Security

Security document (mortgage) form and content

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

As a general rule, the validity and effectiveness of mortgage interest is assessed under the law of the jurisdiction where the aircraft is registered. In the Standard Structure, an aircraft mortgage agreement is governed by foreign law and should be enforced outside Russia.

The main contractual security applicable to aircraft under Russian law is a mortgage. The mortgage can be both possessory or non-possessory, it but does not give the mortgagee a title to the mortgaged property, which remains in the ownership of the mortgagor. The mortgage provides the mortgagee with a priority right to discharge its claims under the secured documents from the value of the mortgaged aircraft or proceeds received from its disposal.

A mortgage over an aircraft registered on the Russian Aircraft Register must be governed by Russian law and registered in the Register of Rights. Without registration on the Register of Rights a mortgage is invalid.

There are no specific requirements for the language of security documents that are not subject to state registration in Russia. If the aircraft mortgage is to be notarised by a Russian notary or registered on the Register of Rights, it must be in Russian or bilingual with the Russian prevailing. Any document to be filed as evidence in Russian courts must be in Russian or accompanied by a notarised translation into Russian.

A Russian mortgage must contain a detailed description of the secured obligations, including their nature, amounts and schedule of payments under the secured document, detailed description of the mortgaged property and its value. In the absence of these terms, the mortgage agreement is invalid.

Security documentary requirements and costs

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

An aircraft mortgage must be concluded in written form and is generally not subject to a notarisation requirement (other than the aircraft mortgage securing an underlying document that itself is notarised). The parties may also specifically agree on a notarised form of the agreement. The failure to meet statutory or contractual requirements to the form of the agreement entails invalidity of such agreement.

The notarial fee may vary depending on the grounds for notarisation and value of the aircraft, and should be confirmed on a case-by-case basis.

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.

The Russian registration requirement for an aircraft mortgage is similar to registration requirements applicable to the ownership title, discussed in question 7.

An aircraft mortgage is effective upon its registration on the Register of Rights. The process and costs of registration of mortgage interest are similar to the registration of ownership and lease interest (see question 8).

In the Standard Structure, an aircraft mortgage is governed by foreign law and is not registered on the Register of Rights. However, since this practice has not been tested in Russian courts, the risk that enforcement of such aircraft mortgage may meet certain resistance in a Russian court remains. We would advise for an alternative security to be arranged (see question 20).

Registration of security

How is registration of a security interest certified?

Upon registration of an aircraft mortgage, the relevant record is created in the Register of Rights and a registration stamp is placed on a mortgage agreement.

Effect of registration of a security interest

What is the effect of registration as to third parties?

An aircraft mortgage subject to registration in Russia is effective upon its registration on the Register of Rights.

If there are several mortgages over the same aircraft, the order of priority between them will be established in accordance with the time of registration.

Registration of an aircraft mortgage on the Register of Rights is the only evidence of such mortgage interest. Registered mortgage interest may only be challenged in court.

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?

For the Standard Structure, see question 3.

In the Standard Structure, an aircraft mortgage is governed by foreign law and is not registered in Russia (remaining under the risk of falling under Russian registration requirements to it; see question 17). At the same time, there is usually alternative security, such as a share charge over an SPV and common law governed security assignments over rights under lease agreements.

Since, in the Standard Structure, finance documents and most of the security (unless specifically required otherwise by the jurisdiction where the aircraft is registered) are governed by common law, the common law concept of security agent or trustee is widely used. There is no concept of trust in Russian law, but it should be interpreted and applied in accordance with the governing law of finance documents. Since there is no Russian security involved it does not need to be adjusted to Russian law requirements.

Under Russian law, an aircraft mortgage is a proprietary right (see question 15). Any change of beneficiaries may be made by way of transfer of beneficiaries’ rights under the mortgage agreement, together with their secured rights.

Security over spare engines

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

It is possible to take security over an engine either as part of the aircraft in which it is installed or separately from the aircraft as separate equipment. If any of the parties to the security agreement over the spare engines is a foreign entity, the parties will be able to choose foreign law as the governing law of the relevant security document. Under Russian law such security would take the form of a pledge, with the pledgee acquiring a priority right to discharge its claims under secured documents from the value of the pledged engine or proceeds received from its disposal.

Under Russian law, the moment of creation of security over an engine, and its termination, do not depend on whether it has been installed in or removed from the aircraft.