Overview

Conventions

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

Mexico is party to the following treaties and conventions:

  • the Rome Convention (1933), signed on 26 October 1961 and ratified on 6 September 1985;
  • the Chicago Convention (1944), ratified on 25 June 1946;
  • the Geneva Convention (1948), signed in 1952; Part 1 ratified in 1983 and Part 3 ratified in 2008;
  • the Cape Town Convention (2001), ratified on 31 July 2007; and
  • the New York Convention (1958), ratified on 14 April 1971.
Domestic legislation

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

The principal domestic legislation applicable to aviation finance and leasing is the Civil Aviation Law (including its related rules and regulations), the Federal Civil Code and the Commerce Code.

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?

There are no restrictions on choice of law clauses in contracts to the transfer of interests in or creation of security over aircraft.

Title transfer

Transfer of aircraft

How is title in an aircraft transferred?

Title in an aircraft is usually transferred through a bill of sale.

Transfer document requirements

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

The existing documental requirements to perfect transfer of title of an aircraft and its related formalities would be as follows.

In writing, notarisation would be necessary in specific cases, as well as the legalisation or apostille of the corresponding document, depending upon whether the parties involved are part of the Hague Convention.

Translation of the document would be necessary in any and all events by a duly authorised translator, or the document could be executed in two languages.

Registration of aircraft ownership and lease interests

Aircraft registry

Identify and describe the aircraft registry.

The Mexican Aeronautic Registry is an operator registry, and is a public registry where information is available to any person or entity that evidences its legal interest in the information requested or to be requested. Transfer of regulatory and oversight functions may verify.

Notwithstanding that an interest on an engine may be registered through various legal structures (ie, via lease agreement or a pledge), the Mexican Aeronautic Registry is not an engine registry per se.

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?

The ownership or lease interest in, or lease agreement over, aircraft is subject to registration before the Mexican Aeronautic Registry.

No limitations exist on who can be recorded as owner. In addition to the above, as of November 2007, Mexico is part of the Cape Town Convention on International Interest in Mobile Equipment and its Protocol on Matters Specific to aircraft Equipment. Therefore, any international interest must be registered before the International Registry.

Registration of ownership interests

Summarise the process to register an ownership interest.

Mortgages, pledges, ownership and any and all liens in connection to aircraft and engines are registered before the Mexican Aeronautic Registry, an entity under the subordination of the Directorate General of Civil Aeronautics (DGAC).

The Mexican Aeronautic Registry is under the supervision of the Ministry of Communications and Transport. Documents through which property, possession and other rights on Mexican aircraft are acquired, transmitted, modified or extinguished, including such aircraft-related engines, as well as the lease of Mexican or foreign aircraft, should be filed with the Registry.

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 an ownership interest before the Mexican Aeronautic Registry constitutes proof of title, and the parties can rely on the accuracy of the public registration of the ownership as recorded and evidenced in an Aircraft Certificate of Registration or on the relevant documents filed for registration and duly stamped by the Mexican Aeronautic Registry.

The ownership interest would be effective against third parties, even if the owner has no title or a defective title.

Registration of lease interests

Summarise the process to register a lease interest.

Article 14 of the Mexican Aeronautic Registry Regulation establishes the requirements for any interested party to register a lease interest. The petition must be in written form, with the following requirements to be completed by the applicant:

  • name;
  • certificate of incorporation;
  • power of attorney;
  • domicile to receive notification within Mexican territory;
  • evidence of the payment of duties regarding the document or documents to be registered; and
  • the transaction documents duly executed by the parties, formalised before a notary public, legalised or apostilled as applicable and duly translated into Spanish by a duly authorised translator if applicable.
Certificate of registration

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

The certificate of registration should have the following information, pursuant to article 100 of the Civil Aviation Regulation:

  • place and date of issuance, and registration number;
  • registration numbers and marks;
  • model of the aircraft and engines;
  • name of the manufacturer;
  • manufacturer’s serial number;
  • year of manufacture;
  • name and domicile of the owner, and title of ownership;
  • if applicable, name and domicile of the operator and related documents (ie, lease, among other things);
  • if applicable, name and domicile of the mortgagor or person with a title of interest, type and date of the interest;
  • base of operation of the aircraft;
  • type of operation of the aircraft; and
  • any other registration related to the Mexican Aeronautic Registry pursuant to the applicable regulations.

Within 10 business days of the filing, the officers of the Registry should have recorded the documents.

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?

In accordance with article 46 of the Civil Aviation Law, if there is a mortgage in place no deregistration process would be effective without the prior written consent of the mortgagee. Moreover, the deregistration could be performed by a written request filed by the owner or the legitimated possessor (operator). However, in practice, the Aviation Authority requests the consent of the operator in the event that the owner files the deregistration petition.

Powers of attorney

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

The power of attorney must comply with the Federal Civil Code or the applicable local Civil Code. The power of attorney must be duly formalised before a Mexican notary public. If the power of attorney is granted outside Mexico, it must be certified by a notary public, legalised or apostilled, as applicable, duly translated into Spanish by a translator authorised by the local or federal court, and formalised by a Mexican notary public. In accordance with Mexican legislation, the power of attorney is irrevocable and no authorisation is required to exercise it. Furthermore, the power could be granted in favour of one or several attorneys.

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.

Pursuant to the declarations set forth by the Mexican government to the Cape Town Convention, the IDERA process is applicable in the Mexican jurisdiction.

Security

Security document (mortgage) form and content

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

Pursuant to the Civil Code, the mortgage must be granted and formalised before a notary public. In the event that the security is granted outside Mexico, the document must be legalised or apostilled, as applicable, and duly translated into Spanish by a translator authorised by the local or federal court. The security should contain economic terms and conditions agreed by the parties.

In accordance with article 101 of the Regulation of the Civil Aviation Law, the security document must be authorised by the Ministry of Communications and Transport and duly recorded with the Mexican Aeronautic Registry.

Security documentary requirements and costs

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

The mortgage must be granted and formalised before a notary public. In the event that the security is granted outside Mexico, the document must be legalised or apostilled, as applicable, and duly translated into Spanish by a translator authorised by the local or federal court.

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.

Pursuant to article 101 of the Regulation of the Civil Aviation Law, the security must be filed before the Mexican Aeronautic Registry; and in accordance with the Cape Town Convention and its Protocol, the security could be registered before the International Registry.

In accordance with the regulations of the Mexican Aeronautic Registry, in order to register a security the applicant must provide the following:

  • name;
  • certificate of incorporation;
  • power of attorney;
  • domicile to receive notification within Mexican territory;
  • evidence of the payment of duties regarding the document or documents to be registered;
  • authorisation granted by the Ministry of Communications and Transport to the carrier to execute the security document; and
  • the transaction documents duly executed by the parties, formalised before a notary public, legalised or apostilled as applicable and duly translated into Spanish by an authorised translator if applicable.

The officers of the Registry should record the documents within 10 business days of the filing.

Registration of security

How is registration of a security interest certified?

The officers of the Registry record the security document within its corresponding section in accordance with the regulations of the Mexican Aeronautic Registry. Furthermore, the officers modify or incorporate the registration of the security document into the certificate of registration of the aircraft. In addition to the above, any party of the security document has the right to request before the Mexican Aeronautic Registry an evidence of the said registration.

Effect of registration of a security interest

What is the effect of registration as to third parties?

The registration of a security document before the Mexican Aeronautic Registry confers priority over subsequent interest and, owing to its registration, it is enforceable before third parties. The Mexican Aeronautic Registry has a designated section before which the security documents are duly recorded on a date basis.

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?

According to the Civil Aviation Law, any alterations carried out in previously recorded interests before the Mexican Aeronautic Registry must be duly recorded before said Registry, otherwise they will not be effective before the new involved parties. This attests to the fact that the interests and rights are in rem and not in personam.

Security over spare engines

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

Pursuant to the Civil Code, the security document must be granted and formalised before a notary public. In the event that the security is granted outside Mexico, the document must be legalised or apostilled, as applicable, and duly translated into Spanish by a translator authorised by the local or federal court. The security should contain financial terms and conditions agreed by the parties. The said security document must be duly registered before the Mexican Aeronautic Registry.

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?

The return of an aircraft lessor or owner at the end of the lease term, or otherwise upon termination or following the occurrence of an event of default, does not require the consent or approval of, the giving of notice to, the registration with, or the taking of any other action in respect of any government entity of Mexico. It does not contravene any laws of Mexico. However, if a lessee does not return the aircraft voluntarily, a court order based on a final judgment will be required in order to retrieve possession of the same.

The following are the deregistration criteria established in article 46 of the Civil Aviation Law:

The cancellation of the registration marks of an aircraft before the Mexican Aeronautic Registry will have as a consequence the loss of its Mexican nationality and may be made in the following cases:

  • at the written request of the owner or person in legitimate possession of the aircraft. The deregistration of an aircraft with a registered lien will not take place, without the consent of the person that holds such lien;
  • through a judicial order or an order of other competent authority;
  • in case of destruction, loss or abandonment of the aircraft;
  • for the conclusion of the term of a temporary registration;
  • for the registration of the aircraft in another country; and
  • for any of the events described in the respective regulations.

The registration certificate is a relevant element or document that is always requested by the DGAC to proceed with a deregistration request. This document is therefore always delivered to the lessee; therefore it is important to have physical possession of such document.

No self-help remedies are available in Mexico.

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 available in Mexico. A court order must be obtained to detain an aircraft. An aircraft cannot be detained by an ex parte application.

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?

The obligation to pay rent under a lease or sublease is the direct and unconditional general obligation of a Mexican operator, and will rank in right of payment at least pari passu with all unsecured debt of the Mexican operator.

A Mexican operator is subject to civil and commercial law, and its actions constitute private and commercial acts. Neither the operator nor any of its revenues, properties or assets enjoys any right of immunity from suit, set-off or attachment upon or prior to judgment or in aid of execution in respect of its obligations under a lease or a sublease transaction.

Employee rights and tax liabilities have priority under Mexican legislation.

If the ownership or a mortgage has been duly filed before the Mexican Aeronautic Registry, and the operator does not have any potential or partial ownership or property rights on an aircraft, the equipment may be repossessed.

An aircraft may not be confiscated, seized or detained for any reason whatsoever, unless the aircraft is involved in a criminal action (eg, drug trafficking).

Enforcement of foreign judgments and arbitral awards

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

In Mexico the recognition and enforcement of foreign judgments is valid through international private law principals, Mexican federal law and the state laws.

The court may be denied if (i) the defendant was not given proper notice; (ii) additional legal matters are pending between the parties regarding the same litis; (iii) its contrary to the public order; (iv) the judgment involves an in rem action; or (v) lack of reciprocity of the country of issuance of the judgment regarding the enforceability and recognition of foreign judgments.

Mexico and Spain executed a bilateral agreement regarding the execution and enforcement of foreign judgments.

Local and federal courts have valid jurisdiction over an application for recognition and enforcement of arbitral awards in accordance with article 1422 of the Commerce Code, as set forth in the UNCITRAL Model Law on International Commercial Arbitration.

As established in question 1, Mexico is a party to the 1958 New York Convention, which was duly ratified on 4 April 1971 and published in the Mexican Federal Official Gazette on 22 June 1971. Mexico made no declarations or reservations upon the execution of the Convention.

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?

No payment of rent, to be made by an operator under a lease or sublease, and no insurance proceeds to be paid under any of the insurance policies to be maintained under a lease or a sublease, should be subject to any Mexican withholding tax or will give rise to any other taxes imposed by Mexico or any political subdivision or fiscal or taxing authority thereof. Neither a lease nor a sublease of an aircraft to a Mexican operator; the use and operation of an aircraft leased or subleased by a Mexican operator; nor any other transactions from the operator should result in the owner, a mortgagor, a lessee or sub-lessee being subject to any taxes imposed by Mexico or any political subdivision or fiscal or taxing authority thereof. Neither the transfer and delivery of an aircraft to a Mexican operator, nor the ownership of the aircraft by the owner, nor the return of the aircraft at the end of the term of a lease or sublease or following the occurrence of a default or event of default should result in any taxes imposed by the Mexican government or any political subdivision or fiscal or taxing authority thereof upon or with respect to any such transfer, delivery or return with respect to the aircraft; except that:

  • a Mexican withholding tax will apply to the amount of each rental payment made by the Mexican operator to a lessor or sublessor; and
  • a 1.8 per cent annual asset tax on the value of the assets lease or subleased would apply.

The above Mexican taxes are almost always paid by the Mexican operator, depending on the structure of the transaction documents.

Subject to the nationality of the parties involved in the lease or sublease transaction, the Mexican operator may be qualified, under a double taxation treaty, to certain benefits and rights thereto, which may cause or enable the Mexican operator to avoid such withholding and asset taxes.

The Mexican operator is also obliged to pay all filing fees upon filing, which will be assessed by the Mexican Aeronautic Registry in respect of a lease or a sublease, in order for the registration process to be accomplished. The obligation of the operator to pay such taxes and fees, and the execution or performance of any act relating to the payment of the same by the operator directly or indirectly to the appropriate Mexican tax authorities, should not under Mexican law create an implication of any type of ownership interest by the operator in an aircraft, or in any way negatively affect the rights of the owner, lessor or sublessor in an aircraft.

Taxes would apply in relation to a sale or transfer of title of an aircraft within Mexican territory.

Additionally, a 16 per cent value added tax would be imposed on a temporary import of an aircraft into Mexican territory.

Exchange control

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

No restrictions exist in relation to international payments, and exchange controls are in effect in Mexico.

Default interest

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

In Mexico, no limitation exists on the amount of default interests.

According to article 2,395 of the Federal Civil Code, the legal interest is 9 per cent, calculated on an annual basis. A conventional interest may be agreed by the parties of a transaction, and the interest percentage may be higher or lower than the legal interest. Nevertheless, when such an interest is so disproportionate that it may reasonably generate the belief that an abuse exists and affects the debtor, such an interest may be reduced by a judge.

Additionally, jurisprudence exists in congruence with excessive interests, as stated in the Federal Civil Code.

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?

Import and export costs, as well as customs duties, exist when bringing an aircraft into Mexico.

Aside from a customs broker’s variable fee, a 16 per cent value added tax exists.

In the case of repossession, the owner or mortgagee is entitled to export the aircraft without the operator’s assistance. Nevertheless, such owner or mortgagee would need to absorb the corresponding export costs.

Insurance and reinsurance

Captive insurance

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

Chapter XIII, article 74 of the Civil Aviation Law provides that an insurance policy (Mexican insurance) must be obtained and contracted with an insurance entity duly qualified to do business in the country. This is in addition to the civil liability coverage that any and all operators require.

No minimum or maximum percentage of the insurance is prevented or considered in the Civil Aviation Law.

The coverage limits are based on a minimum salary wages concept, and such figures vary each year depending on the increase of the minimum salary wage.

Cut-through clauses

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

Cut-through clauses under the insurance and reinsurance documentation are legally effective.

Reinsurance

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

Reinsurance is regulated by the National Commission of Insurances and Bonds (NCIB).

Assignment of reinsurance is legally effective in Mexico. Essentially, the reinsurance market is a niche for foreign reinsurance companies. Any and all reinsurance companies, whether Mexican or foreign, must be duly registered and approved by the NCIB.

Assignments of reinsurance are typically provided on aviation leasing and finance transactions.

Liability

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

The owner, lessor or financier is not liable for the operation of the aircraft or the activities of the operator, unless such owner, lessor or financier is directly or indirectly involved in the operation 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?

Article 61 of the Civil Aviation Law establishes that the authorised operators (permit or concession holders) of the aircraft shall be responsible for the damages caused to passengers, cargo or luggage being transported.

Based on the provisions of the Civil Aviation Law, the airline or the operator is responsible for damages caused to passengers.

Pursuant to article 1,915 of the Civil Code for the Federal District, the damage repair shall consist of the restatement of the situation prior to such damage, and when that consists of the payment of damages, pursuant to the following rules.

When damage is caused to individuals and causes death, or total or partial temporary or permanent disability, the amount of the indemnity shall be fixed applying the tariffs established in the Federal Labour Law. The basis to compute the corresponding indemnity shall be four times the highest daily minimum salary in force in the region.

Pursuant to articles 500 and 502 of the Federal Labour Law, the indemnity payment to be made in the event of the death of the victim shall be equivalent to two months’ salary for funeral expenses and the payment of an amount equivalent to 5,000 days’ salary.

In accordance with article 62 of the Civil Aviation Law, the right to recover damages is subject to that prescribed by article 1,915 of the Civil Code for the Federal District in common matters, and for all of Mexico in federal matters, the only exception being that the recoverable amount shall be three times the amount provided in such article.

Consequently, pursuant to the above, the recoverable material damages, under article 1,915 of the Civil Code, would be the amount equivalent to the minimum salary in force at the time of the death, multiplied by 790 (5,000 plus 60 days for funeral expenses). This result is multiplied by four.

When the Civil Aviation Law applies to the recoverable damages, the amount resulting from the numerical operations described in the previous paragraph is multiplied by three (article 62 of the Civil Aviation Law).

Moral damage

It is important to note that article 62 of the Civil Aviation Law only prescribes that damage to passengers is subject to the indemnities established by article 1,915 of the Civil Code for the Federal District. Such legal provision only prescribes the recovery for material damages.

Nevertheless, it is possible that a Mexican court would analyse and grant moral damages to the plaintiff if the court finds that a moral damage has been caused to such plaintiff.

Pursuant to article 1,916, a moral damage consists of ill effects suffered by a person to his or her feelings, likings, religious beliefs, decorum, honour, reputation, private life, configuration and physical aspect or the consideration that third parties may have of him or her.

In accordance with articles 1,916 and 1,916-bis of the Civil Code for the Federal District, the indemnity for moral damage must be established through a monetary amount determined by the judicial authority, taking into account the following.

The affected rights of the victim

The plaintiff must prove that they have actually suffered in terms of their feelings, likings, religious beliefs, decorum, honour, reputation, private life, configuration and physical aspects or else the considerations that third parties may have of him or her. It is not enough, pursuant to Mexican law, to make a general statement indicating that damage has been caused. Instead, the plaintiff must demonstrate to the court the alleged actual damage.

Degree of responsibility

Pursuant to this principle, the court shall determine in any event the existence of an illicit conduct, and in its case, the extent or degree of same. An illicit act or conduct is defined by article 1,830 of the Civil Code as that which is contrary to the laws of public order or against customary good behaviour.

It should be noted that, pursuant to article 1,916-bis of the Civil Code for the Federal District, in any and all events, whoever claims recovery for moral damages must fully prove the illicit conduct of the defendant and the direct damage caused by such conduct.

The economic situation of the liable party and that of the victim

The plaintiff must submit documents to the court that gives evidence of their annual income so that the court, based on such documents, can justly determine a fair indemnity with respect to the moral damage, in case that it finds that such damage existed.

The other circumstances

The court can only take into account those damages that are a direct consequence of the illicit conduct. In this regard, article 1,916-bis of the Civil Code for the Federal District expressly establishes the above.

No other recoverable damages

The Civil Code and the Civil Aviation Law establish the recoverable damages in favour of the victims, in the terms prescribed above.

Mexican law will recognise other damages in addition to material and moral damages, and consequently, it does recognise punitive damages or damages for pain and suffering or similar concepts.

Third-party liability insurance

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

The Civil Aviation Law under article 72 establishes the minimum amount for third-party liability cover.

Update and trends

Recent developments

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

With a new administration on the government, we should follow up very closely the constitution of the Federal Aviation Agency, the Investigation of Accidents Federal Agency and the possibility of switching to Alternative A under article XI of the Protocol to the Cape Town Convention.