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 mortgage agreement must be made in writing. It must be filed in original form, together with an official form that summarises the main terms of the mortgage agreement and must contain the following:

  • the designation of the aircraft, as or to be registered with the Swiss Aircraft Records Register;
  • the name, registered address, address of the Swiss representative (if the relevant party is not a Swiss resident) and contact details of the mortgagor and of the mortgagee;
  • the name, description and date of the mortgage agreement;
  • the maximum secured amount including principal and interests (in Swiss francs); and
  • the rank of the mortgage.

The form must be signed by the owner. Considering that the form is only available and will necessarily be submitted in German or French, the FOCA is flexible as regards the language of the mortgage agreement itself.

Security documentary requirements and costs

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

The mortgage agreement and the official form (see question 15) must be submitted in original format. The authority of the relevant signatories must be evidenced by corporate documents or individual passports (provided as originals or as copies, which will have to be notarised and apostilled or legalised in another way depending on the country in which the relevant documents and copies are processed). The exact requirements of the FOCA as to the form of the documents can and should be discussed with the FOCA in advance so as to allow a timely registration of the mortgage at closing (see question 17). No costs are charged by the FOCA in relation to the documents themselves.

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.

The aircraft mortgage does not exist unless and until it has been registered with the Swiss Aircraft Records Register. As a prerequisite, the aircraft itself must be registered with the Swiss Aircraft Records Register (see questions 6 and 8). Provided that the parties are represented by an experienced and reliable Swiss counsel, it is reasonable to expect the registration of a mortgage to take place immediately upon the Swiss counsel’s instruction email to the FOCA. Such speed is possible only to the extent that a PDF copy of all documentation (see questions 15 and 16) has been submitted to and approved by the FOCA in advance and the Swiss counsel can confirm that the original documents are being couriered to the FOCA on the same day. The fees charged by the FOCA for the registration of a mortgage depend on the secured amount (the maximum fee is 17,200 Swiss francs and the minimum fee is 385 Swiss francs).

Registration of security

How is registration of a security interest certified?

The FOCA issues to the owner and the mortgagee upon registration of the mortgage, and to interested third parties upon request, an excerpt from the Swiss Aircraft Records Register (see question 11). If the aircraft has to be registered with the Swiss Aircraft Records Register at the same time as the mortgage, the availability of the excerpt will be delayed by the publication procedure (see question 8).

Effect of registration of a security interest

What is the effect of registration as to third parties?

Mortgages registered with the Swiss Aircraft Records Register are allocated a fixed rank for a maximum amount. Priority depends on the allocated rank (as opposed to the registration chronology). The Swiss Aircraft Records Register being public, registrations are subject to a presumption of knowledge. Third parties acting in good faith are protected in their acquisitions based on information contained on the Swiss Aircraft Records Register. The Swiss Confederation may be liable for the damage incurred by third parties as a consequence of inaccuracies in the Swiss Aircraft Records 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?

A Swiss aircraft mortgage is a right in rem. It affects and follows the aircraft, even if the aircraft is sold to a third party. Under Swiss law, the mortgagee and the lender are traditionally one and the same entity. However, Switzerland recognises trust and fiduciary structures in general, and the FOCA accepts that a mortgagee is acting as a security trustee (if such is the role of the mortgagee under the financing documentation). This allows a group of lenders to change without amending the Swiss Aircraft Records Register, as long as the security trustee remains the same entity.

However, amending the name of the mortgagee (in the event that the relevant loan agreement or the mortgage has been assigned to a new lender or creditor) is also possible. Such amendment must be notified by filing a form (similar to the form used for the registration of the mortgage (see questions 15 and 16)) and providing documents evidencing the assignment and novation of the mortgage and the identity and details of the new mortgagee (similar to the documents mentioned in question 16). The fee charged by the FOCA for the registration of the change of mortgagee is very small.

Security over spare engines

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

A spare engine cannot be subject to an independent mortgage.

If a spare engine is expressly designated and registered with the Swiss Aircraft Records Register with a specific mortgaged aircraft, it becomes an integral part of the latter and is subject to the same mortgage as the aircraft (even though it is not installed on it or if it is installed on another aircraft). The spare engine can be replaced by another engine provided the registration is modified accordingly with the Swiss Aircraft Records Register, and such modification does not reduce the mortgage value.

The legal regime applicable to a spare engine that is not on the Swiss Aircraft Records Register as integral partly depends on its use. As long as it has not been used, the engine is not considered as an accessory of the mortgaged aircraft and can therefore not become subject to the mortgage (save through application of certain restrictive provisions of articles 29 et seq of the AARR, governing the extension of mortgages to spare parts (such as engines to be stocked in a separate warehouse)).

As soon as the spare engine is used and installed on the aircraft, it becomes an accessory of the aircraft and, as such, it becomes subject to the mortgage registered against the aircraft (a mention may be made on the Swiss Aircraft Records Register) in replacement of the replaced engine. Such replacement is not allowed if it reduces the mortgage value.