SecuritySecurity document (mortgage) form and content
What is the typical form of a security document over the aircraft and what must it contain?
If the aircraft is registered in Portugal at the time of creation of a mortgage, the mortgage must be governed by Portuguese law and registered with RAN.
Such mortgage shall grant the mortgagee a security that shall be effective in rem over the specific mortgaged aircraft, and enforceable towards all, against any third parties, namely common creditors of the mortgagor and subsequently registered mortgagees.
A mortgage created under Portuguese law does not involve the transfer of ownership or the possession of the mortgaged assets, and it does not allow the mortgagee to directly dispose of the mortgaged asset.
The mortgagee shall have a preferred interest to be repaid out of the proceeds of the sale of the mortgaged asset (the aircraft, in this case), prior to the mortgagor’s ordinary or common creditors, and to subsequently registered mortgages over the same aircraft, pursuant to specific court foreclosure proceedings.
Under Portuguese law, a mortgage can be created and registered against a future or conditional debt, provided it is for a specific amount or a specific obligation that can be determined. The mortgage may also comprise any incidental obligations provided they are mentioned in the mortgage title and duly registered. Therefore it may cover all forms of interest payments, namely those usually contemplated in a lease agreement, as well as any additional amount related to the foreclosure or collection costs, such as attorney’s fees, court costs and related expenses.
The agreed interest rate should be expressly mentioned in the mortgage document for registration purposes, as otherwise the Portuguese legal interest rate shall be deemed applicable to the guaranteed principal (the Portuguese legal interest rate is a variable rate, periodically fixed by joint decree of the Ministries of Justice and of Finance).
Note that, notwithstanding any stipulation of the parties to the contrary, a mortgage created under Portuguese law cannot comprise more than three years of interest, but a new mortgage can be registered with relation to outstanding interest.
A mortgage created under Portuguese law may be denominated in euros or in any foreign currency that may be legally converted to euros.
A mortgage over an aircraft registered in Portugal must be governed by Portuguese law, but it may be written in English.
RAN will accept the filing of the relevant documents in English. The Portuguese translation of the aircraft mortgage documents will only be required if such documents have to be submitted to a Portuguese court.
For registration purposes, the total mortgage amount must be indicated, comprising:
- the principal amount;
- the costs, charges and expenses arising out of, or in connection with, the enforcement of the mortgage, including (but not limited to) court fees, litigation fees, lawyer’s fees and any other disbursements made by the mortgagee in order to enforce its rights under the mortgage, up to an amount equivalent, for the purpose of registration, to 10 per cent of the principal amount; and
- the maximum amount of interest over the outstanding principal amount, which will yield over a period of 36 consecutive calendar months (the maximum period permitted by Portuguese law).
What are the documentary formalities for creation of an enforceable security over an aircraft? What are the documentary costs?
The mortgage must be notarised and legalised with the Hague Apostille, or at the nearest Portuguese consulate.
If it is written in English, no translation is required.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.
To record and perfect the registration of a mortgage, the following basic documents are required (assuming the aircraft has already been registered in Portugal, in accordance with question 8):
- a notarised and apostilled mortgage;
- a petition by the aircraft owner to the chairperson of ANAC applying for the mortgage registration; and
- a notarised and apostilled power of attorney enabling a local counsel (or other appropriate representative) to sign the above-mentioned petition on behalf of the owner and proceed with the filing for the mortgage registration.
The recognition of the rights of the mortgagee takes effect from the date the documents are filed with RAN.
Note that the registration of a mortgage created under Portuguese law is mandatory and an essential legal requirement for the mortgage to be valid and effective, even with relation to the parties thereto.
The registration need not be renewed, but a new mortgage may be required, and should be registered, with relation to outstanding interest, in view of the above-mentioned rule that a mortgage created under Portuguese law cannot comprise more than three years of interest.
RAN registration charges for a mortgage will be calculated in accordance with the actual mortgage total amount (which will be converted into euros for the calculation of registration charges if the mortgage is denominated in another currency).
The registrar will calculate the amount payable for the registration of each mortgage based on the mortgage total amount.
For registration of a mortgage, the basis for calculating the cost of the mortgage is 1/100,000 over the actual mortgage total amount. The following limit amounts to be paid to ANAC are as follows:
- minimum limit per mortgage: €72.33; and
- maximum limit per mortgage: €947.72.
How is registration of a security interest certified?
The registration of a mortgage is evidence by means of a registration certificate, which shall state the rank or priority of the mortgage.
The registration certificate is issued by ANAC, and will normally be available within five days from filing for registration.Effect of registration of a security interest
What is the effect of registration as to third parties?
Registration of a mortgage created under Portuguese law is mandatory. It is an essential legal requirement for the creation and perfection of a mortgage, for it to be valid and effective between mortgagee and mortgagor.
Registration confers priority over subsequent security interests, and third parties can rely on the accuracy of the public registration of the security interest as recorded on the certificate of registration.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?
Portugal does not recognise the concept of trust or the role of a security trustee.
Under Portuguese rules of conflict of laws, the creation and assignment of interests over any means of transportation subject to registration must be governed by the laws of the country of the relevant registry, as discussed above. Hence the creation of a mortgage over an aircraft registered in Portugal must be governed by and registered in accordance with Portuguese law.
Typically, security over aircraft is granted by means of a mortgage.
Security over leases is also typically structured by means of the assignment of the rents as guaranty.
A mortgage created and registered in accordance with Portuguese law is a right in rem.
Loan transfers that operate as classic novations do not affect the security if the mortgage is created and registered in accordance with Portuguese law, nor do new security registrations need to be effected if the loan is transferred to a new lender. But there must always be some connection (eg, by means of an agreement) between the registered owner of the aircraft and its lessor.
Changes to the security or its beneficiaries, in terms such that the identity of the aircraft owner or the lessor of the aircraft remain unchanged, will not trigger the requirement for an update of the aircraft registration.Security over spare engines
What form does security over spare engines typically take and how does it operate?
A mortgage over a spare engine that is not installed on a host aircraft follows very much the same process as the mortgage of an aircraft as regards its form and required registration.
If the engine is installed on a host aircraft, it follows the mortgage of the aircraft unless the engine has a different registered owner.
Whether a security interest over financed aircraft creates an independent security interest over its engines, or the aircraft and engines are treated as a single item of property, depends on the terms of such security.
An effective security interest may be created over an engine if it is registered separately and not as installed on the aircraft at the time of creation (assuming that the non-installed engine is also in the jurisdiction).
An encumbered engine shall cease to be encumbered upon the express consent of the mortgagee for the cancellation of such encumbrance.