Security

Security document (mortgage) form and content

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

There is no form of mortgage document prescribed by the QCAA. The QCAA accepts mortgage documents in English. Typically, the mortgage document would refer to the obligations that are being secured under the relevant transaction documents. As such, the amount secured and the economic terms of the deal are indirectly referred to in the mortgage document.

Security documentary requirements and costs

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

Typically, a mortgage document should either be executed at the Authentication Department, Ministry of Justice if being executed in Qatar or, if executed outside Qatar, notarised and legalised up to the Embassy of Qatar in the relevant foreign jurisdiction. However, in practice, the QCAA accepts a certified true copy of the mortgage document (along with other documents) for the purposes of recording the ownership of the aircraft and the issuance of the letter of understanding in respect of the security interest noted over the aircraft. We recommend that the filing requirements be confirmed with the operator (who is responsible for filing the documents at the QCAA) on a deal-by-deal basis.

Although the QCAA does not require submitted security documents to be either notarised and legalised or be translated into Arabic, it is advisable to have the security documents notarised and legalised up to the Qatari Embassy in the jurisdiction of execution and then attested at the Ministry of Foreign Affairs in Qatar to avoid any challenge in respect of the authenticity or validity of the documents before the Qatari courts. Also note that any document to be submitted before the courts in Qatar are required to be in Arabic. Arabic translations of the relevant documents may be prepared subsequently through official translation companies if required.

Except for the costs relating to the authentication or legalisation of the mortgage document, no other costs or fees are payable in Qatar for the time being.

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, a security document must be filed with the QCAA to obtain priority. There is no requirement to register the security interests in any other register in Qatar. Article 37 of the CAA Law states that all legal actions taken in respect of an aircraft must be registered and approved by the QCAA. This includes sale, transfer, lease and mortgage.

The process and the documentary requirements set out in question 8 will have to be followed to register the security interests over the aircraft.

Registration of security

How is registration of a security interest certified?

Mortgages or other security interests are not registered by the QCAA on the registration certificate. The QCAA issues a letter confirming that it has taken on record the mortgage or the security interests created under the documents submitted to the QCAA. However, the letter will not state the priority of the secured parties. Such a letter is normally issued fairly quickly, subject to the availability of the relevant officer at the QCAA. It may be possible for the deal parties to review a draft of such a certificate to record the transaction structure accurately.

Effect of registration of a security interest

What is the effect of registration as to third parties?

Registration of the security interest (including the mortgage) will confer priority over subsequent security interests recorded. Article 37 of the CAA Law states that all legal actions taken in respect of an aircraft must be registered and approved by the Civil Aviation Authority. This includes, sale, transfer, lease and mortgage. Security interests are not registered or recorded by the QCAA on the registration certificate. The QCAA issues a letter confirming that it has taken on record the security interest. It is also possible to make enquiries at the QCAA in respect of a particular aircraft. The QCAA would, by a return letter, confirm whether any security interests have been recorded by the QCAA in respect of that aircraft.

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?

Under Qatar laws, the concept of trust is not recognised and such arrangement would be viewed as an agency relationship. Financing in respect of, and security over, an aircraft typically involves a bilateral facility or syndicated structure. In a bilateral facility the lender would take security over the aircraft. In a syndicated structure, a security trustee or agent acting on behalf of the lenders would hold the security over the aircraft on behalf of lenders. The QCAA would accept security created in favour of the lender (in a bilateral structure) or the security trustee or agent (in a syndicated structure). The security would typically include security assignment (including lease rentals), assignment of insurances and reinsurances and mortgage over the aircraft.

If there is a change in the nature or terms of the security, then the security recorded with the QCAA may have to be updated. With regard to the change in beneficiaries (being lender(s) in the financing transaction) by replacement of a lender with a new lender, the Civil Code recognises the concept of novation. Novation is valid when the debtor agrees to the change. If the procedure for transfers under the relevant transaction documents is followed and the consent of the debtor is obtained for the transfer in accordance with the transfer procedures, then a novation would be effected from a Qatar law perspective. Further, the benefit of the security is transferred to the new lender if the contracting parties have so agreed. As such, if the relevant finance documents address the mechanism in which the security would be transferred to the new lenders or the relevant parties enter into a security confirmation agreement then the benefit of the security documents would transfer.

If there is a change in the lenders under the financing documents resulting in the change of beneficiaries under the security documents, but the security agent or security trustee continues to be the same entity and holds the security on behalf of the beneficiaries, then this may not trigger a requirement to update the records at the QCAA, on the assumption that the transfer of participation will not trigger any amendment or update to any of the relevant documents in respect of the aircraft. We would recommend that the operator is involved in this process on a deal-by-deal basis.

Security over spare engines

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

Security over spare engines may be created as a possessory pledge over movable asset. This type of pledge may be created over movable assets that are not registered with any government authority in Qatar. The possessory pledge would essentially be a tripartite pledge agreement between the pledgor, the pledgee and the bailee. In addition to the provisions relating to the creation of the pledge, provisions relating to the care and maintenance of the pledged assets, insurance over engines (if applicable) and the procedure for enforcement of the pledge will also be set out in the pledge agreement. The description of the pledged assets (such as engines) and the location of the pledged assets will be set out in a schedule to the pledge agreement.