Overview

Conventions

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

The United Arab Emirates (UAE) has ratified the following conventions:

  • the Chicago Convention on International Civil Aviation (1944);
  • the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958);
  • the Montreal Convention for the Unification of Certain Rules for International Carriage by Air (1999); and
  • the Cape Town Convention on International Interests in Mobile Equipment and its Protocol on Matters specific to Aircraft Equipment (2001).
Domestic legislation

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

The main domestic provisions applicable to aviation finance and leasing are found in Federal Law No. 20 of 1991. The Civil Aviation Regulations set out the general provisions applicable to the registration of civil aircraft.

Federal Law No. 4 of 1996, as amended by Federal Law No. 20 of 2001, establishes the General Civil Aviation Authority (GCAA) as the competent authority for the control and regulation of civil aviation in the UAE. Dubai’s Law No. 11 of 2020 superseded Law No. 19 of 2010. Law No. 11 of 2020 defines the powers of the Dubai Civil Aviation Authority together with the conditions of its cooperation with the GCAA.

Federal Law No. 8 of 2018 regarding finance leases was enacted on 18 December 2018. Cabinet Decision No. 56/2019 regarding the record of registration of finance lease contracts on movables was issued on 14 August 2019.

Federal Law No. 4 of 2020 (FL4) regarding security rights over movable assets was enacted on 28 May 2020. Cabinet Decision No. 29/2021 on the Implementing Regulation of FL4 regarding the guarantee of rights related to movables was issued on 21 March 2021.

Federal Decree Law No. 16 of 2021 regarding factoring and the assignment of accounts receivables was enacted on 29 August 2021. This law could potentially be used to arrange financing secured by receivables for UAE-based airlines.

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 express restrictions on the choice of applicable law in contracts to the transfer of interests in or creation of security over aircraft. As a general principle, the GCAA and the courts of the UAE would recognise the choice of a foreign law by the parties subject to the following:

  • such a choice is clearly expressed by the parties in the relevant document; and
  • such a choice does not contravene public policy or shariah principles.

 

Under the Cape Town Protocol on Matters specific to Aircraft Equipment (2001), the parties to a contract may choose the governing law of their contractual rights and obligations under such a contract.

Title transfer

Transfer of aircraft

How is title in an aircraft transferred?

The title to an aircraft may be transferred by two or more parties entering into a legal instrument that meets the following criteria:

  • it is in a form satisfactory to the General Civil Aviation Authority (GCAA);
  • it describes the relevant aircraft in sufficient detail;
  • it expresses the intention of the parties to sell and purchase the aircraft; and
  • it is executed by the seller and the purchaser in ink.

 

A bill of sale or any other instrument that fulfils these conditions would be effective in transferring title to an aircraft. Based on our experience, there is no requirement for a bill of sale executed by the seller to be countersigned by the purchaser, if the bill of sale is certified by a notary.

Transfer document requirements

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

Pursuant to Appendix 1 of Chapter 1 of Part V of the Civil Aviation Regulations, a request to the GCAA for the registration of the transfer of title to an aircraft must be accompanied by a certified true copy of the document that establishes the owner’s property title. The transfer document must comply with the following conditions:

  • it is in a form satisfactory to the GCAA;
  • it describes the relevant aircraft in sufficient detail;
  • it expresses the intention of the parties to sell and purchase the aircraft; and
  • it is executed by the seller and the purchaser in ink.

Registration of aircraft ownership and lease interests

Aircraft registry

Identify and describe the aircraft registry.

If the transfer document is executed pursuant to a power of attorney, an original notarised power of attorney should be provided to the General Civil Aviation Authority (GCAA). If the power of attorney is not available, the GCAA may accept any other original documentary evidence of authorisation (its equivalent) giving full powers to submit the related GCAA application and all required documentation associated with such a party granting authorities. The GCAA has a discretionary power to require from the applicant any additional information or complementary supporting documents to determine whether the aircraft’s ownership may properly be registered in the United Arab Emirates (UAE).

Article 28 of Federal Law No. 20 of 1991 (the Civil Aviation Law) requires the Ministry of Communications (acting through the GCAA) to establish and maintain an aircraft register. Section 1 of Chapter 1 of Part V of the Civil Aviation Regulations sets out the conditions under which an aircraft may be registered with and maintained in the registry of the GCAA. To be eligible for registration with the GCAA, an aircraft must be owned by or leased to the following:

  • a UAE national;
  • a corporate body having its principal place of business in the UAE or wholly owned by a UAE national; or
  • a UAE government department.

 

Accordingly, an aircraft may be registered in the name of an operator in the aircraft registry of the GCAA if this operator constitutes a qualified person (eg, a national UAE airline, or an airline wholly owned by a UAE national or having its principal place of business in the UAE).

We are not aware of any well-used International Civil Aviation Organization 83-bis arrangements between the UAE and other states.

There is no specific engine register in the UAE.

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?

An ownership or lease interest in, or lease agreement over, aircraft can be registered with the aircraft registry of the GCAA and there are no particular limitations under UAE law as to the owner other than that the aircraft shall be owned by or leased to:

  • a UAE national;
  • a corporate body having its principal place of business in the UAE or wholly owned by a UAE national; or
  • a UAE government department.

 

Pursuant to article 29 of the Civil Aviation Law, the deregistration of an aircraft from the registry of the GCAA shall be effected if (1) the owner of such an aircraft ceases to be a UAE national, (2) transfers its ownership to a national of another state, or (3) in the event of destruction, loss or permanent withdrawal of operation of the aircraft.

In respect of the registration of lease interests, an aircraft that originally bears a foreign registration can be registered with the aircraft registry of the UAE as long as the operator falls within the scope of the above requirements during the term of the lease agreement in accordance with the Civil Aviation Regulations.

In accordance with Federal Law No. 8 of 2018 (FL8), any finance lease over an aircraft (as one of the assets defined as a ‘special movable’ in FL8) has to be registered with the register designated by the competent authority in each emirate (article 5(3) of FL8). A failure to register or mention such a finance lease in the relevant register would result in the lease being declared null and void under article 3 of FL8.

Cabinet Decision No. 56/2019 regarding the record of registration of finance lease contracts on movables was issued on 14 August 2019. Pursuant to Cabinet Decision No. 56/2019, Emirates Development Bank was appointed to manage the register to be established pursuant to article 5(1) of FL8. These functions are performed by Emirates Development Bank through Emirates Integrated Registries Company LLC. As article 5(3) of FL8 mentions that special movables must be registered on the register designated for that purpose by the competent authority in each emirate, we take the view that special movables such as aircraft are not covered by the register maintained by the Emirates Development Bank. As the GCAA is the relevant authority regarding the registration of aircraft in the UAE and the UAE declared the GCAA – acting through its Aircraft Registry – as its authorising entry point under the Cape Town Convention on International Interests in Mobile Equipment (2001) (the Cape Town Convention), we are inclined to take the view that the registration of a finance lease over an aircraft with the register maintained by the GCAA would satisfy the requirement set out in article 5 of FL8.

Registration of a finance lease with the GCAA does not address the requirement set out in FL8 for a finance lessor to be licensed with the Central Bank of the UAE.

Registration of ownership interests

Summarise the process to register an ownership interest.

The aircraft registration process requires the submission of the following documents as provided under Appendix 1 of Chapter 1 of Part V of the Civil Aviation Regulations:

  • a GCAA aircraft registration form duly executed by the aircraft owner or its representative together with a notarised original power of attorney or other document evidence of authority;
  • in the event of an individual, a certified true copy of the owner’s passport and UAE residency certificate (if applicable);
  • in the event of a legal entity:
    • a certified true copy of the owner’s certificate of incorporation (or equivalent); and
    • the list of directors or incumbency certificate (or equivalent) and the managerial title that states that the relevant signatory is the legal representative of the owner or its duly authorised representative; and
  • a certified true copy of the underlying contracts or other legal documents in respect of the aircraft registration such as the transfer of title document or the lease agreement over the aircraft, and the appropriate certified copies of the documentary evidence of the identity and signing authority in respect of each submitted legal document.

 

In addition to the above-listed primary documents, the GCAA shall be provided with the following documents with respect to the operation of the aircraft:

  • an application for a radio licence to be issued by the UAE’s Federal Ministry of Communications’ Department of Telecommunications in accordance with article 4 of the Civil Aviation Law;
  • a certificate of airworthiness issued by the relevant department of the GCAA;
  • an aircraft non-registration certificate in relation to any new aircraft or, otherwise, a deregistration certificate from the previous aircraft’s state registry, clear of liens (unless the beneficiary of the registered liens provides a consent letter); and
  • a certified true copy of the aircraft’s valid insurance certificate.

 

With respect to specific form requirements, a power of attorney filed with the GCAA must be notarised and mention an expiry date. If a power of attorney does not mention an expiry date and has been granted more than three years prior to the date of its submission to the GCAA, the issuer of the power of attorney may be required by the GCAA to confirm in writing that the power of attorney is still valid as at the submission date.

The above-mentioned process can be completed online on the GCAA’s website after the registration of the applicant, except that the documents required as originals shall be submitted separately to the GCAA. Upon completion of the registration process and the issuance of the aircraft’s certificate of registration, the GCAA shall be provided with a CD-ROM enclosing all the documentation in accordance with Appendix 1 of Part V of the Civil Aviation Regulations.

An aircraft initial registration fee, which ranges from 30,000 dirhams to 400,000 dirhams depending on the maximum take-off weight of the aircraft, shall be paid to the GCAA. Specific provisions apply to freighters. In addition to the initial registration fee, an annual fee is payable in relation to the airworthiness certificate’s issuance and renewal. Other miscellaneous fees in connection with the registered aircraft’s certificates and documents issued by the GCAA for the operation of the aircraft are applicable.

Title and third parties

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

The Federal Decree-Law No. 35 of 2022 regarding evidence in civil and commercial transactions covers the effects of certain documents and information filed or registered with government agencies on the rights of third parties in situations where the general public does not have access to such documents or information. On this basis and as a general matter, the courts of the UAE would recognise a certificate of registration issued by the GCAA as valid and appropriate evidence of an ownership interest, a lease interest or a security interest such as that resulting from a mortgage over an aircraft registered with the GCAA. However, information registered with the GCAA but not recorded on the certificate of registration of the aircraft is not publicly available and is not disclosed by the GCAA to third parties other than to interested parties for inspection purposes. Accordingly, and excluding the registration or mention of a finance lease with the GCAA pursuant to FL8, we take the view that any information noted on the aircraft register would not constitute a notification to third parties by the GCAA or the courts of the UAE.

The position is slightly different in respect of finance leases. As set out in article 5(4) of FL8, a duly registered finance lease with the GCAA can be used as evidence against third parties.

Federal Law No. 4 of 2020 (FL4) regarding the creation and registration of security over movable properties as security for debts provides for a security registry that allows the public registration of securities granted over movable assets including, inter alia, tangible and intangible assets without the requirement for a transfer of the possession of such an asset and an enforcement process without a court order. This represents a significant change to the provisions of Law No. 5 of 1985 relating to the Law of Civil Transactions and the Law of Commercial Transactions, which cover possessory pledges only. In accordance with article 6 of FL4, a new register should be created by a cabinet decision. Cabinet Decision No. 29/2021 on the Implementing Regulation of FL4 on the guarantee of rights related to movables was issued on 21 March 2021. Public searches and registrations can be carried out within the scope of the provisions of FL4. It is possible to register a lessors’ rights over assets leased by way of an operating lease or a finance lease. However, article 4(a) of FL4 provides for the exclusion of movable assets that are registered with a special registry under existing UAE laws. The GCAA does not provide for a specific registry for the registration of security documents, but aircraft mortgages are registered in the files of the GCAA. For this reason, it is questionable whether, at present, other security interests granted over aircraft would be considered as part of the above-mentioned exclusion. Should security interests over aircraft become registrable with the Movable Collateral Registry, such security interests would benefit from the self-enforcement procedure set out under FL4.

Registration of lease interests

Summarise the process to register a lease interest.

The GCAA does not hold any specific registry in respect of leases for registration purposes. However, an aircraft lease can be registered under the provisions of section 1 of Chapter 1 of Part V of the Civil Aviation Regulations in respect of an aircraft notably leased to or by a UAE national, or a corporate body with its principal place of business in the UAE or wholly owned by a UAE national. The identity of the lessee and the lessor are recordable with the aircraft registry of the GCAA.

To permit such lease registration, the applicant must file with the GCAA a duly executed registration form and certified true copies of the documentary evidence of the existence of both the owner, as lessor, and the lessee in addition to satisfactory evidence of the signing authority of each party (including, as applicable, notarised powers of attorney). Certified copies of the lease documentation and any additional information or document in connection thereto shall also be submitted to the GCAA as it deems necessary.

Subject to the conditions set out in article 3 of FL8 in relation to finance leases (as set out below), there is no prescribed form in respect of operating leases for the purpose of the GCAA’s registration other than that an operating lease should provide for a transfer of possession of the leased asset. Contractual freedom would prevail in commercial matters provided that the parties have clearly expressed the terms and conditions of the operating lease. For legal certainty, the parties to a registered operating lease should set out clearly the main terms of the lease, such as the identification of the leased aircraft, the financial parameters and the duration as well as liability provisions in respect of the operation of the aircraft and the right of the lessee to quiet enjoyment.

As set out in article 3 of FL8, a finance lease must be in writing and either registered or noted in the relevant register. In addition, article 4 of FL8 sets out the points that must be covered in a finance lease:

  • the names and details of the lessor and the lessee;
  • a clear description of the aircraft;
  • the duration of the contract;
  • the purpose and limits of use of the aircraft;
  • the rent amount, number of instalments and dates of payment thereof;
  • the conditions and provisions of delivery of the aircraft to the lessee;
  • the purchase option in favour of the lessee;
  • the aircraft manufacturer and party that entered into the initial purchase agreement;
  • the other rights and obligations of the parties to the lease;
  • the termination events and prepayment events; and
  • any other conditions or other provisions agreed upon by the lessor and the lessee.

 

In our experience, most market-standard finance leases over aircraft tend to cover these points.

No registration fees apply specifically to aircraft lease registrations except in respect of the GCAA’s fees applicable to the International Registry’s registration for the purpose of the allocation of an authorising entry point (AEP) code.

Certificate of registration

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

Section 1 of Chapter 1 of Part V of the Civil Aviation Regulations provides that the certificate of registration of the aircraft shall reflect the details listed below. The following details in respect of the parties and the aircraft shall be completed in the registration application form:

  • the name of the owner or owners of the aircraft, and more generally, the name of any person or legal entity that holds a legal or beneficial interest by way of ownership of a UAE-registered aircraft or a share therein;
  • the name of the parties to the aircraft lease agreement if a lease is registered;
  • the aircraft’s name of manufacturer and manufacturer’s designation;
  • the aircraft’s nationality, registration mark and serial number; and
  • the date of issuance of the certificate of registration.

 

If a lease agreement is registered, the certificate of registration will only reflect the name of the operator. The name of the owner is registered in the files of the GCAA but may also be reflected on the certificate of registration upon request. Regarding the registration of security interests, a secured creditor as mortgagee may also specifically request that its security interest is reflected in the certificate of registration. Finally, there is no specific engine registry held by the GCAA.

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?

An aircraft may be deregistered by its owner or a secured creditor by giving notice to the GCAA. The GCAA will not permit the deregistration of an aircraft without the consent of its owner or the secured creditor in the presence of registered security interests recorded in its files. In accordance with Appendix 1 (Table 3) of Chapter 1 of Part V of the Civil Aviation Regulations, an aircraft owner would not be allowed to deregister an aircraft without the written consent of a secured creditor in respect of registered security interests. More specifically, such consent shall only be satisfied if a certified true copy of a notarised no objection letter or consent letter is issued by the relevant secured creditor.

Subject to the aircraft being duly registered with the GCAA and no attachment order being issued by a competent court of the UAE, it should be possible for an owner, a secured creditor (such as a mortgagee) or any other interested party to request the export of the aircraft on the basis of a deregistration power of attorney. The aircraft would be exported under an export certificate of airworthiness issued by the GCAA subject to any objection from the new state of registration to which the aircraft is being exported.

Powers of attorney

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

A typical deregistration power of attorney in respect of an aircraft would be recognised by the GCAA subject to its notarisation. If that power of attorney is executed outside of the UAE, this document would have to be legalised. A deregistration power of attorney is usually issued for a term that mirrors the term of the underlying contract and other legal document registered with the GCAA. UAE law does not require the interested party or a representative of the interested party to be physically in the territory of the UAE to enforce the deregistration power of attorney.

Under UAE law, unless expressly agreed otherwise between the parties, a power of attorney can be revoked either by mutual consent or upon the issuance of a notice by one party to the other by judicial means. The parties may carry out the process for obtaining an ‘attestation of judicial notice to cancel power of attorney through judicial notifier’ from the Dubai courts. As such, it is advisable that an irrevocable deregistration power of attorney be granted to the interested party and, more particularly, an irrevocable deregistration and export request authorisation (IDERA) under the conditions set out in the Cape Town Convention on and its Protocol on Matters specific to Aircraft Equipment (2001) (the Aircraft Protocol).

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.

Any interested party such as a mortgagee may request the deregistration of the aircraft from the GCAA by submitting an application form by way of the enforcement of an IDERA in accordance with the Cape Town Convention and the Aircraft Protocol. The conditions for such deregistration by way of the enforcement of an IDERA are set out under Appendix 1 (Table 4) of Chapter 1 of Part V of the Civil Aviation Regulations. The following documents should be provided by the applicant:

  • an original executed IDERA;
  • a copy of a priority search certificate issued by the International Registry;
  • the GCAA application form;
  • an original power of attorney or other original documentary evidence of the authorised party’s representation or its certified designee under the International Registry;
  • evidence of the managerial title of the authorised party and a certified true copy of the documentary evidence of its existence;
  • an original of the certificate of registration with the reverse side signed by the owner;
  • the original aircraft certificates in respect of the operation of the aircraft issued by the GCAA and Telecommunications Regulatory Authority of the UAE (as applicable);
  • evidence that Mode S Code (assigned by the GCAA) and emergency local transmitter code have been cancelled (if applicable);
  • evidence that the registration mark and identification plates have been removed from the aircraft;
  • an original of the certified designee’s confirmation letter and the original confirmation letter from the authorised party; and
  • a CD-ROM enclosing all of the documentation submitted to the GCAA.

 

The templates of the request letter for the deregistration of an aircraft by way of the enforcement of an IDERA, the IDERA itself and the certified designee confirmation letter in relation to the IDERA can be found under Appendices 2 to 4 of Chapter 1 of Part V of the Civil Aviation Regulations. The IDERA does not need to be countersigned by the GCAA, but the certified designee confirmation letter shall be countersigned, acknowledged and lodged by the GCAA.

In addition to these documentary requirements, article XIX of the Aircraft Protocol provides that a contracting state may choose to designate an entry point for the transmission of information to the International Registry. Pursuant to the Regulations and Procedures for the International Registry, and effective as of 24 November 2011, the GCAA has been designated as the entry point for the UAE. An entry point can be designated as either an AEP or a direct entry point (DEP). Unlike a DEP, the GCAA as an AEP does not itself make the registration with the International Registry but provides an AEP registration code to the applicant, which uses it to effect itself the registrations with the International Registry. The applicant shall be registered with the International Registry prior to serving the request to the GCAA. The website of the GCAA provides all relevant information in respect of the request for the issuance of an AEP registration code: the signed documentation and drafts in relation to prospective interests shall be supplied to the GCAA and the relevant fees shall be paid. The process usually takes around seven working days.

Finally, as the UAE has not made any declaration under article 50(1) of the Cape Town Convention, the Cape Town Convention would apply to all transactions which fulfil the prerequisites set out therein (including internal transactions where both the lessor and the lessee are incorporated in the UAE and the aircraft is also located in the UAE).

Security

Security document (mortgage) form and content

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

Other than in respect of the generic provisions of Federal Law No. 18 of 1993, as amended by Federal Decree-Law No. 9 of 2016 and Federal Decree-Law No. 14 of 2020, in relation to the Law of Commercial Transactions (the Commercial Code) concerning mortgages over movable assets and, if applicable, Federal Law No. 4 of 2020 (FL4), there is no law in the United Arab Emirates (UAE) that sets out specific requirements as to the form of security documents entered in relation to aircraft. The Commercial Code’s provisions applicable to commercial mortgages over movable assets require the transfer of possession of the movable asset to the mortgagee, whether fully or partially under a joint possession between the mortgagor and the mortgagee. In this context, the affixing of nameplates mentioning that the airframe and engines are mortgaged in favour of a mortgagee would address this requirement to a certain extent.

It is possible, under Federal Law No. 20 of 1991 (the Civil Aviation Law), to register a mortgage over a UAE-registered aircraft. In practice, the General Civil Aviation Authority (GCAA) effects the registration of mortgages governed by foreign law and reflects the name of the mortgagee on the certificate of registration on request. This registration may be considered sufficient to record and protect the interests of the mortgagee and to prevent the mortgagor from deregistering the aircraft or effecting any change of ownership to the aircraft without the prior consent of the mortgagee. In this context, it is advisable for the secured party to register the international interest created by the mortgage or any other relevant security document with the International Registry, to the extent possible.

Security documentary requirements and costs

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

Subject to the provisions of FL4, Cabinet Decision No. 29/2021 on the Implementing Regulation of FL4 regarding the guarantee of rights related to movables, which apply to the Emirates Movable Collateral Registry, there are no specific requirements applicable to security documents concerning aircraft. Generic requirements set out in the Commercial Code apply to commercial mortgages. The Commercial Code provides for the general principles and conditions that apply to mortgages over movable assets with a transfer of possession. As part of the conditions set out, the commercial mortgage shall contain the amount of the secured debt and shall be notarised before a notary of the UAE. The GCAA does not require a notarised Arabic translation of foreign law security documents, but it would be advisable to arrange for non-UAE law mortgages to be translated in Arabic and notarised by a notary of the UAE to avoid any potential challenge of the validity of such documents.

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 GCAA does not provide for a specific registry for the registration or security documents. In the event of a mortgage being granted over a registered aircraft, the GCAA will register the identification details of the mortgagee in its records. A request shall be made in this regard and accompanied with a certified copy of the mortgage document and any other supporting documents evidencing the existence and powers of the mortgagee. In light of the provisions of article 4(a) of FL4, the GCAA may contemplate in the future establishing a special aircraft registry governed with a specific regime applicable to it.

At present, it is not a condition of the validity or the enforceability of a mortgage that it is filed or recorded by the GCAA under UAE law. The information recorded by the GCAA other than that reflected on the certificate of registration of the aircraft is not available to third parties other than interested parties. If the mortgage is noted on the certificate of registration, this information will be available to third parties but does not create, on this sole basis, any specific rights or priority and it is advisable, therefore, that this mortgage is recorded with the International Registry as an international interest to the extent possible. No registration fees specifically apply to a mortgage registration except in respect of the GCAA’s fees applicable to International Registry’s registration for the purpose of the allocation of an authorising entry point code.

Registration or mention of security interests in relation to finance leases in the register held by the GCAA is required to protect the validity of such interest.

Registration of security

How is registration of a security interest certified?

The Civil Aviation Law provides for the registration of a mortgage over UAE-registered aircraft and the GCAA. In practice, it permits the registration of mortgages governed by foreign law under its registry and the notation of the name of the mortgagee on the certificate of registration issued by it to the extent requested by the mortgagee. The registration of the mortgage under the certificate of registration would not specify the rank of the mortgage, but would constitute a protection of the mortgagee against the owner’s attempt to sell or deregister the aircraft without obtaining the mortgagee’s prior written consent.

The Commercial Code does not contain any specific provisions in respect of the rank and priority of security interest created by the commercial mortgage, but the rights of the secured creditors would be governed by the provisions applicable to the international interests of the Cape Town Convention on International Interests in Mobile Equipment (2001) (the Cape Town Convention) provisions except that the effect of such provisions may be affected in the event of insolvency proceedings, and non-consensual rights may have priority over international interests under the laws of the UAE.

Effect of registration of a security interest

What is the effect of registration as to third parties?

The information registered with the GCAA, other than that recorded on the certificate of registration of the aircraft, is not available to third parties other than interested parties. Regarding the information and documents recorded with the GCAA but not strictly reflected in the aircraft certificate, it is doubtful whether the recorded information and documents would be recognised as enforceable with regard to third parties. However, on the basis of the provisions of Federal Decree-Law No. 35 of 2022 regarding evidence in civil and commercial transactions, the courts of the UAE would recognise a certificate of registration issued by the GCAA as admissible evidence of a security interest created by a document such as a mortgage.

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 using a security trustee or agent holding the security over the aircraft on behalf of financiers. Most aircraft are owned by special-purpose companies (SPC) in the relevant finance structure. The SPC is typically a private limited company incorporated in countries with favourable tax regimes, such as the Cayman Islands and Ireland, as well as the Abu Dhabi Global Market and Dubai International Financial Centre. Under the Civil Aviation Regulations, the GCAA would give effect to the registration of a security (typically a mortgage) and register it in the name of the security trustee or agent against the SPC as owner. Aside from the mortgage, a security assignment of the owner’s rights under the lease and its rights under the hull and war insurances in respect of the operation of the aircraft would be granted in favour of the financiers and a pledge over the owner’s bank account to which the lease rentals are paid would be put in place. Federal Decree Law No. 16 of 2021 regarding factoring and civil accounts receivables, enacted on 29 August 2021, will be applicable in the situation of the receivables assignment. Pledges over credit accounts and deposits held in banks and financial institutions fall within the scope of article 3 of FL4 and, accordingly, are eligible for registration with the Emirates Movable Collateral Registry. Under the Civil Aviation Regulations, international interests as set out under the Cape Town Convention and its Protocol on Matters specific to Aircraft Equipment (2001) would be recognised in respect of a mortgage interest as an enforceable item of collateral in the UAE as the state of registration. In respect of lease interests, a lessor’s rights over a property that is subject to a lease for a period of at least one year or a finance lease are registrable under the provisions of articles 1 and 3 of FL4. It is doubtful at this stage whether mortgagees’ or lessor’s rights created over aircraft would be registrable.

Under a simple finance lease structure, the SPC would lease the aircraft to the operator under a finance lease. The operator would operate the UAE-registered aircraft and pay the lease rentals to the SPC under the finance lease and, in broad terms, that rent would be equal to the principal and interest that the SPC must pay to the financiers in respect of the financing documentation. When considering the registration of the lease and the financing documentation with the GCAA, the interested parties should provide originals or certified copies of the relevant transaction documents that reflect the transaction’s structure. The term of the finance lease and the loan would coincide. Therefore, upon the expiry of the lease term and if the airline has paid all amounts due under the finance lease, the SPC will have repaid the loan in full. At that point, the financiers would request the GCAA to release the mortgage and any other security documents registered with the GCAA’s file such as an irrevocable deregistration and export request authorisation. Typically, under this finance lease structure, the operator would be entitled to purchase the aircraft for a nominal sum and amendments would be made with the GCAA to reflect the transfer of ownership of the aircraft and its deregistration if the UAE’s registration cannot be maintained under the conditions set out by the Civil Aviation Law.

No specific regulations have been developed in the UAE to govern aircraft lease financings and it should be noted, as a general matter, that financial institutions are generally restricted from owning assets and carrying out commercial activities. Shariah-compliant structures, such as ijaara leases and murabaha financing structures, can take over as alternatives to the traditional lease financing structures.

Security over spare engines

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

A security over spare engines or spare parts can take the form of a pledge or a mortgage. The pledge is a form of security under Law No. 5 of 1985 relating to the Law of Civil Transactions (the Civil Code) as amended by Federal Law No. 1 of 1987 and Federal Decree-Law No. 30 of 2020. The completion of a pledge requires, as for a commercial mortgage, that the possession of the pledged asset is physically transferred to the pledgee or its agent. Accordingly, this type of security as created by the Civil Code is not applicable to movable assets – such as installed engines or parts that shall continue to be used by the borrower or a third party such as the aircraft’s operator – notwithstanding the completion of the security. In addition to article 1 of FL4 in respect of lease interests, article 3(i) provides that any other movable asset that can be used as a collateral under existing provisions of UAE law are eligible for registration under the Emirates Movable Collateral Registry. In this regard, it may be possible to create a specific security over installed engines and parts under UAE law, subject to taking the view that the securities granted over installed engines shall follow the same regime as aircraft.

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 United Arab Emirates (UAE) made a declaration under article 54(2) of the Cape Town Convention on International Interests in Mobile Equipment (2001) (the Cape Town Convention) at the time of its accession and, as a result, any remedies under the Cape Town Convention that do not require a court judgment are not recognised by the UAE. Accordingly, self-help remedies are not available and a court order must be obtained. Under the proceedings applicable in the UAE, the claimant that requires the repossession of an aircraft may file a court application for an attachment. Under that attachment procedure, the aircraft needs to be clearly identified. If the attachment procedure is initiated prior to the substantive proceedings for the recovery of the debt, it is mandatory that, within eight days of the granting of the attachment order, such substantive proceedings are initiated by the claimant. It is possible for the claimant to request that the attachment order is granted ex parte by the relevant court of the UAE. Following the obtainment of a judgment from the court, a public auction would be ordered and supervised by the court to sell the asset. The court has the power to order new public auctions if it considers that the offer of the higher bidder is not sufficient. The auction is published in UAE newspapers. All documents brought to the court shall be in Arabic and the following documents are required:

  • original agreements (such as the lease agreement) applicable to the case;
  • evidence of non-payment of the debt;
  • evidence of any other default than with respect of the debt payment;
  • evidence of title and certificate of registration in respect of the aircraft; and
  • evidence of the authority of the owner’s solicitor before the court.

 

The proceedings described above are subject to clarification of the implementation of the provisions of article 27 of Federal Law No. 4 of 2020 (FL4), which allow self-help remedies for the enforcement of security over movable assets registered with the Emirates Movable Collateral Registry subject to notification to the guarantor of the intention to seize and enforce the collateral, and accordingly to sell the asset at market value. Likewise, at present, the proceedings described above shall prevail until clarification of the regime applicable to aircraft mortgage following the implementation of FL4.

The proceedings applicable in the UAE entail the payment of court fees, which depend on the value of the claim and have a maximum cap (except in cases filed before the Abu Dhabi court). According to Law No. 21 of 2015 regarding the fees of the Dubai Court in Dubai, before the court of first instance and civil actions, the court fee represents 6 per cent of the claim, provided that the amount is not less than 500 dirhams. The court fee is subject to the following caps on the basis of tranche values of the claims:

  • 20,000 dirhams if the claim value is less than 500,000 dirhams;
  • 30,000 dirhams if the claim value is between 500,001 dirhams and 1 million dirhams; and
  • 40,000 dirhams if the claim value is more than 1 million dirhams.

 

The length of the procedures depends, as in any other jurisdiction, on the nature and the complexity of the matter. In the event of a case that does not raise any exceptional controversial matters, a proceeding before the courts of first instance usually takes around six months.

Within the UAE, the authority of the Dubai International Financial Centre (DIFC) court to perform functions of arbitration assistance is provided for by DIFC Law No. 1 of 2008, as amended by DIFC Law No. 1 of 2013 and Dubai Law No. 16 of 2011. The arbitration sentences of the DIFC court are recognised by the courts of the UAE without examination of the merits of the decision, subject to certain conditions (eg, the arbitral sentence does not contravene public order considerations).

Outside of the UAE, arbitration sentences should be recognised and enforceable in the UAE as it is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (the New York Convention), but only to the extent that such arbitral sentences have been rendered by a contracting state to the New York Convention. Other regional or bilateral treaties – such as with certain countries of the Gulf Cooperation Council – may also facilitate the recognition of foreign judgments and arbitral sentences.

Enforcement of security

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

In respect of the enforcement of a security interest and the repossession of an aircraft following an event of default, self-remedies are not available under UAE law and the procedure is the same as in respect of repossession by an owner subject to our observations in connection with the implementation of FL4. Regarding the list of documents required before the courts, the secured creditor shall provide an original or a certified copy of the security document and the underlying financing documents in addition to the evidence of the non-payment of the debt, the events of default, the evidence of title and the certificate of registration as well as the proof of the authority of the solicitor that represents the secured creditor before the court.

The only limitation to the strict requirement for a court order in the UAE may reside in the procedures for the enforcement of an irrevocable deregistration and export request authorisation (IDERA) as set out under the Civil Aviation Regulations. The Civil Aviation Regulations do not expressly require the intervention of a court and give effect to the protection mechanisms of the secured creditors under the Cape Town Convention and its Protocol on Matters specific to Aircraft Equipment (2001) (the Aircraft Protocol). However, it should be noted that it is doubtful whether the General Civil Aviation Authority (GCAA) would give effect to an IDERA in the presence of a serious contestation without requiring a court judgment. In the event of a repossession leading to the deregistration of the aircraft, the Civil Aviation Regulations provides that all fees and amounts due and payable to the GCAA shall be cleared prior to such deregistration. The provisions of article X of the Aircraft Protocol, which are applicable in the UAE, provide for an expedited enforcement process; however, as we are not aware of any significant precedent, it is not possible to give a detailed overview of a repossession scenario and the enforcement of an IDERA in the UAE.

As to insolvency proceedings under the domestic law of the UAE, the main provisions can be found in:

  • the Commercial Code;
  • Federal Decree-Law No. 9 of 2016, as amended by Federal Decree-Law No. 35 of 2021 (the Bankruptcy Law); and
  • Federal Decree-Law No. 32 of 2021 regarding commercial companies.

 

We take the view that this procedure does not interfere with the rights of secured creditors to enforce their respective security with the permission of the court.

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 the UAE, the liens and rights (including international interests under the Cape Town Convention) in favour of secured creditors have first priority as set out under the new Bankruptcy Law over, inter alia:

  • costs in respect of any liquidation proceedings;
  • unpaid salaries and wages of the employees of the debtor; and
  • amounts due to government bodies.

 

UAE law does not provide for specific provisions in respect of the state’s or government entities’ right of confiscation, nationalisation or requisition of assets in particular circumstances, but the government of the UAE, under its constitutional rights and sovereign prerogatives, could decide to operate the requisition, nationalisation, confiscation or take other expropriation actions by way of a national decree in the event of exceptional circumstances such as in times of war.

A claim could be filed against a government-owned operator by the owner of an aircraft or a secured creditor, but, in certain circumstances, a non-objection confirmation from the local competent government authority would need to be obtained.

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 UAE is a party to various regional or bilateral treaties concerning the recognition of foreign judgments and arbitral awards that may facilitate the recognition of foreign judgments and arbitral awards.

In the absence of such treaties, an arbitral award issued outside of the UAE should be recognised and enforceable in the UAE provided that an arbitral award was rendered by a contracting state to the New York Convention to which the UAE is a party, such as the United States and the United Kingdom. The new Federal Law No. 6 of 2018 (FL6) on arbitral awards sets out the rules applicable to the arbitration procedures in the UAE. If the parties have decided that FL6 would apply to commercial arbitration conducted outside the UAE, the foreign arbitral award may benefit from the res judicata status set out under FL6. The arbitral award should be enforceable following a pro forma ratification by a federal or local court of appeal in the UAE in accordance with article 52 of FL6. The relevant court of appeal should render its decision within 60 days of application for ratification by a party.

The enforcement of a foreign final judgment in the UAE is subject to the conditions set out under the Federal Law No. 42 of 2022 regarding civil procedure. From a procedural standpoint, the party that requires the enforcement of a foreign judgment should first apply for its ratification before the Court of First Instance. This party should provide evidence to the Court of First Instance that the foreign judgment is enforceable in the foreign jurisdiction, and supply a certified and legalised copy of this judgment. Subject to its ratification by the Court of First Instance, this party would then file a summons before the execution court for the enforcement of the ratified foreign judgment. Further conditions should be satisfied in respect of the arbitral award including satisfactory evidence that the foreign judgment was rendered by a competent court of the foreign jurisdiction, and that it is final and binding. When a regional or bilateral treaty applies, the jurisdiction of the foreign court may not be reviewed depending on the specific rules set out in the relevant treaty.

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?

Value added tax (VAT) has been implemented by Federal Decree-Law No. 8 of 2017 on Value Added Tax (the VAT Federal Decree-Law) with effect from 1 January 2018. According to article 3 of Title 2 of the VAT Federal Decree-Law, a standard rate of 5 per cent is imposed on the supply or import of goods and services. However, Chapter 1 of Title 6 sets out the exemptions, which include goods and services as part of international transport of passengers and air passenger transport in the United Arab Emirates (UAE) to the extent that it falls within the scope of an ‘international carriage’ pursuant to article 1 of the Warsaw Convention for the Unification of Certain Rules Relating to International Carriage by Air (1929). As a result, goods and services in the aircraft industry – such as the supply of aircraft or consumption on board – are VAT exempt.

There is, at present, no stamp duty on the purchase of aircraft or withholding tax on lease rentals applicable in the UAE. Furthermore, there is no corporate tax payable in the UAE except for oil and gas companies, and subsidiaries of foreign banks. For all companies, a municipality fee is paid to each emirate at the time of issuance or renewal of the company’s trade licence.

Payments under aircraft leases, including rentals, are unlikely to attract any taxes in the UAE. In addition, no fees or charges should be payable in respect of the completion of a lease agreement or security agreement over an aircraft except in relation to fees payable to the General Civil Aviation Authority as part of the International Registry’s registration and the obtaining of an authorising entry point code.

Exchange control

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

There are no restrictions or consent requirements on international payments and exchange controls in the UAE that would restrict the free remittal of proceeds abroad resulting from a sale or other operations.

Default interest

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

As a principle, article 714 of Law No. 5 of 1985 relating to the Law of Civil Transactions (the Civil Code) provides for the prohibition of interests and mirrors shariah principles. However, the application of ordinary interests by the banks was authorised by the UAE Federal Supreme Court in 1981 and, further, the interests and delayed payments interests have been expressly permitted by the Law of Commercial Transactions (the Commercial Code), which prevails over the Civil Code in relation to commercial transactions where, by definition, one of the persons involved in a transaction is a trader. Accordingly, it is commonly accepted that article 714 of the Civil Code does not apply to matters governed by the Commercial Code.

As to any limits on the amount of interest, the Commercial Code gives effect to the contractual freedom, and the parties are free to determine the interest rate payable in respect of a commercial loan or interest rates applicable to default payments. Under article 76 of the Commercial Code, if the agreement of the parties is silent in respect of the calculation of the interest rate, the interest rate shall be fixed in accordance with the rate prevailing in the market at the time of the transaction. In this case, the interest rate shall not exceed 12 per cent until full settlement is made.

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?

The UAE is a member of the Gulf Cooperation Council (GCC) and a unified customs tariff applies throughout the GCC. A 5 per cent entry duty is payable on imports. Once this has been paid, goods can be shipped anywhere within the GCC without incurring further customs charges. This entry duty is charged on the cost, insurance and freight value of the goods at the port of entry. However, aircraft are exempt from customs taxes applicable throughout the GCC by virtue of the GCC’s Common External Tariff Schedule, which sets out items that are not subject to customs duties.

There are no export restrictions, duties or tariffs in the UAE.

Insurance and reinsurance

Captive insurance

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

Pursuant to article 24(1) of Federal Law No. 6 of 2007, as amended by Federal Laws Nos. 24 and 25 of 2020 (the Insurance Law), insurance operations in the United Arab Emirates (UAE) may be carried out by any of the following entities that are licensed and registered with the Insurance Authority:

  • a public stock company established in the UAE;
  • a branch of a foreign insurance company subject to article 55; or
  • an insurance agent.

 

Additionally, as provided under article 4 of Cabinet Decision No. 42/2009, as amended by Cabinet Decision No. 16/2017, it is mandatory that insurance companies incorporated in the UAE have at least 51 per cent of their capital owned by UAE or Gulf Cooperation Council (GCC) nationals, or by legal entities wholly owned by UAE or GCC nationals. Insurance companies do not fall within the scope of the provisions of Federal Decree Law No. 19 of 2018 (the Foreign Direct Investment Law). This provision of the Foreign Direct Investment Law allows foreign investors to wholly own companies within certain sectors in the UAE. 

Pursuant to article 26 of the Insurance Law, property in existence inside the UAE or liabilities resulting therefrom shall not be insured with insurance companies outside the UAE but an insurer may reinsure the property inside and outside the UAE. There is no stated percentage that must be retained within the UAE in the case of reinsurance outside the UAE.

Cut-through clauses

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

Insurance and reinsurance policies are generally based on the London market wordings and cut-through clauses are relatively common.

Under the Law of Civil Transactions (the Civil Code), it is not possible for an insured or a third party to claim directly against a reinsurer. However, in certain specific circumstances, a UAE court may decide to allow a claimant to join the reinsurer to a claim issued against the insurer, including in circumstances where an insurance policy includes a cut-through clause.

Reinsurance

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

Under UAE law, there are no specific restrictions to assignments of insurance or reinsurance. They would be legally effective in respect of UAE insurer or reinsurers. However, reinsurance agreements must be disclosed by insurers that are subject to reporting obligations.

Liability

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

Under the provisions of section 1, Title 2, Book 2 of the Civil Code (Hire in General), a lease (hire) confers to the lessee the right of use of the leased asset as from the date agreed in the contract and for a specific period in consideration of an ascertained rent. Article 763 of the Civil Code provides that the possession is therefore transferred to the lessee, which confers liability on the lessee.

However, it is further stated that the lessor is responsible for maintaining the full and quiet enjoyment of the leased asset by the lessee, and that the lessee may cancel the lease and cease to be liable under the lease if its right of enjoyment is infringed, including in respect of any default from the lessor from repairing any defect in the leased asset. These provisions do not appear, prima facie, to be in line with the standard liability and risk allocation clauses customary in aircraft lease agreements regarding the liability of owners, lessees and financiers.

Under the new provisions enacted with respect to finance leases, a lessee remains liable for any damage caused to the lessor or to third parties as a result of the possession or use of an aircraft under a finance lease (article 18 of Federal Law No. 8 of 2018).

Strict liability

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

The Civil Code gives an important place to the determination of the obligations of the parties under contractual arrangements that are listed in the first place under article 157, which provides for the sources of one’s personal obligations other than by way of statutory laws or legal events. On this basis, the courts of the UAE may give effect to the typical contractual arrangements agreed between a lessor and a lessee under an aircraft lease agreement in the event of a conflict with the general provisions of the Civil Code.

Third-party liability insurance

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

Pursuant to article 7(6) of Federal Law No. 20 of 1991, the aircraft’s crew, passengers and third parties must be insured against ground injury as per the applicable rules. The level of third-party liability coverage is set out in the Safety Decision 14/2016, published by the UAE General Civil Aviation Authority on 4 December 2016. It is expressed under 10 categories in special drawing rights (SDRs) and pegged to the maximum take-off mass (MTOM) of the aircraft in question.

In relation to the level of insurance for passengers, baggage and cargo, the following limits apply:

  • in respect of passengers, the minimum insurance coverage is 250,000 SDRs per passenger unless the aircraft in question is a non-commercial aircraft with an MTOM of 2,700kg or less, in which case the minimum insurance coverage is 100,000 SDRs per passenger;
  • in respect of baggage, the minimum insurance coverage is 1,131 SDRs per passenger; and
  • in respect of cargo, the minimum insurance coverage is 19 SDRs per kilogram.

Update and trends

Key developments of the past year

What were the key cases, decisions, judgments and policy and legislative developments of the past year?

Aviation cybersecurity

On 31 March 2022, the International Civil Aviation Organization (ICAO) and the United Arab Emirates (UAE) entered into a memorandum of understanding, formalising a new ICAO-UAE partnership to enhance the collaboration and transfer of knowledge and experience in several fields relating to cybersecurity and cyber resilience. The partnership between the ICAO and the UAE is in line with Annex 17 of the Chicago Convention on International Civil Aviation (1944), which contains the standards and recommended practices concerned with the security of international air transport.

 

Sustainable aviation fuel

On 30 January 2023, Emirates operated a demonstration flight on a Boeing 777-300ER aircraft equipped with one GE90 engine powered with 100 per cent sustainable aviation fuel (SAF). The SAF powering the engine was comprised of a blend of HEFA-SPK and HDO-SAK, which replicates the properties of conventional jet fuel.

In October 2022, Etihad Airways’ first flight using SAF was operated between Tokyo Narita airport, Japan, and Dubai International Airport, UAE. The flight was the result of a partnerships created with ITOCHU and NESTE, which came up with a specific SAF solution (ie, the Neste MY sustainable aviation fuel).

On 4 October 2021, the International Air Transport Association member airlines committed to achieve net-zero carbon emissions by 2050. According to Fact Sheet No. 2 (Sustainable Aviation Fuel: Technical Certification) of the IATA, SAF is currently approved for use in all aircraft but only in blends of up to 50 per cent with conventional jet fuel.