Security document (mortgage) form and content

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

When private international law rules lead to the application of Latvian real rights regarding the creation of security interest over an aircraft, the security structure must comply with mandatory requirements as enshrined in a specific piece of Latvian legislation - the Commercial Pledge Law. The security over aircraft is established through (i) conclusion of a commercial pledge agreement in writing between the mortgagor and mortgagee and (ii) perfection (against third parties) by registering the security on the Latvian commercial pledge registry maintained by the Latvian Commercial Registrar.

Because of the aircraft security documentation being subject to submission to the Latvian Commercial Registrar, the contract establishing the security shall be either drafted in a bilingual version (with Latvian as one of the languages) or must be accompanied by a translation in Latvian. There is no specified form, but each contract for establishing the security over the aircraft must specify and identify at least the following major terms:

  • the exact (main and ancillary) secured obligations (of either the mortgagor or any other person or entity) that the security safeguards;
  • the maximum secured amount; and
  • permission to sell the aircraft directly and privately without auction, should the mortgagor and mortgagee so elect.

Apart from reasonable identification of secured obligations, the economic terms of the underlying deal should not be restated in the contract for establishing security. This is because, upon application to the Latvian Commercial Registrar for perfecting the commercial pledge, the mortgagor will need to attach the underlying contract as well.

The secured obligations may be those already matured or future obligations (termed, conditioned or prospective arising from an existing underlying contract).

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 are no strict formalities provided for either the agreement establishing security or the underlying (secured) contract. The only formalities relate to the Application for Establishing the Commercial Pledge, which the mortgagor must submit to the Latvian Commercial Registrar to perfect the commercial pledge (that is, to obtain its validity against third parties). The latter shall be drafted in Latvian and either signed by the mortgagor itself with a Latvian issued e-signature (‘qualified electronic signature’ within the meaning of article 3(12) of Regulation (EU) No. 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC) or submitted by the mortgagor’s agent (commonly, a local legal counsel) on the basis of the mortgagor’s foreign-issued notarised and apostilled power of attorney.

Pursuant to article 23 of the Latvian Commercial Pledge Law, the above-mentioned Application for Establishing the Commercial Pledge shall be accompanied by the payment of a fixed registration fee (€42,68).

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.

While the perfection of the commercial pledge (governed by a system of Latvian real rights) is strictly confined to registration of the established commercial pledge by the mortgagor with the Latvian Commercial Registrar (see questions 15 and 16), the law also requires that, in parallel, the security documentation package is submitted by the owner to the Latvian CAA as well (see question 8). The verification that commercial pledge perfection conditions are satisfied will be issued by the Latvian Commercial Registrar within five working days of the Application for Establishing the Commercial Pledge and all accompanying documentation being submitted (article 15(2) in the Latvian Commercial Pledge Law). Upon registration (perfection) of the filed commercial pledge interests, the Latvian Commercial Registrar will notify the Latvian CAA of the registered security interest, which the latter will then correspondingly reflect in the civil aircraft registry as well (article 18(3) in the Latvian Commercial Pledge Law).

Various forms pertaining to the commercial pledge mechanism (registration, amendments, and so on) are approved by the Cabinet of Ministers, and these are, additionally, available online at the Latvian Commercial Registrar’s website (

For certain other formalities, see question 16. Renewal (extension) of the registered security interest prior to its expiry is treated as its amendment, and both the mortgagor and the mortgagee must sign an Application to Register Amendments to the Existing Commercial Pledge. The relevant form is approved by the Cabinet of Ministers, and must be filed with the newly completed application for Establishing the Commercial Pledge reflecting the new arrangement and the underlying contractual arrangement providing for the renewal (extension). The renewal (extension) will result in a €14,23 filing fee.

Registration of security

How is registration of a security interest certified?

Upon the Latvian Commercial Registrar having registered the filed security interest (see to question 17), the relevant commercial pledge is considered to be lawfully established and fully binding on all third parties (articles 9(2) and 33 and in the Latvian Commercial Pledge Law) according to the terms that the mortgagor and the mortgagee have agreed. For these reasons, there is no need for certificates or other evidence to be issued by any public authority for the security interests to be considered as legally valid and effective. Any relevant entries in the commercial pledge registry will also depict the rank (priority) of each subsequent commercial pledge. According to article 33(2) of the Latvian Commercial Pledge Law, third parties acting in good faith can lawfully rely on the commercial pledge registry entries being correct and accurate.

To determine the existence of prospective commercial pledges, business and industry users are commonly utilising and subscribing to services of various specialist companies such as Lursoft or Crediweb that provide a satisfactory and accurate reflection of commercial registry entries pertaining to Latvian registered companies, including, with regard to assets of a company that are subject to security arrangements. Further inspection is then usually done at the Latvian Commercial Registrar or by requesting the operator (lessee) to disclose the details of the fleet security arrangements.

Effect of registration of a security interest

What is the effect of registration as to third parties?

See question 18. Any subsequent security arrangement can obtain a priority over prior registered interests only upon written consent from the holders (mortgagees) of the prior interests. If various security interest holders are established over one or more of the same aircraft fleet, it is common for them to arrange their mutual priorities contractually, and this contractual arrangement is accordingly then mirrored in the commercial pledge registry (through stating the rank of each registered pledge).

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 transaction structures commonly used in international aviation deals can be implemented in Latvia, including with the chosen security trustee being designated as the mortgagee for the purposes of Latvian commercial pledge system. In this way, the financing deal can avail of the conveniences normally accorded to such an instrument (the utilisation of security trustee): despite the list of beneficiaries being subject to fluctuation, the established security over the particular aircraft or the engine is fully valid (including against third parties), and the security trustee, at any relevant time, can have recourse to it for the benefit of relevant ultimate beneficiaries. To ensure compliance with statutory formalities, the underlying obligations that the debtor (airline) owes to the ultimate beneficiaries of the trust (lenders, sellers and so on) must be separately drafted - solely for the purpose of effectuating the filing to the Latvian Commercial Registrar - as those of the security trustee (article 6 of the Latvian Commercial Pledge Law).

The commercial pledge is perfected (as between the mortgagor and the mortgagee, as well as in relation to third parties) upon its registrationon the Latvian commercial pledge registry (articles 9(2) and 33 in the Latvian Commercial Pledge Law). If the security trustee is the designated mortgagee, there is no need to effect new or amended filings in the case of new lenders coming in (including through loan assignments or novations), unless these result in changes over the major commercial pledge agreement terms (as initially established - usually in broad and encompassing terms - between the mortgagor and the security trustee in the latter’s capacity as the mortgagee).

Security over spare engines

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

In Latvia, separate ownership of host aircraft and engines is permissible. It depends on the terms and conditions of each relevant aircraft collateral deal whether the parties have intended to exclude the engines from the unified concept of ‘aircraft’ as such. For more details regarding the nature of a separate ownership of engines, see questions 6 and 8.