Security

Security document (mortgage) form and content

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

When setting up Spanish law mortgages over aircraft, the following must be taken into account.

Under Spanish law, securities ought to secure a specific debt of a certain amount that has to be clearly stated in the deed of execution of the security (principle of determination). It is nevertheless possible to set up a charge to secure credit or overdraft facilities, in which the exact amount owed by the debtor will only be known at the time the debt becomes due (eg, elapsing of the agreed period, event of default, etc). Even the rate of interest might be a floating one. However, to comply with the principle of determination the deed of mortgage must state at least the maximum principal amount for which the charged asset is answerable and the maximum rate of interest.

Securities must be placed on specific assets that may be clearly identified (principle of speciality). Aircraft must be identified by make, model, serial number and Spanish registration number. As a consequence of the principle of speciality, floating charges are not admitted under Spanish law.

Unless otherwise agreed between the parties, the mortgage secures, in addition to the principal amount, interest of the last two years; the mortgage includes any indemnity that may correspond to the mortgagor by virtue of the charged asset.

Security documentary requirements and costs

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

Given the formalities and costs involved in setting up a Spanish law aircraft mortgage, these are created only occasionally.

The mortgage over movable assets has to be set up in a public deed executed before a notary public, which has to include certain essential information (parties, detailed description of the charged assets, title of the mortgagor, secured amount, valuation of the assets, etc). This document must be executed in Spanish, although there is no obstacle in attaching an English translation. The mortgage must be recorded at the RBM.

Mortgages are subject to stamp duty tax, at a rate that varies between 1 per cent and 1.5 per cent on the value of the charged asset.

Further, the fees of the notary public and of the RBM should also be taken into account, since they also depend on the value of the charged asset.

Finally, when there is an international element to the transaction, often translation costs are to be paid.

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.

As mentioned, aircraft mortgages must be recorded at the RBM i to gain effectiveness and benefit of the advantages afforded by law. While a non-registered mortgage would still be valid among the parties, it would not be opposable as against third parties.

Once a mortgage has been recorded at the RBM, it must also be entered into the RMA.

The registration process is very similar to the one described in question 8.

Registration of security

How is registration of a security interest certified?

Once the notarial deed of mortgage has been recorded at the RBM, the original is returned to the filing party, with a seal from the RBM that certifies that it has been properly registered. However, such stamping does not provide information about the rank or priority of the security.

Any interested party can ask the RBM and the RMA to issue certificates of any interests recorded in these registries, including mortgages. Such certificates will then provide information about any registered owners, mortgagees, charges, rank priority, etc.

Effect of registration of a security interest

What is the effect of registration as to third parties?

Registration of a security confers a priority over non-registered third-party interests (with some exceptions provided for in law, such as employees’ liens and the like). The Spanish registry system protects third parties who act in good faith based on the information provided by the RBM.

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?

Owing to the formalities and costs involved, aircraft finance transactions are generally structured outside Spain, and the creation of Spanish security interests is rare. This applies not just to rights in rem such as aircraft mortgages, but also to rights in personam such as personal guarantees, although in this latter case often Spanish law guarantees are set up to facilitate enforcement.

In connection with these transactions, foreign trusts are often used. The concept of trust is alien to Spanish law, and Spain is not a party to the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition. However, Spanish courts have recognised the existence and validity of trusts set up under foreign laws on a case-by-case basis. In these situations, one of the most important issues has usually been to adequately prove the contents of the applicable legal provisions of foreign law.

Usually it is only possible to register the rights of the security trustee and not those of the beneficiaries. Changes of beneficiaries (eg, new lenders) or in the underlying loan agreements are therefore not reflected in Spain. However, where such changes affect essential terms of the Spanish operator’s title (eg, change of lessor, term, rent, etc), then the consent of the Spanish operator is needed and the transaction should be recorded at the RBM and the RMA.

Security over spare engines

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

Spare engines can be subject to a right in rem under the form of a ‘pledge without displacement’. In principle, an aircraft mortgage automatically covers the engines attached to the airframe. Thus, if the parties wish to set up a separate security over an engine, this must be expressly created as a pledge without displacement.