Overview

Conventions

To which major air law treaties is your state a party?

Italy has ratified and is a party to the following mayor air law treaties:

  • the Rome Convention of 1933 for the unification of certain rules relating to damage caused by aircraft to third parties on the surface;
  • the Chicago Convention of 1944 on international civil aviation;
  • the Geneva Convention of 1948 on the recognition of rights in aircraft;
  • the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards; and
  • the Montreal Convention of 1999 for the Unification of Certain Rules for International Carriage by Air.

Italy has signed, but has not yet ratified, the Cape Town Convention of 2001 on international interests in mobile equipment and the related Protocol on Matters specific to Aircraft Equipment. Therefore, at present the said Convention and Protocol do not apply to Italian-registered aircraft.

Domestic legislation

What is the principal domestic legislation applicable to aviation finance and leasing?

The principal rules and provisions governing the aviation sector (including financing, leasing, ownership, securities, registration, operation and liability in connection with civil aircraft) are set out by the Italian Civil Code and the Italian Navigation Code.

Other relevant laws for the aviation sector are the following:

  • Legislative Decree No. 185/2005, implementing Directive 2000/79/EC concerning the European Agreement on the Organisation of Working Time of Mobile Workers in Civil Aviation;
  • Legislative Decree No. 69/2006, implementing fines for breach of Regulation (EC) No. 261/2004 on compensation and assistance to passengers in the event of denied boarding, flight cancellations or long delays to flights;
  • Legislative Decree No. 197/2007, implementing fines for breach of Regulation (EC) No. 785/2004 on insurance requirements for air carriers and aircraft operators;
  • Ministerial Decree dated 10 December 2008, providing guidelines in the matter of fares of airport services rendered on an exclusive basis; and
  • Legislative Decree No. 24/2009, implementing fines for breach of Regulation (EC) No. 1107/2006 on the rights of disabled persons and persons with reduced mobility when travelling by air.
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 general principle, the parties are free to specify the applicable law for contracts concerning the transfer of aircraft title, aircraft leasing and creation of security over aircraft. To be recognised and enforceable within the Italian system, contractual terms and conditions must be compliant with Italian public order rules (public policy). The concept of public policy includes, among others, the Italian Constitution, public safety regulations and mandatory provisions arising by operation of Italian law.

Title transfer

Transfer of aircraft

How is title in an aircraft transferred?

The transfer of title in an aircraft registered with the Italian Aircraft Registry is perfected by means of the execution of a bilateral agreement between the seller and the buyer. Pursuant to article 2684 of the Italian Civil Code and article 865 of the Italian Navigation Code, a bilateral aircraft sale and purchase agreement must also be filed with the Italian Aircraft Registry in order to be opposed to any third party (effects of public disclosure).

Transfer document requirements

What are the formalities for creating an enforceable transfer document for an aircraft?

An aircraft sale and purchase agreement must be in writing, notarised (meaning that an Italian notary public must certify the identity and powers of the relevant signatories) and filed with the Italian Public Registry of Private Deeds and thereafter with the Italian Aircraft Registry.

An aircraft sale and purchase agreement can also be executed abroad by the parties and notarised by a foreign notary public. If so, such foreign notarised agreement (and apostilled, if required) shall be submitted to an Italian notary public along with a sworn translation into Italian, and then filed with the Italian Public Registry of Private Deeds as well as with the Italian Aircraft Registry.

Registration of aircraft ownership and lease interests

Aircraft registry

Identify and describe the aircraft registry.

The Italian Aircraft Registry is held by the Italian Civil Aviation Authority (ENAC). It is an owner registry in which aircraft operators may also be registered (if other than the owner). The following information is recorded in the Aircraft Registry:

  • manufacturer, type, model, manufacturer’s serial number and marks of the aircraft;
  • name and legal seat of the owner;
  • name and legal seat of the operator (if other than the owner); and
  • mortgage details (if any).

On the basis of article 83-bis of the International Civil Aviation Organization Convention, Italy has entered into several bilateral arrangements with other countries in respect of the transfer of functions, tasks and liabilities for the surveillance of the operations, personnel and continuing airworthiness of foreign-registered aircraft. In practice the most-used arrangements are the ones in place with, respectively, Ireland and Austria.

There is no separate registry for aircraft engines in Italy.

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?

An ownership interest may be registered with the Italian Aircraft Registry. Pursuant to article 750 of the Italian Navigation Code, aircraft may be registered with the Italian Aircraft Registry provided that certain nationality requirements are met. In particular - to satisfy the nationality requirements for registration with the Aircraft Registry - the aircraft must be wholly or mainly the property of:

  • state, regions, provinces, municipalities and any other Italian or EU member states’ public or private body;
  • Italian citizens or citizens of other EU member states; or
  • companies established or with registered offices in Italy or other EU member states, whose share capital is the whole or major property of Italian or other EU member states’ citizens, or Italian or other EU member states’ body corporate with the same characteristics of shareholding and whose president and most part of the directors, including the managing director are Italian or other EU member states’ citizens.

If the nationality requirements are met the relevant aircraft is registered with the Aircraft Registry in the name of the aircraft owner.

Pursuant to the second paragraph of article 756 of the Italian Navigation Code, if an aircraft owner does not meet the nationality requirements, ENAC may allow the registration of aircraft that are effectively used by, but not property of, companies holding a EU air carrier licence. In such case, the aircraft is registered in the name of the EU operator, and the title - based upon which the registration is made (such as a lease) - shall result from the Aircraft Registry and from the certificate of registration of the relevant aircraft, along with details of the aircraft owner that are also recorded with the Aircraft Registry and also mentioned on the certificate of registration of the relevant aircraft.

A lease interest can be registered with the Italian Aircraft Registry by submitting to ENAC a copy of the relevant lease agreement previously filed with the Italian Public Registry of Private Deeds (if such lease agreement were in a foreign language the said Registry and ENAC would require a sworn translation into Italian thereof).

The Italian Aircraft Registry is the sole registry where an ownership interest in an aircraft can be registered. Owing to the fact that there is no separate registry for aircraft engines in Italy, as a general principle engines are supposed to be property of the owner of the aircraft on which they are installed, unless a different ownership interest can be proven in accordance with Italian laws. In that respect, pursuant to article 247 of the Italian Navigation Code, the ownership interest in any separable part of aircraft (including engines) is valid and can be enforced against the owner of the aircraft (and against any third party) whether such interest is reflected either in a deed with an undisputable date (such as a bill of sale or a recognition agreement) or in the aircraft certificate of registration (which is not common practice with ENAC).

Registration of ownership interests

Summarise the process to register an ownership interest.

There is a list of documents and forms to be recorded with ENAC in order to register an aircraft with the Italian Aircraft Registry or perfect a transfer of title thereunder.

For an aircraft registration, the filing of the following documents, among others, is required:

  • the application for registration signed by the owner;
  • a notarised (and apostilled, if required) deed giving evidence of the ownership interest in the aircraft (see questions 4 and 5);
  • an updated extract of the owner from the competent Chamber of Commerce;
  • a certificate of non-registration (for new aircraft) or a certificate of deregistration (for used aircraft) issued by the Civil Aviation Authority of the aircraft’s country of origin; and
  • a copy of the application for the issuance of the aircraft certificate of airworthiness by the ENAC Operational Department.

The ENAC fees for an aircraft registration are equal to €106 for aircraft with maximum take-off weight (MTOW) of less than 5,700 kg and €206 for aircraft with MTOW equal to or higher than 5,700 kg.

For a transfer of title in an aircraft, the filing of the following documents, among others, is required:

  • the application for transfer of title signed by the buyer;
  • a notarised (and apostilled, if required) deed giving evidence of the transfer of title in the aircraft (see questions 4 and 5);
  • an updated extract of the buyer from the competent Chamber of Commerce;
  • a certified copy of the minutes of the seller’s board of directors resolving to sell the aircraft; and
  • the original certificate of registration of the aircraft.

The ENAC fees for a transfer of title in an aircraft are equal to €110. See question 7 regarding the title to an engine.

Title and third parties

What is the effect of registration of an ownership interest as to proof of title and third parties?

The registration of aircraft with the Italian Aircraft Registry serves as a proof of title toward any third party (effects of public disclosure), which can rely on the ownership interest recorded with the Registry and reflected on the aircraft certificate of registration.

Any third party can challenge an ownership interest recorded with the Italian Aircraft Registry by way of a legal action before the courts, arguing the lack of - or the defective - title in the relevant aircraft and filing proper evidence to support the challenge.

Registration of lease interests

Summarise the process to register a lease interest.

A lease interest can be registered with the Italian Aircraft Registry by submitting to ENAC a copy of the relevant lease agreement previously filed with the Italian Public Registry of Private Deeds (if such lease agreement was in a foreign language the said Registry and ENAC would require a sworn translation into Italian thereof).

Certificate of registration

What is the regime for certification of registered aviation interests in your jurisdiction?

The aircraft certificate of registration is issued by ENAC as soon as the registration process with the Italian Aircraft Registry is completed. The certificate contains the following information:

  • the date of registration;
  • the manufacturer, type, model, manufacturer’s serial number and marks of the aircraft;
  • the name and legal seat of the owner;
  • the name and legal seat of the operator (if other than the owner); and
  • the mortgage details (if any).

As previously mentioned, there is no separate registry for aircraft engines in Italy nor the issuance of a separate engine certificate of registration. Engine details are not reflected on the certificate of registration. See question 7 regarding aircraft engines.

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?

Yes, the deregistration and export of an aircraft cannot be made without the consent of the owner or the mortgagee. Indeed, the owner is the sole party entitled to decide as to whether or not to move the aircraft to a foreign registry (eg, for sale to another party or for logistical reasons) and ENAC requires the prior release of any recorded mortgage by the relevant mortgagee in order to deregister an aircraft from the Italian Aircraft Registry.

The operator cannot block an aircraft deregistration or export to the extent that the aircraft is registered in the name of the owner. However, it must be taken into account that the original certificate of registration is mandatorily kept on board the aircraft by the operator and the same certificate is required by ENAC to complete the deregistration process (see questions 22 and 23 regarding aircraft repossession).

On the other hand, if the aircraft is registered in the name of the operator and the latter does not cooperate in the deregistration process, then ENAC may require satisfactory evidence that the operator is in breach of its obligations under the lease and, as a consequence thereof, the leasing has been lawfully terminated. ENAC may also require that such evidence be a judicial decision from the Italian or foreign competent courts.

Powers of attorney

What are the principal characteristics of deregistration and export powers of attorney?

As a general note, a deregistration and export power of attorney enables the relevant attorneys to freely deregister and export the aircraft from Italy to the extent that the operator or grantor cooperates in the process (see question 12).

In addition, a power of attorney expressed to be irrevocable may nevertheless be revoked under certain circumstances for ‘cause’ in accordance to article 1723 of the Italian Civil Code. Furthermore, a power of attorney would not survive the grantor’s insolvency and may also be limited in circumstances of conflict of interest.

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 effective in Italy, as the Italian legislator has not yet ratified it.

Security

Security document (mortgage) form and content

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

A mortgage is the sole security interest that can be voluntarily created over an aircraft. Pursuant to article 1030 of the Italian Navigation Code, a mortgage must be recorded with the Italian Aircraft Registry and reflected on the aircraft certificate of registration.

A mortgage must be in the Italian language and contain, among others: the name and legal seat of the mortgagor and the mortgagee; type, model, marks and manufacturer’s serial number of the aircraft over which the security is recorded; and the secured amount.

Security documentary requirements and costs

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

A mortgage on an aircraft can only be created by means of a public deed executed by the aircraft owner (mortgagor), certified by a notary public and then registered with the Italian Aircraft Registry.

The costs associated with the creation of a mortgage include the notary public’s fees for the execution and notarisation of the mortgage and the ENAC fees for registering the mortgage with the Italian Aircraft Registry (both varying on the basis of the secured amount specified in the mortgage deed). In addition, the perfection of a mortgage attracts a registration tax in the flat amount of €200 (if the mortgage is granted directly by the borrower to the lender) or, otherwise, in the proportional amount equal to 0.5 per cent of the sum secured by the mortgage.

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.

Yes, the mortgage deed must be registered with the Italian Aircraft Registry as a condition to its effective creation against the debtor and third parties. Failing such registration means that the mortgage is null and void, as if it had never come into existence.

The process to register a mortgage requires, at first, the execution of a mortgage deed by the aircraft owner (mortgagor) before a notary public. Subsequently the notarised mortgage deed must be filed with the Italian Aircraft Registry along with:

  • an application for registration, signed by the mortgagor;
  • two enrolment notes (summarising details of the mortgagor, the mortgagee, the aircraft and the secured amount); and
  • the original certificate of registration of the aircraft.
Registration of security

How is registration of a security interest certified?

The existence of a mortgage is certified by way of the registration with the Italian Aircraft Registry and the relevant note on the aircraft certificate of registration, which is duly updated and reissued by ENAC upon the notarised mortgage is submitted to ENAC by the mortgagor.

Effect of registration of a security interest

What is the effect of registration as to third parties?

Under Italian law the main effects of the registration of a mortgage are the following:

  • to provide public notice of the existence of the mortgage toward any third party;
  • to grant the mortgagee with security and priority over all subsequent mortgages (ie, mortgages with a lower rank);
  • to create a right in rem over the aircraft in favour of the mortgagee;
  • to prevent any modifications to the essential features of the aircraft being made without the mortgagee’s prior express consent; and
  • to prevent the deregistration of the aircraft without the prior release or cancellation of the mortgage.
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 financing of Italian-registered aircraft is structured either by way of financial leases (ie, the ownership is kept by the lender acting as financial lessor) or by way of loan agreements secured by mortgages over the aircraft (ie, the borrower or owner grants a mortgage to the lender).

As a general remark, the Italian laws recognise the concept of trust. Italy is party to the Hague Convention of 1985 on the law applicable to trusts and on their recognition (ratified by Law No. 364 of 16 October 1989). Nevertheless, notwithstanding the implementation of the Hague Convention, the concept and the role of a trust are not often utilised within the Italian system. On the other hand, a trust acting on behalf of foreign lenders is a common mechanism in cross-border lease and financing transactions involving Italian aircraft operators, to the extent that the same does not have the effect of breaching rules of Italian public policy. On such basis, the role of a trust is recognised in Italy and indeed an aircraft ownership can be registered in the name of a foreign trust with the Italian Aircraft Registry. Also, an aircraft mortgage can be granted in favour of foreign trusts acting as mortgagees not in their individual capacity but in representation of a pool of lenders.

In case of a change to the security or its beneficiaries, as a general principle the execution of novation or assignment agreements would be required under the Italian laws.

As far as the nature of an aircraft security, mortgages over Italian-registered aircraft are considered to be a right in rem rather than in personam, as they are attached over the asset and not over the asset’s beneficiary. Therefore, mortgages stay on the ownership of the aircraft, regardless of the identity of the aircraft owner. On the contrary, a mortgage interest cannot be assigned by the mortgagee, unless in conjunction with the assignment of the mortgagee’s credit behind the grant of the mortgage. If so, pursuant to article 2843 of the Italian Civil Code, the transfer of the mortgage interest to the assignee is effective upon recordation of the relevant credit assignment with the Italian Aircraft Registry.

Security over spare engines

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

Under Italian laws engines are considered to be part of an aircraft, even if materially separate. There is no specific public register for engines, but rather for the aircraft in its entirety (ie, the Italian Aircraft Registry). Accordingly, pursuant to article 1029 of the Italian Navigation Code, a mortgage recorded over an aircraft encumbers as well on its appurtenances and separate parts (including engines), irrespective of whether they are installed on the airframe or not. The sole exception to the mentioned rule is when the ownership interest in an engine is from a party different from the aircraft owner and such ownership interest is reflected either in a deed having undisputable date (such as a bill of sale or a recognition agreement) or in the aircraft certificate of registration (which is not common practice with ENAC). If a different ownership interest can be proven by one of the said means, then the aircraft mortgage does not affect the engine.

Enforcement measures

Repossession 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?

There are no self-help remedies available in Italy for the owner or lessor to repossess an aircraft following a lease termination, at least to the extent that such remedies would entitle the enforcing party to take measures without a court-supervised procedure. Indeed, under the Italian laws a judicial order of the competent court is necessary to take possession of the aircraft in case of non-cooperation by the relevant lessee. Therefore, the owner or lessor may either enforce a foreign judgment in Italy (as long as such judgment is recognised by the Italian system) or act before the Italian competent court claiming:

  • an injunction of return of the aircraft pursuant to article 633 of the Italian Civil Procedure Code, which can be granted without notice to the lessee and either immediately enforceable or subject to a waiting period of 40 days for possible objection by the lessee; or
  • precautionary measures (including seizure or attachment of the aircraft).

The lessee may oppose the issuance of the said measures by counter-arguing and providing evidence that the owner or lessor is not entitled to claim the aircraft repossession (for instance, because the lease would not be terminated or no event default would exist). As a general principle, the insolvency of the lessee and the absence of disputes about the lessee’s default or the like would expedite the repossession process, while - on the contrary - disputes about sums to be paid, or the claimant’s right to repossess or the existence of any default under the lease, would slow the process.

The above measures - if and when granted or recognised by the Italian competent court - are materially enforced on Italian territory by taking physical repossession of the aircraft through the assistance of the competent court bailiff.

Enforcement of security

Outline the basic measures to enforce a security interest. How may the owner lawfully impede the mortgagee’s right to enforce?

Self-help remedies are not permitted to enforce a security interest, likewise in the event of a lease termination. Therefore, any action carried out by the secured parties against the aircraft (or against its owner) must be taken by way of the judicial system. In particular, a mortgagee could start an enforcement action pursuant to the rules set out by the Italian Civil Procedure Code, asking the competent court to order the sale of the aircraft by public auction and then satisfy the mortgagee’s credit through the assignment of the relevant sale proceeds (or a quota thereof).

It must also be noted that in no circumstances can the parties agree on the transfer of title of the encumbered aircraft to the mortgagee in the event the mortgagor is in default of its obligations under the relevant agreement (eg, loan, credit facility). Any similar arrangement between the mortgagor and the mortgage is null and void pursuant to article 2744 of the Italian Civil Code.

Regarding the effect of an insolvency upon a creditor’s enforcement right, consider that, pursuant to article 168 of the Italian Bankruptcy Law (Royal Decree No. 267 dated 16 March 1942, as subsequently amended and supplemented from time to time), no enforcement and precautionary measures can be commenced or continued by any creditor against the assets of the insolvent company after the relevant insolvency procedure has started (‘stay of proceeding’ rule).

The aircraft owner may lawfully impede the mortgagee’s enforcement by challenging such remedy before the competent court and providing proper evidence that the secured party has not got the right to proceed (eg, because no default has occurred under the financing or the relevant credit or interest have been fully repaid).

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?

Specific liens and rights have priority over both aircraft ownership and aircraft mortgage interest pursuant to article 1023 of the Italian Navigation Code and include, among others, the following:

  • judicial costs due to the state;
  • expenses incurred in the common interest of the creditors for enforcement measures against the aircraft (including enforcement procedures (ie, the judicial procedure for the sale of the aircraft by public auction before the court));
  • wages of the captain and the crew;
  • airport duties and similar charges and taxes;
  • indemnities and rewards for giving assistance to, and the rescue of, the aircraft; and
  • compensations for death or bodily injury of passengers or for loss of the cargo or the baggage.

In addition, pursuant to Law No. 324 dated 5 May 1976, the aircraft owner is jointly liable with the operator for any unpaid duties, charges, taxes and interest due for flight operations to and from the Italian airports.

Pursuant to article 802 of the Italian Navigation Code, ENAC can prevent the aircraft from taking off, by warning the airport manager or ENAV (ie, the Italian Air Traffic Control Authority), in the event of any default in the payment of taxes, duties or fees, including charges for landing, take-off and parking of aircraft; taxes for cargo loading and unloading; fees for the supply of handling services; and fees pertaining to ENAV (such as overflight or terminal charges).

The Italian government and other public authorities may confiscate or requisition an aircraft if such measure is because of a matter of serious public interest or for military needs. In these circumstances the aircraft owner is fairly compensated.

Enforcement of foreign judgments and arbitral awards

How are judgments of foreign courts enforced? Is your jurisdiction party to the 1958 New York Convention?

Judgments rendered by extra-EU courts (including New York courts) are recognised and enforced by the Italian courts if the following requirements provided by article 64 of Law No. 218/1995 are met: (i) the foreign judgment is given by a foreign judge who was competent to settle the dispute (according to the Italian rules on competence); (ii) the defendant was duly summoned in the proceeding and given the opportunity to dispute the claim (according to the laws of the place where the proceedings is held); (iii) both the claimant and the defendant filed their respective defence with the foreign court, or the default of one of the parties (whether claimant or defendant) was declared according to the law of the place where the proceeding is held; (iv) the foreign judgment is final and conclusive according to the laws of the place where the proceedings is held; (v) the foreign judgment is not contrary to any other Italian judgment issued in relation to the same subject matter and that became final and conclusive according to the Italian laws; (vi) no other proceedings have been previously filed, and are pending, before the Italian courts between the same parties and having the same subject matter; and (vii) the foreign judgment is not contrary to the Italian public order rules.

Judgements rendered by EU courts (including English courts) are recognised and enforced by the Italian courts in accordance with the provisions of the Regulation (EU) No. 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, as subsequently amended and supplemented.

Italy is also a party to the New York Convention of 1958 on the recognition and enforcement of foreign arbitral awards.

Taxes and payment restrictions

Taxes

What taxes may apply to aviation-related lease payments, loan repayments and transfers of aircraft? How may tax liability be lawfully minimised?

As a general rule, Italian VAT applies on the sale of goods (including aircraft) and the supply of services (including leases) that are finalised in Italy between business entities, as well as on the importation of goods from a non-European country to Italy. The current VAT standard rate is 22 per cent.

Referring to prospective tax liabilities arising in Italy for foreign lessors leasing aircraft to Italian operators, as a general rule we note that lease rents attract Italian income taxes (the current rate of corporate income tax is 27.5 per cent). This general rule applies when aircraft are taken on lease from foreign lessors, to the extent that Italy and the lessor’s country of origin have not concluded a taxation treaty providing for a different taxation regime. Indeed, the Italian government has entered into several tax treaties with foreign countries to avoid the double taxation on income and to prevent fraud or fiscal evasion.

For instance, the convention executed between Italy and the United States has fixed a reduced rate at 5 per cent of the lease rents, while under the convention between Italy and the United Kingdom the rate is equal to 8 per cent of the lease rents. Other treaties (such as those executed between Italy and, respectively, Austria and Ireland) provide a tax exemption on the payment of lease rents as long as specific requirements are met by the lessors.

Gross-up clauses provided in respect of lease rents payments are effective and commonly agreed for leasing transactions between foreign lessors and Italian operators.

As a general principle, the leasing of aircraft is subject to a VAT regime. VAT is actually not assessed on payments to be made under a lease if the relevant lessee qualifies as an international airline (ie, it chiefly operates its flights for profit on international routes).

Sales of aircraft located in Italy attract VAT at the same rate. VAT does not apply if the sold aircraft is subsequently exported by the buyer within 90 days of the closing date of the relevant transaction. VAT also does not apply if an aircraft is purchased by an airline qualifying as an international carrier, meaning that most of its flights are chiefly operated for reward on international routes.

Exchange control

Are there any restrictions on international payments and exchange controls in effect in your jurisdiction?

No restriction on international payments or exchange controls exist in Italy. Therefore, proceeds or other payments arising from contracts or liability in turn can be freely remitted abroad.

Default interest

Are there any limitations on the amount of default interest that can be charged on lease or loan payments?

Under the Italian system (Law No. 108/1996, (the Usury Law), limitations to default interests are calculated by increasing the global average effective rates established by the Bank of Italy (TEGM) of one-quarter plus a fixed rate of 4 per cent. In any case, the difference between a default interest and the Bank of Italy’s TEGM cannot exceed 8 per cent (usury limitations).

Customs, import and export

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?

As a general rule, the importation of aircraft from non-European countries into Italy is subject to VAT at the standard rate of 22 per cent. The owner and importer of the aircraft is responsible for paying VAT, provided that any other party with an interest in the importation (such as the foreign seller or lessor) is deemed liable for such payments by the Italian Tax Authority and the product is not released by customs until the payments are made.

An exemption from the aforementioned rule is established when the importation into Italy is carried out by an international airline (ie, it chiefly operates flights for profit on international routes).

On the other hand, no customs duties are due for the importation of civil aircraft, irrespective of whether they are imported by a qualified international airline or otherwise.

Insurance and reinsurance

Captive insurance

Summarise any captive insurance regime in your jurisdiction as applicable to aviation.

The insurance regime applicable in Italy is that set out by the European legal framework for all EU member states (mainly Regulation (EC) No. 785/2004, as amended by Regulation (EU) No. 285/2010). Accordingly, the Italian laws and regulations on aviation insurance are meant to reflect and implement the EU legislation.

Insurance for civil aircraft can be placed with Italian or foreign insurers at the operator’s own choice, as long as the relevant insurers are duly licensed to run their business and the agreed coverage is compliant with the requirements set out by the aforementioned EU legal framework in respect of passengers, baggage, cargo and third parties. It is noteworthy that the EU legislation applies to all airlines and aircraft operators flying into, out of, or over the territory of an EU member state, irrespective of their nationality.

Cut-through clauses

Are cut-through clauses under the insurance and reinsurance documentation legally effective?

Generally speaking, cut-through clauses under insurance and reinsurance documentation are legally effective in Italy.

Reinsurance

Are assignments of reinsurance (by domestic or captive insurers) legally effective? Are assignments of reinsurance typically provided on aviation leasing and finance transactions?

Assignments of reinsurance are typically executed in connection with aircraft leasing and finance transactions, always provided that - as a general principle - any assignment of rights against an Italian debtor is legally effective upon the assignment being duly notified to, or accepted by, the debtor, pursuant to article 1264 of the Italian Civil Code.

Liability

Can an owner, lessor or financier be liable for the operation of the aircraft or the activities of the operator?

An owner, lessor or financier is not liable for the operation of the aircraft or the activities of the operator as long as the statement of the operator is duly rendered by the aircraft operator and recorded with the Italian Aircraft Registry, pursuant to article 874 of the Italian Navigation Code. Once the said statement is recorded with the Italian Aircraft Registry, the operator is exclusively liable for the operation, maintenance and insurance of the aircraft.

Strict liability

Does the jurisdiction adopt a regime of strict liability for owners, lessors, financiers or others with no operational interest in the aircraft?

Generally speaking, no, provided the considerations on priority liens and rights arising by operation of law, mentioned in question 24, are complied with.

Third-party liability insurance

Are there minimum requirements for the amount of third-party liability cover that must be in place?

Airlines and aircraft operators shall be insured in accordance with Regulation (EC) No. 785/2004 (as amended by Regulation (EU) No. 285/2010) with regard to their aviation-specific liability for passengers, baggage, cargo and third parties. The insured risks shall include acts of war, terrorism, hijacking, acts of sabotage, unlawful seizure of aircraft and civil commotion. In particular:

  • for liability in respect of passengers, the minimum insurance cover shall be 250,000 special drawing rights (SDRs) per passenger (at present, approximately equal to €322,172);
  • for liability in respect of baggage, the minimum insurance cover shall be 1,131 SDRs per passenger in commercial operations (at present, approximately equal to €1,457);
  • for liability in respect of cargo, the minimum insurance cover shall be 19 SDRs (at present, approximately equal to €24); and
  • for liability in respect of third parties, the minimum insurance cover per accident is determined on the basis of the aircraft MTOW (for instance, aircraft between 50 and 200 tonnes shall be insured for €386 million and aircraft over 500 tonnes shall be insured for €902 million).

Update and trends

Recent developments

Are there any emerging trends or hot topics in aviation finance and leasing in your jurisdiction?

Regulation (EU) 2018/1139 - referred to as the ‘new’ Basic Regulation as it replaced Regulation (EC) No. 216/2008 on common rules in the field of civil aviation - came into force on 11 September 2018 and can be considered a further step ahead in view of a widely expected EU legislation on unmanned aircraft. The newly issued Regulation covers unmanned aircraft regardless of their operating mass, since its provisions are extended to all types of drones (either below or above 150kg operating mass). The reasoning behind the new approach is explained by Recital 26, stating that ‘Since unmanned aircraft also operate within the airspace alongside manned aircraft, this Regulation should cover unmanned aircraft, regardless of their operating mass. Technologies for unmanned aircraft now make possible a wide range of operations and those operations should be subject to rules that are proportionate to the risk of the particular operation or type of operations’. Pursuant to article 55 of the new Basic Regulation, the design, production, maintenance and operation of unmanned aircraft (and their engines, propellers, parts, non-installed equipment and equipment to control them remotely), as well as certification and registration duties, shall comply with the essential requirements set out in Annex IX. These requirements shall apply to the design, production, operations and registration of drones. It is also provided that - taking into account the nature and risks of the activity concerned, the operational characteristics of the unmanned aircraft concerned and the characteristics of the area of operation - a certificate may be required in relation to the design, production, maintenance and operation activities. In the event that a certification is needed, additional essential requirements shall be complied with in terms of airworthiness and organisation.

Furthermore, according to articles 56-57-58 of the new Basic Regulation, detailed provisions shall be laid down by way of delegated and implementing acts to be adopted by the European Commission, particularly expected with regard to rules, conditions and procedures for: (i) design, production and maintenance; (ii) registration and marking; (iii) establishing digital and harmonised national registration systems; (iv) issuing, maintaining, amending, suspending or revoking certificates (including personnel); (v) flight operations (including personnel involved in those operations).

The EU Commission will now have a period of 5 years (starting from 11 September 2018) to adopt the mentioned implementing acts, based on the technical opinions to be released by the EASA. In the meantime, each member state will continue to have full authority on the regulation of drones, provided that each national legislation shall comply with the general guidelines established by the new Basic Regulation.