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 is the typical form of a security document over the aircraft. The mortgage is executed by the mortgagor in favour of the mortgagee as creditor on a statutory form in the presence of, and attested by, a witness. It is drawn up in English and may be registered as security for payment of a principal sum and interest, an account current or the performance of any other obligation, including a future obligation, due by the mortgagor as debtor to the mortgagee as creditor. According to article 29(4) of the Act, the mortgage may also be executed and registered in favour of a security trustee appointed or acting under a trust for the benefit of persons to whom a debt or other obligation is due.

Moreover, by article 29(5) of the Act, it is not necessary to indicate the monetary value of the indebtedness in the mortgage unless it is intended to secure a future obligation, in which case a maximum sum by way of principal for which the mortgage is granted must be expressly stated in the registered instrument and reflected in the register by the DGCA. No other economic terms, such as repayment dates and principal interest, are required to be registered.

In line with article 30(2) of the Act, mortgages are recorded by the DGCA in the chronological order in which they are produced to him or her for that purpose, and he or she must notify on each mortgage that it has been recorded, stating the day and hour of that record. This procedure is of utmost importance, because mortgages rank in accordance with the date and time of their registration.

In addition to mortgages, creditors and debtors may also register international interests over airframes, aircraft engines or helicopters (aircraft objects) in accordance with the First Schedule of the Act in the International Registry.

An interest is constituted as an international interest under the First Schedule of the Act where the agreement creating or providing for the interest:

  • is in writing;
  • relates to an aircraft object of which the chargor, conditional seller or lessor has power to dispose;
  • enables the aircraft object to be identified; and
  • in the case of a security agreement, enables the secured obligations to be determined, but without the need to state a sum or maximum sum secured.

An international interest is an interest that is:

  • granted by the chargor under a security agreement;
  • vested in a person who is the conditional seller under a title reservation agreement; or
  • vested in a person who is the lessor under a leasing agreement.

In accordance with article 29(7) of the Act, when an international interest is registered in the International Registry it becomes enforceable even in the absence of the registration or notation in the NAR and becomes regulated by the First Schedule of the Act and the law governing its terms.

Security documentary requirements and costs

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

For the registration of a mortgage, the DGCA requires the following:

  • an original mortgage form signed by the mortgagor and attested by a witness;
  • if the mortgage is being signed by an authorised attorney in Malta, an original power of attorney granted by the mortgagor; and
  • copies of the corporate resolutions authorising the granting of the mortgage and empowering the nominated attorney to execute the mortgage in Malta.

There are other documentary formalities with regard to documents executed outside Malta, such as legalisation, certification of copies, notarisation and apostillation. In this regard costs vary depending on which formality is required, the type of document and the country from where the document emanates.

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 mortgage does not have any effect until it is recorded by the DGCA in the NAR, and in fact it takes its priority from the date and time of its registration.

The process for registering a mortgage entails the delivery of the documents outlined in the reply to question 15 to the DGCA for immediate recording of the mortgage in the NAR. For this purpose it is common practice for the mortgagor or his or her authorised attorney to pre-clear the documents in advance so that there will be no delays in the recording of the mortgage.

At present, a charge of €500 is payable to the DGCA upon the registration of a mortgage and a charge of €250 is payable upon the registration of an amendment mortgage.

Registration of security

How is registration of a security interest certified?

The DGCA must notify on each mortgage that it has been recorded, stating the day and hour of that record. Mortgages rank in accordance with the date and time of their registration. In accordance with article 15(3) of the Aircraft Registration Act, a transcript of the NAR is issued by the DGCA upon request and upon payment of the prescribed fee. The transcript will show, inter alia, the mortgage registered on the aircraft and its priority.

In the case of international interests, the certificate issued by the International Registry is prima facie evidence of its contents.

Effect of registration of a security interest

What is the effect of registration as to third parties?

The registration of a mortgage confers priority over subsequent mortgages registered over the same aircraft. In case of a number of mortgages registered over the same aircraft, the mortgages rank in priority according to the date and the time at which each mortgage is recorded in the National Aircraft Register.

In terms of article 32(2) of the Aircraft Registration Act, all mortgages registered in the National Aircraft Register rank after any international interest, prospective international interest and other right or interest registered in the International Registry on such aircraft or share therein, irrespective of the date and time of registration in the International Registry.

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?

The concept of security trust is recognised in Malta and is commonly used in granting security over aircraft. The trustee can hold the security for a changing group of beneficiaries (ie, new lenders) because the mortgage recognises the security trustee as the person in whose favour the mortgage is registered without any reference to the underlying beneficiaries (lenders). In fact the security trustee can exercise all the rights in relation to the mortgage. As to the nature of the security, a mortgage constitutes a right in rem over the aircraft.

Security over spare engines

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

The security emanating from a mortgage over an aircraft extends to any engine attached to the airframe only when such an engine is the property of the owner of the airframe granting the mortgage, even though the engines are specifically mentioned in the instrument of mortgage or the NAR. This is in line with article 573 of the Civil Code, Chapter 16, of the Laws of Malta.

In accordance with the First Schedule of the Aircraft Registration Act, international interests may be registered over aircraft engines in the International Registry. These interests are:

  • granted by the chargor under a security agreement;
  • vested in a person who is the conditional seller under a title reservation agreement; or
  • vested in a person who is the lessor under a leasing agreement.