Overview

Conventions

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

Israel is a party to the following conventions: Chicago Convention (1944) (Convention on International Civil Aviation); Rome Convention (1952) (Convention on Damage Caused by Foreign Aircraft to Third Parties on the Surface) (not ratified into domestic legislation); Tokyo Convention (1963) (Convention on Offences and Certain Other Acts Committed on board Aircraft); the Hague Convention (1970) (Convention for the Suppression of Unlawful Seizure of Aircraft); and the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York) (1958).

Israel is not a party to the Geneva Convention (1948) or the Cape Town Convention (2001).

Domestic legislation

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

The principal domestic legislation that governs aviation finance and leasing in Israel are the Aviation Law, 2011 and the Aviation Regulations (Registration and Marking of Aircraft) 1973 (the Registration Regulations). Additional laws that may be relevant to this matter include:

  • the Companies Ordinance 1983;
  • the Pledges Law 1967;
  • the Contracts Law (General Part), 1973 (the Contracts Law);
  • the Contracts Law (Remedies for Breach of Contract) 1970;
  • the Rental and Borrowing Law 1971;
  • the Supervision of Financial Services (Regulated Financial Services) Law 2016; and
  • the Insolvency and Economic Recovery Law 2018 (the New Insolvency Law).

It should be noted that the New Insolvency Law is currently slated to come into effect in September 2019. This law provides for the codification of and makes substantial changes to numerous matters relating to insolvency and insolvency proceedings in Israel. Such changes impact, inter alia, creditor rights, order of preference between creditors and the rights of unsecured creditors in regard to floating charges, personal and company bankruptcy proceedings and international or cross-border bankruptcy proceedings.

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?

Israeli legislation does not categorically restrict parties from choosing the law governing their contracts. Should Israeli courts recognise the parties’ choice of a foreign law in a dispute in front of an Israeli court, such foreign law needs to be proven to the court by a witness who will provide expert opinion on the form and substance of the foreign law. It should be noted that in certain circumstances, such as insolvency proceedings, the courts may refuse to apply the foreign law in respect to an asset owned by an Israeli entity, registered in Israel, physically located in Israel, or which is the subject matter of underlying Israeli proceedings. In connection with enforcement, see our answer to question 25. It should be noted that under the New Insolvency Law, insolvency proceedings may be initiated with respect to any company that has physical assets in Israel (regardless of the choice of law selected).

Title transfer

Transfer of aircraft

How is title in an aircraft transferred?

Title to an aircraft is customarily transferred by a bill of sale that has been duly executed by the seller.

Transfer document requirements

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

The Registration Regulations provide that a bill of sale or other evidence of ownership is required to be submitted for the registration of an aircraft by the Israeli Registrar of Aircraft (the Registrar). It should be noted that a form of bill of sale is attached to the Registration Regulations; however, customary forms of a bill of sale would typically be acceptable. In practice, the Registrar may require the presentation of an original bill of sale to give effect to the registration. If the bill of sale is in a language other than Hebrew or English, the Registrar may require a notarised and apostilled translation into Hebrew or English. For further information regarding the formalities of registration of ownership interests in an aircraft, see question 8.

Registration of aircraft ownership and lease interests

Aircraft registry

Identify and describe the aircraft registry.

The Israeli Aircraft Registry (the Registry) is an owner registry established pursuant to the Registration Regulations that is maintained and operated by the Civil Aviation Authority, a statutory authority within the Ministry of Transport and Road Safety. It should be noted that the registration of an aircraft in the Registry does not constitute proof of ownership of the aircraft.

Currently, Israel is not a party to an agreement pursuant to section 83-bis of the Chicago Convention for the transfer of certain authorities of the state of registration to another state.

Israel does not maintain an engine register.

The Registry, which includes information regarding ownership interests in specific aircraft, is open for public inquiries subject to the submission of an appropriate request and the payment of any applicable fees.

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?

As the Registry is an owner registry, only ownership interests in an aircraft may be registered.

An aircraft is eligible for registration in the Registry if (i) it is owned by an Israeli citizen, a permanent resident of Israel or by a corporation incorporated under the laws of Israel of which at least two-thirds of its directors are Israeli citizens or permanent residents of Israel and (ii) it is not registered in a foreign state. Notwithstanding the aforesaid, the Minister of Transport and Road Safety may permit the registration of a foreign-owned aircraft that is not registered in a foreign state if the Minister is convinced that there is sufficient linkage between the aircraft and the state of Israel. The Minister is authorised to refuse the registration of an aircraft in the Registry if he or she is convinced that the registration may harm the security of Israel or its foreign affairs.

Israel does not maintain any other registry for registration of ownership interests in aircraft nor does it maintain an engine register.

Registration of ownership interests

Summarise the process to register an ownership interest.

To register an ownership interest in an aircraft, an owner must submit an original aircraft registration application in the form prescribed by the Registrar signed by the owner with the following attachments:

  • if the application is made by a corporation, corporate authorisation from the relevant organ of the relevant corporation duly empowering the individual(s) executing the application to do so, approved and certified by such corporation’s authorised signatory for such purpose. In the case of an Israeli corporation the applicant must also submit sufficient proof of such corporation’s registration with the Israeli Companies’ Registrar;
  • if the application is executed by an agent or representative of the owner of the aircraft, the application shall expressly state the name of the owner and include details of the agent or representative and state that he or she is acting in such capacity enclosing a notarised power of attorney from the owner presented not later than three years from its issuance, unless it expressly provides that it shall be in effect for more than three years. If the power of attorney is executed outside Israel it should be notarised and apostilled or be attested by an Israeli diplomatic or consular representative or by a public notary in compliance with the requirements of the Israeli Evidence Ordinance regarding proof of foreign certificates;
  • a duly executed bill of sale or other evidence of ownership. In practice, the Registrar may require the presentation of an original bill of sale to give effect to the registration;
  • if the aircraft was previously registered in a foreign country, sufficient proof that such registration has been cancelled or is no longer valid, namely: (i) a declaration by the authorised public authority in the foreign country where the aircraft was previously registered whereby the registration was cancelled or is no longer valid including the details of the person declaring the same on behalf of the relevant authority and a description of the aircraft, including manufacturer details, model and serial number; or (ii) a final order or ruling by a court or authorised tribunal in the applicable country stating that the registration is no longer valid or in effect;
  • if the aircraft was not previously registered in a foreign country, an affidavit or other sufficient proof that the aircraft has never been registered in a foreign country to the satisfaction of the Registrar;
  • a receipt for the payment of the applicable registration fees in respect of the certificate of registration and issuance of the applicable registration marks;
  • in the event of a change of ownership, in addition to the bill of sale as noted above, any previous certificates of registration for the aircraft, as well as sufficient proof regarding the change of ownership; and
  • in respect of an aircraft not previously registered Israel, proof of payment of the applicable customs payment (or exemption thereof). The Registrar will accept an import declaration regarding the import of the aircraft executed by the customs authority as sufficient proof. In the event that the aircraft is to be registered prior to its arrival to Israel, the submission of an import declaration may be delayed for 30 days.

The Registration Regulations also provide for additional registration requirements in special circumstances such as in transfers by force of law, inheritance, realisation of security, etc.

Generally, the mere installation of an engine onto an airframe does not automatically vest title to the owner of an aircraft and an engine installed on an aircraft would not automatically vest in the owner of the hosting aircraft and this matter is dependent on the underlying circumstances.

Title and third parties

What is the effect of registration of an ownership interest as to proof of title and third parties?

Pursuant to the Registration Regulations, registration of an ownership interest in the Registry does not constitute proof of title to the aircraft.

Registration of lease interests

Summarise the process to register a lease interest.

As noted in question 7, lease interests are not registerable with the Registry.

Certificate of registration

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

The certificate of registration is issued by the Registrar and contains the following:

  • aircraft serial number;
  • nationality and registration marks;
  • aircraft manufacturer and manufacturer’s designation of aircraft;
  • owner’s name and address;
  • date of issue of the certificate of registration;
  • details of the Registrar;
  • details of any charges and attachments on or to the aircraft (if applicable); and
  • information on the different circumstances when the certificate will expire (as prescribed by the Registration Regulations).

As noted, the Registrar does not issue separate engine certificates of registration, and the certificate of registration for the aircraft does not list its engines.

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?

As the Registry is an owner registry, the deregistration of aircraft and the cancellation of the certificate of registration is effected through a written request duly executed by the owner of the aircraft, to which the original certificate of registration shall be attached.

In the event that a charge, pledge or attachment is registered over the aircraft in the Registry, the Registrar will not permit any change to be made in the registration of the aircraft without (i) the consent of the holder of the charge, pledge or attachment, (ii) proof that such charge, pledge or attachment has been removed, or (iii) by order of the court or chief execution officer expressly transferring or cancelling the charge or attachment.

The operator of the aircraft has no standing in its capacity as operator to block the deregistration of an aircraft without obtaining an appropriate court order. From a practical point of view, the cooperation of the operator may facilitate the deregistration process.

Powers of attorney

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

A power of attorney must comply with general requirements of Israeli law governing powers of attorney. Subject to meeting the requirements of Israeli law, the courts will generally uphold irrevocable powers of attorney if they are expressly designated as such. It should be noted that there are additional requirements in respect to powers of attorney executed outside Israel, including, inter alia, notarisation and apostillisation.

As noted above, deregistration from the Registry is affected by the written request of the owner, thus a deregistration power of attorney from the operator has little use or significance in connection with the deregistration of the aircraft from the Registry, but may be useful in other practical tangential matters such as the physical export of the aircraft.

In light of the general insolvency laws in Israel and the fact that under the Pledges Law only certain prescribed financial institutions are entitled to ‘self-help’ when realising secured assets, any recognition of a deregistration power of attorney granted by an owner of an aircraft in favour of a financier may be subject to the discretion of the courts and therefore there is no guarantee that the Registrar (or any other relevant governmental body) would recognise a deregistration and export power of attorney.

It is not possible to register a deregistration or an export power of attorney.

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.

The Cape Town Convention is not in effect in Israel.

Security

Security document (mortgage) form and content

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

Security over an aircraft typically takes the form of either a charge or a pledge, depending on the type of legal entity granting such security. There is no limitation on entering into a security document in English provided that in the case of security created by an Israeli company, a certified Hebrew translation of the security document must be provided to the Companies’ Registrar for registration.

There is no specified form for the applicable security documents, however such documents are normally drafted to reflect the commercial understanding between the parties but at minimum should contain the following:

  • the details of the parties;
  • the assets being secured;
  • the type of security being granted;
  • the amount being secured (whether fixed or unlimited amount); and
  • any limitations on the grant of additional security over the same asset, or on the disposition of the asset.

There is no legal requirement to record the economic terms of the underlying transaction in the security 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?

There are no particular documentary formalities when creating a charge or pledge over an aircraft other than in relation to the filing of the relevant charge or pledge with the appropriate public authority (see question 17). There are currently no stamp or other documentary costs as such, other than nominal registration fees.

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.

In the case of an Israeli company, the security document must be in the form of a debenture and registered with the Companies’ Registrar within 21 days of its creation, otherwise it may have no effect against a liquidator or other creditors. In the case of a foreign entity or an Israeli individual or partnership, the security document should take the form of a pledge and be filed with one of the pledge registration offices based on the residence of the pledgor so as to be valid and effective against other creditors.

The registration process varies somewhat depending on the person or entity creating such interest; however, it does generally require the completion of a prescribed form containing the basic terms of the relevant security interest together with the underlying security document (in case of filings to the Companies’ Registrar). There are no costs for filing a charge with the Companies’ Registrar; however, filing a pledge with the Pledges Registrar needs to be accompanied by the payment of a nominal fee depending on the term of the pledge. The registration of a charge remains in effect until it is expressly released; however, the registration of a pledge is for a limited amount of time and must be renewed accordingly.

Once filed the relevant authority issues a certificate evidencing the registration of the security interest and registers such interests within its records. The certificate of pledge is normally issued immediately upon filing, while the issuance of a certificate of charge typically takes longer.

Once the pledge or charge is duly registered it is recommended that such security interest be noted in the Registry with such security interest endorsed by the Registrar upon the aircraft’s certificate of registration. A person wishing to note such security interest in the Registry must submit a true certified copy of sufficient proof of a pledge or charge, which may take one of the following:

  • a pledge notice filed in accordance with the applicable Pledges Regulations;
  • a certificate, duly signed by the Companies Registrar, reflecting the registration of the charge;
  • a certificate, duly signed by a registrar authorised by statute, reflecting the registration of a pledge or charge;
  • an order reflecting the imposition of a pledge, charge or attachment issued by a court, a tribunal or the chief execution officer (the head of the execution office, which is part of the enforcement and collection authority);
  • a receipt for the payment of the applicable registration fees;
  • the certificate of registration of the aircraft (if in the possession of such person); and
  • if the request to register a pledge or charge is made by an agent or representative of the applicant, the Registrar may require the presentation of a notarised power of attorney complying with the formalities applicable to powers of attorney as addressed in question 8.

Once a security interest is noted in the Registry by the Registrar, the Registrar will refrain from making any change to the registration of the aircraft without the consent of the secured party or by court order (see more details in question 12).

Registration of security

How is registration of a security interest certified?

The Pledges Registrar and Companies Registrar issue certificates evidencing the registration of the relevant security. Such certificates do not state the rank or priority of the relevant security interest.

Effect of registration of a security interest

What is the effect of registration as to third parties?

As noted, a charge over an aircraft must be filed within 21 days of its creation for it to have any effect against a liquidator or other creditors. Once a certificate is issued following registration, it serves as conclusive evidence that all requirements for registration are met. Should the security interest be registered with the Pledges Registrar, the pledge shall be effective upon other creditors only upon registration thereof. Third parties may generally rely upon the accuracy of such public registrations. As noted in question 17, it is recommended that such a security interest also be noted in the Registry (see more details in questions 12 and 24).

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?

Security over aircraft is typically structured by creating a specific charge over the aircraft and identifiable engines, parts and equipment (including identifiable spare engines and spare parts) and a separate floating charge over any other parts of the aircraft not covered by the fixed charge or that did not exist at the time of the creation of the fixed charge. The logic of the floating charge element is to defeat any claims that the fixed charge does not cover any item that was not attached to the aircraft or did not exist or could not otherwise be identified at the time of the creation and filing of the original fixed charge. Security over future lease payments can be registered as an assignment by way of charge over the rights of the lessor to receive lease payments from the lessee.

The concept of a security trustee is generally recognised in Israel and used in granting of security depending on the particular circumstances. In such cases the relevant security is granted in favour of the security trustee on behalf of the relevant beneficiaries or in the name of the security trustee alone. In circumstances where security is granted for the benefit of a security trustee, the security trustee is considered the holder of the security and may exercise any rights associated therewith. In such circumstances the security would be registered in the name of the security trustee without naming the underlying syndicate so that variation of the relevant beneficiaries would not normally require amendment of the actual security. Should the beneficiaries be named as additional grantees in the original registration of the security, any change of beneficiary may require an amendment to the registration of the security or re-registration thereof, which may impact priority.

Security over spare engines

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

Security over a clearly identifiable and distinguishable spare engine may take the form of an independent fixed charge or a pledge over the spare engine itself in a similar manner as security over the aircraft itself would be created, as noted above. If the spare engine is not identifiable at the time of creation of the relevant security interest over the aircraft it is possible for Israeli companies to register a floating charge that expressly covers spare engines. However, once the spare engine is identifiable, it is recommended to either register an independent fixed charge or pledge, as the case may be, over such engine, or to amend the initial charge or pledge over the aircraft to include such engine. In both cases, once registered, the relevant charging or pledging of the spare engine would create security over such engine.

Separate security over a financed engine that is installed on a financed host aircraft would normally be treated as separate independent security and would remain in effect even if removed from the aircraft, and in such circumstances, it is recommended that the owner, operator or financing party of the host aircraft acknowledges the separate interest and security of the financier of such spare engine.

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?

Where the lessee prevents the lessor from taking possession of the aircraft, the lessor will usually have no other choice but to apply to the relevant court for a declaration as to its right to take possession, its ownership of the aircraft or relief by way of court order for the return of the asset. Under Israeli law the parties to an agreement are not prevented from incorporating a clause into an agreement to allow for ‘self-help’ in certain circumstances. However, in practice, a lessor will typically turn to the police or the courts for assistance to recover the property. That said, it should be noted that the self-help provisions in the Movable Property Law 1971 limit the period of self-help to 30 days from the first day of unlawful possession.

Enforcement of security

Outline the basic measures to enforce a security interest. How may the owner lawfully impede the mortgagee’s right to enforce?

Prior to the New Insolvency Law expected to come into effect in September 2019, a pledge or charge over an aircraft may generally be realised by court order or by the chief execution officer, the latter of which is considered as the more efficient means of realisation. The chief execution officer would attempt to sell the aircraft to the highest bidder, who must usually bid above the official appraised value previously sought by the chief execution officer. Self-help remedies are available to limited types of Israeli financial institutions expressly listed in the Pledges Law 1967 although in most cases such institutions would utilise the court or execution office to exercise their security. It is possible to attempt to detain the aircraft by means of an ex parte application for temporary injunction or attachment should there be compelling arguments to do so, for instance, if irreparable damages would otherwise be caused to the creditor. Insolvency proceedings are not intended to limit a secured creditor’s rights from exercising its security and commencing legal proceedings against a debtor. That said, recent amendments to Israeli law have limited the ability of secured creditors from exercising their security in certain restructuring proceedings unless it is demonstrated to the court that:

  • the secured asset does not afford the secured creditor appropriate protection and no other means of protection have been put in place; or
  • the realisation of the security is not required for the economic recovery of the debtor.

The New Insolvency Law provides that a bankruptcy trustee may at any time redeem the secured asset.

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?

In most cases the holder of a fixed charge or pledge over an aircraft would have priority over other creditors; however, there are certain limited creditors that may be granted priority over such secured creditors, including the following:

  • expenses of a receiver appointed to realise a debenture;
  • certain costs of the execution office;
  • holders of possessory liens such as mechanics’ liens or the like (a variety of different civil laws grant such possessory lien rights including to the Airports Authority); and
  • holders of set-off rights whose debt existed prior to the insolvency.

According to the New Insolvency Law, a holder of a possessory lien will be treated like a secured creditor.

The Registration and Mobilisation of Equipment to the Israeli Defence Forces Law 1987 grants the Minister of Defence authority to requisition any aircraft located in Israel with a reasonable payment made to the owner and additional compensation if any damages are suffered during such time.

Enforcement of foreign judgments and arbitral awards

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

The enforcement and recognition of foreign judgments is regulated by the Israeli Enforcement of Foreign Judgments Law 1958, which provides a framework for which the Israeli courts may either recognise a foreign judgment or declare a foreign judgment to be enforceable. According to the Enforcement of Foreign Judgments Law, the Israeli courts may recognise or enforce a judgment of a foreign court if it is awarded in civil matters including awards for payment of compensation or damages for an injured party even if not awarded in a civil matter.

The provisions of the law distinguish between the enforcement of a foreign judgment and the recognition of a foreign judgment and set out different conditions for each.

Enforcement

Israeli courts may, in their discretion, declare a foreign judgment as enforceable if the judgment complies with the following conditions:

  • the judgment was obtained before a court of competent jurisdiction according to the laws of the state in which judgment is given;
  • the judgment is no longer appealable;
  • the obligations imposed by the judgment are enforceable under the Israel laws applicable to enforcement of judgments and the content of the judgment does not contradict the public policy, security or sovereignty of Israel; and
  • the judgment is enforceable in the country in which it was given.

The law provides that a judgment will not be declared enforceable if any of the following is proven before the court:

  • the judgment was obtained fraudulently;
  • the defendant was not given a reasonable opportunity to make its claims and provide its evidence before the judgment was given;
  • the judgment was made by a court that is not authorised to issue such judgement under the rules of international private law that apply in Israel;
  • the judgment conflicts with another valid judgement given in the same matter between the same parties; or
  • an action between the same parties in the same matter was not pending in any Israeli court at the time that the lawsuit was initiated in the foreign court.

The law further provides for a requirement of reciprocity whereby Israeli courts will not declare a judgment given in a particular country as enforceable in Israel if under the laws of such country, judgments given by Israeli courts are not enforced. This requirement may be waived at the request of the Attorney General of the State of Israel. The Enforcement of Foreign Judgments Law provides for a statute of limitations of five years from the date of the judgment being enforced.

A foreign judgment that was declared by the Israeli courts to be enforceable, shall be considered as a judgment awarded in Israel for execution purposes.

Recognition

The Enforcement of Foreign Judgments Law provides for the recognition of a foreign judgment if the following conditions are satisfied:

  • Israel has entered into an agreement with a foreign country applicable to the judgments of a court of such country;
  • Israel undertook in such agreement with such foreign country to recognise foreign judgments of the same nature, with such undertaking applying only to foreign judgments that would be enforceable under Israeli law; and
  • the foreign judgment meets the terms and conditions of set out in the agreement between Israel and such country.

Currently, Israel is a party to four treaties on the enforcement of foreign judgments, with Austria, Germany, the United Kingdom and Spain. It should be noted that the New Insolvency Law will provide a new legal framework for international collaboration and cooperation on cross-border insolvency proceeding, including the recognition in Israel of foreign insolvency proceedings, the provision of a wide range of remedies for administrators of such foreign insolvency proceedings, and exchange of information.

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?

Corporation tax on lease or loan payments

Under the Income Tax Ordinance (New Version), 1961 (the Ordinance), non-residents of Israel are generally subject to income tax in Israel only in respect to income accrued or derived from certain identifiable sources of income in Israel. However, under Israeli law there is a specific exemption from income tax for interest and leasing or rental payments made by an Israeli resident to a non-Israeli resident in connection with an aircraft that transports passengers or cargo in international lines subject to meeting the requirements of such exemption. In addition, one should also examine the applicable international tax treaty, which may shift the tax liability to the corresponding contracting state (subject to the terms of the relevant treaty).

Withholding taxes

Where a financier or owner is a resident of a foreign country and is liable for tax in Israel, in many cases such tax is remitted to the Israeli Tax Authorities (ITA) by means of a deduction or withholding by the lessee or borrower. Payments that constitute taxable income in Israel that are made to non-Israeli resident companies or individuals by Israeli taxpayers, are generally subject to withholding of tax at the source at a rate ranging between 20 and 25 per cent, unless a specific exemption is applicable under the Ordinance or a specific treaty. Even if a specific exemption does apply, in practice, a specific exemption certificate issued by the ITA may be required by the financial institutions in Israel effecting the relevant payment. It is customary to include a gross-up provision in the applicable lease or loan documentation, which, if properly drafted, should effectively mitigate the tax risk relating to withholding. It should be noted that withholding exemption certificates are typically limited in time and may have to be renewed.

Value added tax

Section 2 of the Value Added Tax Law, 1975 (the VAT Law) provides that Israeli VAT (currently at 17 per cent) is imposed on a transaction in Israel and on the import of goods into Israel. This would apply to payments made in connection with a purchase or leasing of an aircraft and on interest payments related to loan payments on a financed aircraft. However, certain transactions are zero-rated for the purpose of VAT such as the sale of aircraft to a dealer (such as a lessee) whose business is the provision of regular flight services and in scheduled lines for the transportation of passengers or the transportation of cargo for consideration.

Under the VAT Law the party liable for payment of any VAT due on the importation of goods into Israel is the ‘owner’ of the goods, a term that is defined in a very broad manner and thus may apply to both the lessor and lessee.

Capital gains tax

Any sale of an aircraft may also be subject to capital gains tax in Israel and the delivery mechanisms should be constructed accordingly to mitigate such risk.

Exchange control

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

There are no exchange controls or restrictions regarding international payments under Israeli law other than with regard to withholding and money laundering.

Default interest

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

The Interest Law 1957, authorises the Minister of Finance to determine the maximum rate of interest that a lender may receive from a borrower with regard to certain types of transactions prescribed by the Minister of Finance. Further to an order promulgated under the Interest Law there are limitations on the maximum rate of interest that applies only to loans in which the loan amount is linked to the consumer prices index or indexed to the increase of anything other than a loan that is linked to a foreign exchange rate. Currently default interest for such loans is generally capped at 17 per cent per annum. It should be noted that under the New Insolvency Law, secured debt includes inflation linkage and interest, but specifically excludes default interest from being a part of the secured debt. There may be additional limitations in respect to loans granted to individuals.

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?

There may be customs duties payable in connection with the importation of aircraft depending on the category of aircraft and on whether the importation is on a temporary or permanent basis. Additionally, there may be additional customs charges and fees in relation to the importation of the aircraft. The party liable for payment of any customs due on the importation of goods into Israel is the owner of the goods, which is defined in the customs order in a broad manner that includes also the importer, the exporter, a consignee, an agent, any holder or beneficiary, or controller of the goods. If the lessee fails to pay such customs (if applicable), the actual owner may have liability, which could be assessed in rem against the asset.

There may be costs relating to the exportation of aircraft specifically in relation to deregistration of the aircraft.

Insurance and reinsurance

Captive insurance

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

There is no captive insurance regime in Israel relating to aircraft. However, the Aviation Regulations (Requirement of Insurance in Commercial Operation of Aircraft), 2017 require that insurance be placed either with an insurer regulated under Israeli law, or with a foreign insurer that is authorised to act under applicable law in its jurisdiction.

Cut-through clauses

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

As a matter of general contract law, a cut-through clause should be enforceable if properly drafted in a manner clearly establishing privity between the reinsurer and the party named as loss payee.

Reinsurance

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

If the assignment of insurance is properly drafted and proper notice and consent is provided as required by Israeli law, an assignment of insurances should typically be recognised by the courts.

Liability

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

The owner of an asset or its financier may be liable in tort or on other grounds in Israel for damages caused in connection with the operation of the aircraft or the activities of the operator if sufficient linkage is established between the damage caused and the acts or omissions of the relevant entity under general principles of tort laws.

Strict liability

Does the jurisdiction adopt a regime of strict liability for owners, lessors, financiers or others with no operational interest in the aircraft?

Israel has not adopted a regime of strict liability for owners, lessors, financiers or others with no operational interest in the aircraft. However, if the lessor is deemed the importer of the aircraft into Israel it may have exposure under the Defective Products Liability Law, 1980.

Third-party liability insurance

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

The Aviation Regulations (Requirement of Insurance in Commercial Operation of Aircraft) 2017 establish minimum requirements for each case and for each aircraft depending on the aircraft’s maximum weight.

The authors wish to acknowledge the help of Chen Arbel with this chapter.

Update and trends

Recent developments

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

As of June 2017 the provision of financing to clients in Israel is regulated by the Supervision of Financial Services (Regulated Financial Services) Law 2016, which may in certain cases require the financing entity to apply for a ‘financial services’ licence in Israel unless expressly exempted under said law or under the authority of the relevant government entity in charge of enforcing the said law. It should be noted that under regulations promulgated by the Financial Services (Regulated Financial Services) Law 2016 certain transactions and entities are expressly exempted from the licensing requirement stipulated by the law. However, as such regulations were promulgated to be effective for a limited period of time, any licensing requirement should be reviewed on a case by case basis.

As noted above, that the New Insolvency Law is currently slated to come into effect in September 2019. This law provides for the codification of and makes substantial changes to numerous matters relating to insolvency and insolvency proceedings in Israel. Such changes impact, inter alia, creditor rights, order of preference between creditors and the rights of unsecured creditors in regard to floating charges, personal and company bankruptcy proceedings and international or cross-border bankruptcy proceedings.