflect the purchase price or include an acknowledgment of the receipt of consideration, a duly acquitted invoice showing the price may also be required by the DGAC;
- if applicable, an original power of attorney and relevant chain of authority from the new owner in favour of the person completing the registration formalities;
- if applicable, evidence of the authority of the various the signatories of the bill of sale and the certificate of acceptance;
- a certified copy of the certificate of incorporation of the new owner (or equivalent document);
- a certified copy of the by-laws or articles of incorporation (or equivalent document) of the new owner;
- a document evidencing the registered office of the new owner (in the event that this information does not already appear in the certificate of incorporation or by-laws or articles of incorporation);
- a list of the authorised representatives of the new owner (directors, executive officers, etc) together with samples of their signatures;
- Customs Form 846A, or a Certificate of Acquisition of Means of Transport from the European Union, if the aircraft is located outside France;
- a certificate of airworthiness (though if the aircraft is already registered on the Register and the existing certificate is current, no new certificate will be required);
- a certificate of noise limitation (though if the aircraft is already on the Register and the existing certificate is current, no new certificate will be required); and
- if the aircraft has been previously registered on another civil aircraft registry, a certificate of deregistration from the previous registry will be also required.
In practical terms, while a bill of sale is an effective mode of transfer of title to an aircraft, if the aircraft is registered or is to be registered in France, to make such title enforceable against third parties the aircraft must be registered with the DGAC using the process outlined above.Transfer document requirements
What are the formalities for creating an enforceable transfer document for an aircraft?
For a comprehensive list of documents required to register the ownership or change in ownership of an aircraft in France, see question 4. It should be noted, however, that there are no requirements that these documents are legalised or pre-stamped for there to be an effective registration, and it is generally acceptable to submit these documents in English without providing a French translation. However, as a matter of good practice, it is advisable that powers of attorney in favour of the person completing the registration process are notarised.
Registration of aircraft ownership and lease interestsAircraft registry
Identify and describe the aircraft registry.
As discussed in question 4, the Register of civil aircraft is maintained by the Aircraft Registration Office at the DGAC. The Register is a public register for civil aircraft, and is an ‘owner’ registry. In accordance with article L6111-3 of the Code, an aircraft can only be registered in France if it has a valid certificate of airworthiness and it fulfils one of the following conditions:
- it is owned by a physical person that is a French citizen or a citizen of either another member state of the European Union or of another member state of the European Economic Area (EEA);
- it is owned by a legal entity organised under the laws of a member state of the European Union or another member state of the EEA having its registered office or principal place of business in France or another member state of the European Union or the EEA; or
- it is operated by a French airline with an operating licence issued by the French aviation authorities.
Furthermore, in accordance with article L6111-3 of the Code, the DGAC has the authority to issue an exemption to the above rules under certain limited circumstances.
The DGAC has good relationships with a number of civil aircraft registries throughout the world and for any new aircraft being registered in France or for any aircraft being deregistered from the Register and transferred to a new jurisdiction, there are a number of mechanisms in place for communications between the DGAC and such other civil aviation authorities.
It should be noted that there is not a specific engine register in France. However, for engine leases, it is possible to register ownership over engines and spare engines against a French airline with the commercial court in the jurisdiction where the airline has its registered office. Such registration would serve as proof of title against a bankruptcy administrator or trustee in the event of any bankruptcy or liquidation procedures against the airline without the need for protracted litigation to prove ownership of the engine.Registrability of ownership of aircraft and lease interests
Can an ownership or lease interest in, or lease agreement over, aircraft be registered with the aircraft registry? Are there limitations on who can be recorded as owner? Can an ownership interest be registered with any other registry? Can owners’, operators’ and lessees’ interests in aircraft engines be registered?
As discussed in quesiton 6, the Register is an owner registry, and therefore it is required that the ownership interest in an aircraft is registered with the DGAC. An ownership interest in an aircraft can also be registered with another registry, for example the Companies and Trade Registry; however, it is not necessary as registration with the DGAC serves as proof of title.
In respect of the ability to register a lease interest, it is possible (and also recommended) to register a lease over aircraft with the DGAC, as this will shift the burden of liability in the event of an incident involving the aircraft from the joint liability of the owner and the operator to the operator. Pursuant to article L6131-4 of the Code, in respect of a leased aircraft, the owner and the operator are jointly liable as regards third parties; however, if the lease is registered with the Register, the owner will only be responsible if the third party can prove fault on the part of the owner.
Although the public record of the Register will only reflect the owner and the operator of the aircraft, where there is a head lease and a sublease (and any further sub-subleases) in place over an aircraft, the lease chain must also be documented to the DGAC as proof of the authority of the operator to lease the aircraft and linking the lease to the actual owner of the aircraft.
As noted in question 6, although there is no separate register for engines, and the engines belonging to an aircraft will not be reflected on the Register, it is possible to register ownership over engines and spare engines against a French airline with the commercial court in the jurisdiction where the airline has its registered office.Registration of ownership interests
Summarise the process to register an ownership interest.
As discussed in question 4, there is a list of documents and forms that are required to register an aircraft or effect the change of ownership over a French-registered aircraft with the DGAC. In terms of timing, it largely depends on the ability of the owner and lessee to provide the relevant documents. We generally recommend that such documents are submitted for review with the DGAC in advance of the proposed date of registration (or change of title). We would also recommend that as much advance notice as possible is given in order to make an appointment with the DGAC to effect the registration. It should be noted that the DGAC is open during regular business days in France (Monday to Friday to the exclusion of public holidays) from 9am to 4pm (local time). It is not generally possible to effect the registration (or deregistration) procedure outside of these hours. It is possible to submit documents in advance with the DGAC, who will then be able to complete the registration at a predetermined time and date without attendance in person by the owner or its attorney. The actual cost charged by the DGAC for registration is nominal.Title and third parties
What is the effect of registration of an ownership interest as to proof of title and third parties?
As described above, registration with the DGAC serves as proof of title in relation to third parties. Third parties can therefore rely on the accuracy of the Register at the DGAC.
Regarding absent or defective title, third parties can challenge registration at the DGAC in the courts, although they will be asked to prove whether title is missing or defective.Registration of lease interests
Summarise the process to register a lease interest.
In order to complete the registration of a lease interest with the DGAC, the following need to be submitted:
- an original of the relevant lease to the operator of the aircraft;
- if applicable, an original power of attorney and relevant chain of authority from the owner in favour of the registering person;
- a certified copy of the certificate of incorporation of the owner (or equivalent document);
- a certified copy of the by-laws (or equivalent document) of the owner;
- a document evidencing the registered office of the owner (in the event that this information does not already appear in the certificate of incorporation or by-laws or articles of incorporation);
- a list of the authorised representatives of the owner (directors, executive officers, etc) together with samples of their signatures;
- evidence of the authority of the various representatives of the signatories of the lease, together with samples of their signatures, including any powers of attorney or chain of powers of attorney in favour of the relevant signatory;
- an original or certified copy of the acceptance certificate or other document showing the effective date of the lease; and
- a completed DGAC filing form.
As indicated in question 7, when there is a chain of leases, proof of the chain of leases (either providing certified copies or originals of each of the leases in the lease chain or an original lease summary duly executed by each of the parties in the lease chain and setting out a summary of relevant information) must be submitted to the DGAC. Furthermore, proof of signatory authority of each party in the lease chain must also be provided.
It is not necessary that these documents be notarised, and generally the DGAC will accept documents in English or in French. It is good practice, however, for powers of attorney pursuant to which documents are being signed or actions are being taken before the DGAC to be notarised. As with the registration of the ownership, the cost of the registration of the lease is minimal.Certificate of registration
What is the regime for certification of registered aviation interests in your jurisdiction?
The certificate of registration is issued by the DGAC instantly upon completion of the registration process. The certificate contains the following information:
- nationality and registration mark of the aircraft;
- details of the manufacturer and the manufacturer’s designation of the aircraft type;
- aircraft serial number;
- name and address of the owner;
- home aerodrome of the aircraft;
- certification that the aircraft has been duly entered on the aircraft register in accordance with the Chicago Convention on International Civil Aviation of 1944 and with the relevant provisions of the Code;
- date of issue; and
- a list of interests, charges or both including the lease and any mortgages that are registered in respect of the aircraft, including the date on which such interests have been registered.
In respect of the lease and mortgage interests, the certificate of registration will reflect the name and address of the operator of the aircraft, and the name and address of the relevant mortgagee, if any.
As indicated previously, there is not a separate registration in respect of the engines and engine references are not reflected on the certificate of registration.Deregistration and export
Is an owner or mortgagee required to consent to any deregistration or export of the aircraft? Must the aviation authority give notice? Can the operator block any proposed deregistration or export by an owner or mortgagee?
To deregister an aircraft, a request for deregistration must be presented to the DGAC in the name of the owner. This can be completed by an attorney-in-fact through the issuance of a power of attorney; however, proof of the signatory authority of the person issuing such power on behalf of the owner would be required if such person is not already ‘known’ to the DGAC (ie, if that person is different from the person who has previously been presented to the DGAC at the time of registration of the aircraft as having signatory authority for the owner).
Before the owner would be allowed to deregister an aircraft over which a mortgage has also been recorded, the consent of the mortgagee and the release of any recorded mortgages would be required. The mortgagee would not be able to deregister and export the aircraft without the owner’s consent, and to exercise rights over the aircraft the mortgagee would need to enforce its rights under the mortgage through legal proceedings, which would ultimately result in a public sale of the aircraft. Generally, this can be avoided through cooperation of the owner and the mortgagee for the deregistration and export of the aircraft.
Deregistration can be effected immediately upon the presentation of a request to the DGAC (together with any required supporting evidence of signatory authority) to deregister the aircraft and related lease, provided all mortgages have been released. The deregistration of the mortgage can also be effected immediately upon presentation of the relevant documentation.
The consent of the lessee or operator is not required, and generally the operator would not be able to block the deregistration or the export of the aircraft. However, it should be noted that where the aircraft is in the possession and control of the operator, the owner would not be able to take possession and control of the aircraft without the operator’s consent. Self-help remedies are not permitted in France, and therefore the owner would not be able to take redelivery or repossession of the aircraft without the assistance of the courts.Powers of attorney
What are the principal characteristics of deregistration and export powers of attorney?
As the Register is an owner registry, it is not necessary to obtain a deregistration power of attorney from the lessee or operator. Furthermore, powers of attorney as a matter of French law are generally revocable, even if they state that they are irrevocable. Where deregistration powers of attorney are issued, these are not registered with the DGAC; however, an original of any power of attorney to deregister the aircraft would need to be filed with the DGAC at the time of the deregistration of the aircraft.Cape Town Convention and IDERA
If the Cape Town Convention is in effect in the jurisdiction, describe any notable features of the irrevocable deregistration and export request authorisation (IDERA) process.
The Cape Town Convention is not applicable in France.
SecuritySecurity document (mortgage) form and content
What is the typical form of a security document over the aircraft and what must it contain?
An aircraft mortgage is the usual form of security over a French-registered aircraft. Generally, it is recommended that a French law mortgage be entered into by the parties. In accordance with article L6122-2 of the Code, the mortgage must be in writing or will otherwise be void. Article L6122-3 provides that the mortgage covers the entire aircraft, its engines, components and spare parts that belong to the aircraft and which are intended to be part of the aircraft whether they are incorporated thereon or temporarily separated. Further, to be effective as against third parties, the mortgage must be registered with the Register in accordance with article L6122-8 of the Code.
Although the mortgage must be in writing and specify the items to which it is intended to apply, there is no prescribed form. Generally, a French mortgage will be in French, and if required by the parties, will be accompanied by an English translation. The mortgage must usually state the principal amount and the interest and, according to the provisions of article L6122-12 of the Code, the registration of the mortgage secures, with the same priority as the capital, the payment of interest for the year in which enforcement proceedings with respect to the mortgage are commenced, and the amount of interest for the three years that preceded such year.
In accordance with articles L6122-1 et seq of the Code, where there is more than one recorded mortgage, ranking will be determined by the order of the dates of registration. A recorded mortgage is generally valid for 10 years from the date of its recordation with the DGAC, and must otherwise be renewed in order to continue after that date.Security documentary requirements and costs
What are the documentary formalities for creation of an enforceable security over an aircraft? What are the documentary costs?
There is no requirement for a security document such as a mortgage to be notarised, legalised, consularised or apostilled for it to be registered with the DGAC. The mortgage must be registered to be valid as against third parties, but there are no other required formalities. The cost of registration of the mortgage is a minimal fee. It is not based on the amount of the secured obligation.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.
An aircraft mortgage must be filed with the DGAC for it to be effective as against third parties in France. The mortgage should be registered with the DGAC along with the other necessary documents as set out below. To complete the registration of the mortgage, the following documents would need to be lodged with the DGAC:
- an original of the mortgage agreement;
- an original of the necessary power of attorney to the individual effecting registration on behalf of the mortgagee;
- evidence of the authority of each of the signatories to the mortgage agreement; and
- CERFA for the registration of the mortgage at the DGAC.
It is neither possible nor necessary to register other forms of security assignments such as an assignment rights under a lease agreement. However, it should be noted that under French private international law, any assignment of rights, other than an assignment that is limited to receivables (créances) only, must be perfected as regards the assigned debtor in accordance with the governing law of the relevant assigned rights, and as regards third parties in accordance with the laws of the state in which the assigned debtor is domiciled. An assignment of rights that relates either to rights arising under a contract governed by French law, or to rights against an entity domiciled in France, will therefore only be fully enforceable in France if notified to the assigned debtor by a French bailiff or process server in accordance with French procedural rules. It should be noted that French law does not provide a time limit to effect such notification. On the basis of these rules, an assignment of a lease by a lessor where the lessee is a French entity would only be enforceable in France against the lessee once it has been notified to the lessee in accordance with such procedural rules.Registration of security
How is registration of a security interest certified?
A registered security interest, such as an aircraft mortgage that is a lien on the aircraft, would be recorded with the DGAC and reflected on the certificate of registration issued by the DGAC (see question 11). In addition, following the registration, the DGAC can issue an extract of information regarding the status of the registration of the aircraft, which would reflect all registered liens against the aircraft. Any security interests registered would be reflected immediately upon registration. Although the extract would not necessarily state the rank or priority, in accordance with article L6122-10, if there is more than one mortgage filed in respect of an aircraft, their rank will be determined by the order of the date of registration. Therefore, it would be possible to determine the rank of any mortgages filed against an aircraft through the public records available at the DGAC.Effect of registration of a security interest
What is the effect of registration as to third parties?
As mentioned above, as a general rule under French law the order of priority is conferred by the order in which such interests are registered. Registration of a security interest would be valid as against third parties. As discussed in question 24, there are, however, certain rights and interests that would have priority over prior recorded liens, and such liens or interests may not be reflected on the 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?
Although French law has, in recent years, introduced a concept of ‘trust’, as is common with most other civil law jurisdictions, the concept is not analogous to the concept of a trust as they operate in common law jurisdictions. Generally, they are not used as a means of granting security; however, the concept of a security agent, acting on behalf of lenders, is a common mechanism for granting security on behalf of a syndicate of lenders for mortgages, bank account pledges and charges over other assets.
However, French courts will most likely give limited recognition to foreign trusts in the sense that a validly constituted foreign trustee, who is considered by the law applicable to the trust to be the legal owner of the right in question (such as the lease rights to an aircraft as assigned), should be recognised under French law as having the right to enforce in its name the assigned right. There is no clear jurisprudence on this point, but the generally accepted view is that a validly constituted foreign trust that does not have the effect of avoiding a rule of French public policy (eg, if the trust could be deemed to alter the rights of succession under French family law or if the trust related to immovable property located in France) will be recognised in France.
If there were a change in the security agent, then generally, an amendment to the mortgage to reflect the new beneficiary would need to be registered with the DGAC. In addition, if there is only one lender who is also the beneficiary of the mortgage, then a transfer of the lender’s interest in the loan and the security documents to another lender would also require the filing of an amendment to the registered mortgage. On the other hand, if there were only a transfer of interest in a loan by one or more lenders in a syndicate, but the security agent or registered beneficiary does not change, while it may be recommended to reflect the change in lenders in the form of an amendment to the mortgage (to the extent such a transfer is not anticipated under the mortgage), it would not be necessary to file each such transfer or amendment to the loan or mortgage agreement unless the interest of each lender under the mortgage has also been registered and is reflected on the Register.
A mortgage in France (including an aircraft mortgage) is considered to be a right in rem rather than in personam as it attaches to the asset itself.Security over spare engines
What form does security over spare engines typically take and how does it operate?
As indicated above, there is no separate engine register in France, and it is not possible to take a mortgage over an engine separate from the aircraft or over a spare engine that is leased in France. Generally, the engines form a part of the aircraft, and the registration of the aircraft and any mortgage granted in respect thereof would also cover the engines. However, where there is a separate engine lease, as discussed previously, it would be prudent to record the lease with the commercial court of the jurisdiction of the lessee that provides notice to third parties (including an eventual bankruptcy trustee of the lessee) that the property is not owned by the lessee. In the context of a separate engine lease this is particularly important, as the ownership right in the engine is not otherwise recorded with the DGAC. An aircraft mortgage would make reference to the separate engines and would be effective to create a security interest over an engine that is not installed on the aircraft at the time of creation (assuming that the non-installed engine is also in France or is in a jurisdiction that would recognise the creation of the security interest in France).
Enforcement measuresRepossession following lease termination
Outline the basic repossession procedures following lease termination. How may the lessee lawfully impede the owner’s rights to exercise default remedies?
As a general rule, self-help remedies are not available in France, and in the event of non-cooperation of the lessee, a lessor would require the assistance of the courts. It is, however, possible to obtain an ex parte court order if a prima facie case can be demonstrated that by the terms of the lease agreement, the lessor is entitled to terminate the leasing of the relevant equipment owing to defaults or following the expiry of the lease. Such an action does not entitle the owner to repossess the equipment but rather it results in the equipment being arrested and placed under the control of the court. This is the first step of the process that must be followed by an action on the merits, which does not necessarily have to take place in France. At the subsequent litigation on the merits, the lessee would have the right to present its case in respect of any arguments it might make regarding the owner’s exercise of default remedies.Enforcement of security
Outline the basic measures to enforce a security interest. How may the owner lawfully impede the mortgagee’s right to enforce?
As with the termination of a lease, self-help remedies in respect of a security interest are not available. Similar to the procedure above, a court order authorising the arrest will be required, and the aircraft or other equipment, when arrested, would remain under the jurisdiction of the court.
As a prerequisite to enforcing a security interest such as a mortgage, it is necessary to make a formal demand for payment on the counterparty, which can only be made on the basis of an enforceable order to pay a sum of money, which means, in practice, a final judgment from a French court or a foreign judgment that has been made enforceable in France. Once the demand is made and sufficient time for payment has elapsed, the equipment can be arrested by a bailiff and the equipment would be subject to a judicial sale. The sale proceeds would then be applied to the debt of the counterparty to the lender in preference and priority, subject to any liens and mortgages having preference.
As there would be the need to obtain a court order, the debt counterparty would be entitled to raise any defences it might have in respect of the mortgagee’s right to enforce the security interest.Priority liens and rights
Which liens and rights will have priority over aircraft ownership or an aircraft security interest? If an aircraft can be taken, seized or detained, is any form of compensation available to an owner or mortgagee?
There are certain statutory liens that can be attached to an aircraft with respect to compensation due:
- for court costs incurred in the forced sale of an aircraft;
- for the salvage of an aircraft; and
- for expenses necessary for preservation of the aircraft, which would have priority over other security interest and the rights to proceeds following the enforcement of a mortgage.
In addition, in certain situations, airport authorities and companies who have repaired the aircraft have the right to cause the aircraft to be detained if certain charges or costs of repairs are not paid. The possessory right of retention applicable to the provider of services is a powerful right that would be enforceable against the owner or lessor if the lessee has relinquished possession of the aircraft to the service provider, but such right does not give rise to sell the aircraft and ceases to exist once the aircraft or equipment is no longer in the possession of the service provider. Furthermore, there are a number of services for which airport authorities are entitled to charge including landing charges, aerial navigation service charges, parking fees, passenger and baggage installation charges, etc, which would give rise to retention rights in respect of an aircraft.
Although Paris Aéroport (formerly known as Aéroports de Paris (ADP)), the publicly owned company that runs Paris’ three main airports, regularly exercises its retention rights for unpaid airport charges, it should be noted that only charges with respect to a particular aircraft will give rise to the right of detention of that aircraft (ie, there is no right to detain one aircraft for charges with respect to another aircraft operated by the same airline). Furthermore, a decision rendered on 2 July 2003 by the State Council, France’s highest administrative court, and indirectly confirmed in a similar case before the Disputes Tribunal decided on 19 January 2004, held that after the termination of a lease of an aircraft, ADP cannot exercise its detention right against the owner of the aircraft for unpaid airport charges incurred by the operator.
There are provisions under French law relating to the requisition of title and requisition for use as codified in the French Code of Defence. Although the owner or lessee would be entitled to requisition indemnities, there is no set statutory amount, and the sufficiency of any such indemnities could be contested before the French civil courts.Enforcement of foreign judgments and arbitral awards
How are judgments of foreign courts enforced? Is your jurisdiction party to the 1958 New York Convention?
The rules applicable will depend on whether the judgment is obtained in a court of the State of New York or any other US state, or in an English court.
A final and conclusive judgment rendered by an English court, for a debt or a definite sum of money, which is not capable of appeal and in respect of which enforcement has not been stayed, would be enforced by the courts of France without re-examination or re-litigation of the matters adjudicated subject to and in accordance with Council Regulation (EC) No. 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. Please note that the situation is likely to change depending on the outcome of Brexit negotiations.
Subject to the rules governing international lis pendens under French private international law, a final judgment for a fixed and definite sum of money obtained after service of process in the required form and rendered by a court of the State of New York or any other US state, in respect of an action under a document (a US judgment), would be capable of recognition and enforcement in France, without a review of the substantive matters thereby adjudicated, through an action for exequatur brought before the competent French court, provided that the French court is furnished with the original and a translation into French (by a sworn translator) of the relevant document and the US judgment and determines that the requirements developed by jurisprudence for the enforcement of foreign judgments are satisfied, in particular that:
- the court that rendered the US judgment had jurisdiction over the matter under both its own rules of jurisdiction and French private international law;
- the court that rendered the US judgment applied either the law that is applicable in accordance with French private international law or a law that leads to an equivalent result;
- the procedure followed by the court that rendered the US judgment does not conflict with the principles of due process applied in France or with French international public policy; and
- the US judgment does not conflict with French international public policy, is not tainted with fraud and is not incompatible with an earlier judgment rendered by a French court in the same matter.
France is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Award (1958).
Taxes and payment restrictionsTaxes
What taxes may apply to aviation-related lease payments, loan repayments and transfers of aircraft? How may tax liability be lawfully minimised?
In respect of transfer taxes, the general rule is that pursuant to articles 256 et seq of the French General Tax Code, value added tax (VAT) is assessed on the supply of goods (including aircraft) delivered in France. This would apply to the following:
- the sale or transfer of title to aircraft, engines and spare parts;
- the supply of maintenance services; and
- rental payments under an aircraft lease.
The current rate of VAT for the supply of such services is 20 per cent.
However, there is an exception to VAT liability, both with respect to the sale and exchange of aircraft, parts and supplies as well as in respect of lease payments where the aircraft or the parts and supplies are destined for use on aircraft which are operated by airlines that meet the international service test set out in article 262 II of the French General Tax Code. This exception provides that no VAT is due on either the supply of aircraft, spare parts to, or rental payments with respect thereto, by an airline whose services between France and foreign destinations represent at least 80 per cent of its services. This test is applied on a fleet-wide basis and not just by reference to the individual aircraft in question. It should be noted that in this regard, French overseas territories and departments are considered to be foreign destinations.
A number of French airlines and all but a few non-French airlines benefit from this exemption. The French tax authorities publish a list of French airlines that benefit from the exemption, as well as a list of the non-French airlines that do not benefit from the exemption.
In the event that VAT were applicable to a particular sale or transfer of title to an aircraft, it would be prudent to transfer title while the aircraft is located outside of France or over international waters. Where VAT is applicable to a leasing operation with a French lessee, it would not be possible to avoid VAT, which would be payable by the lessee to the lessor.
No other transfer taxes (such as stamp duty) would be payable in respect of the transfer of title or leasing of an aircraft, engine or parts.
In respect of withholding taxes, rental payments made by a French lessee to a foreign lessor are, as a matter of French domestic law, subject to withholding tax under article 182B of the General Tax Code at a rate of 33.33 per cent, unless such rate is reduced or eliminated under any applicable double taxation treaty. There are a number of such treaties in place between France and other countries, which effectively reduce the withholding tax to zero, and lease transactions can often be structured such that no withholding tax would be applicable.Exchange control
Are there any restrictions on international payments and exchange controls in effect in your jurisdiction?
Currently, there are no approvals or consents necessary in France for the remittance of lease or loan payments in US dollars, which is the most common currency used for aircraft finance and lease documentation. A framework for exchange controls is still in existence under French law whereby the government could, under special circumstances, notably in times of crisis to assure the defence of national interests, impose pre-authorisation and reporting requirements for financial operations between France and foreign countries.Default interest
Are there any limitations on the amount of default interest that can be charged on lease or loan payments?
While there is generally no specific limitation in the amount of default interest that can be charged on a lease or loan payments, it should be noted that pursuant to article 1343-5 of the French Civil Code, a judge has the power to do the following:
- postpone payments by a debtor after taking into account the state of affairs of the debtor and the needs of the creditor provided such postponements do not exceed two years in the aggregate;
- reduce the interest rate in respect of any amount for which theFrench court has granted to a debtor to delay to pay such amount, provided that such lower interest rate shall not be less than the legal rate in France;
- order that any amount thereafter paid by a debtor be allocated to the payment of principal in priority to any other amounts owed by such debtor; and
- grant any such measures subject to the debtor’s granting security to assure the payment of the overdue indebtedness or taking measures to facilitate the payment of such overdue indebtedness.
Are there any costs to bring the aircraft into the jurisdiction or take it out of the jurisdiction? Does the liability attach to the owner or mortgagee?
There are certain customs formalities that must be completed upon the import of an aircraft and registration of the aircraft in France. VAT may be payable at the time of import but, as indicated in question 26, aircraft on lease to airlines that meet the international flight exemption would be exempt from any VAT on import. The DGAC will generally require a completed customs import form where an aircraft is imported from outside the European Union. Although certain documents may be required to be completed in the name of the owner, it is generally the operator or lessee that would be required to complete these formalities and who would be responsible for any import costs. There would not be any taxes or fees payable on export of the aircraft.
Insurance and reinsuranceCaptive insurance
Summarise any captive insurance regime in your jurisdiction as applicable to aviation.
There are no captive insurance regimes applicable to aviation in France, and there is no minimum or maximum percentage of insurance that must be retained in France. Generally, insurances for French airlines are placed on the international aviation insurance markets.Cut-through clauses
Are cut-through clauses under the insurance and reinsurance documentation legally effective?
Yes, generally, cut-through clauses under insurance and reinsurance documentation are legally effective in France.Reinsurance
Are assignments of reinsurance (by domestic or captive insurers) legally effective? Are assignments of reinsurance typically provided on aviation leasing and finance transactions?
As with any assignment of rights against a French debtor (and as seen in question 17), any assignment of rights must be perfected by notification of the assignment to the French debtor by a French bailiff or process server in accordance with French procedural rules. Assignments of insurances and reinsurances, if any, are often used in aviation leasing and finance transactions in France.Liability
Can an owner, lessor or financier be liable for the operation of the aircraft or the activities of the operator?
French law will not impose responsibility with respect to the operation, maintenance or insurance on a lessor or financier. Such responsibilities stay with the operator. As discussed in question 34, however, there is a presumption of liability on both the owner and the operator of an aircraft, provided that where the lease has been registered with the Register the presumption of liability is shifted to the operator, and the owner could only be held liable where the claimant can prove fault on the part of the owner.Strict liability
Does the jurisdiction adopt a regime of strict liability for owners, lessors, financiers or others with no operational interest in the aircraft?
The concepts of strict liability and vicarious liability do exist under the laws of France. As indicated in question 7, pursuant to article L6131-4 of the Code, where an aircraft is leased, the owner and operator are jointly liable as regards third parties. However, if the lease is registered with the Register, the owner will only be responsible if the third party can prove fault on the part of the owner. Hence, registration of the lease shifts the presumption of liability to the operator. There would be no presumption of liability in respect of financiers and others with no operational interest in the aircraft, and they would not be liable under the regime of strict liability.Third-party liability insurance
Are there minimum requirements for the amount of third-party liability cover that must be in place?
The European Parliament has put in place certain minimum insurance requirements for air carriers and aircraft operators. Regulation (EC) No. 785/2004 of the European Parliament and of the Council of 21 April 2004 sets forth the relevant minimum passenger, baggage, cargo and third-party liability requirements for air carriers and aircraft operators flying within, into, out of, or over the territory of a member state of the European Union. There are no further or more stringent minimum insurance requirements in place in France.
Update and trendsRecent developments
Are there any emerging trends or hot topics in aviation finance and leasing in your jurisdiction?
Brexit continues to be a hot topic, although the impact on the aviation finance and leasing industry still seems to be clouded in mystery, at least at the time of writing. On a lighter (or rather heavier) note, drone regulations continue to evolve in France, placing stricter restrictions on both commercial and recreational use of drones.