Security

Security document (mortgage) form and content

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

No mortgages over aircraft may be registered in Austria, as such instrument is not foreseen under Austrian law.

Although pledge agreements governed by Austrian law over an aircraft are used by some market participants in Austria, there is great discussion in the legal literature and doubts caused by Austrian Supreme Court decisions based on Austrian property law principles of pledge, which provide that mobile assets are subject to the dead pledge principle. Such principle provides that pledged mobile assets must be physically handed over by the pledgor to the pledgee or an agent of the pledgee (eg, an operator holding the aircraft for the pledgee).

For this reason, in Austria, finance leasing of aircraft (whereby the financier is the owner or title-holder of the aircraft) is much more widely used (ie, title remains with the lessor as security until final payment) than aircraft credit agreements with pledges (whereby the pledgor is the owner or title-holder of the aircraft).

The language used in such documents is usually German or English, subject to the parties’ agreement. We see more English language documents than German language documents.

There is no specific form required.

A maximum secured amount is not foreseen in Austrian law as a requirement in such documents.

We recommend that certain economic terms of the financing transaction are reflected in the agreements as to the individual and concrete underlying obligation or claim, which is to be properly defined and declared due and payable in order to be in the position to realise or exercise the security interest rights of the financier.

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 formal requirements with respect to financing or security agreements. There is no specific language required and there are no notarisation or stamping obligations.

In the course of ordinary court proceedings before Austrian courts all documents submitted to the court would need to be certified translated into the German language.

Perfection of a pledge requires physical delivery of the aircraft from the owner to the pledgee (dead pledge principle: see question 15). Usually, if a pledge is used, the aircraft is in the possession of the operator at the time of granting the pledge by the owner as pledgor to the financier as pledgee. Delivery of the aircraft can be effected by way of instruction of the operator (by the owner as pledgor) to hold and possess the aircraft for and on behalf of the pledgee. Additionally, it is necessary to mark the pledge as being subject to an Austrian law pledge by affixing plates to the airframe (and ideally also to each engine) in order to create external visibility of the pledge.

However, owing to certain constraints under Austrian law regarding pledges of mobile assets, aircraft finance leasing (whereby retention of title remains with the financier until the last payment) is much more widely used by market participants (see also question 15).

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.

Austrian law neither provides for, nor offers the possibility of, filing the security document with the aviation authority (or any other registry) as a condition to its effective creation or perfection.

Registration of security

How is registration of a security interest certified?

Austrian law neither provides for, nor offers the possibility of, registration of a security interest with any register.

Effect of registration of a security interest

What is the effect of registration as to third parties?

Not applicable (see questions 17 and 18).

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?

In Austria, typically, finance leasing of aircraft (whereby the financier is the owner or title-holder of the aircraft) is used (ie, title remains with the lessor as security until final payment).

It is common practice that the lessors request additional security in order to secure their claims. Such security might be an abstract guarantee provided from a separate person or entity (eg, holding company or beneficial owner).

The concept of trust is recognised in Austria but not used in granting security.

An aircraft financing agreement and its related security interests may in principle be transferred by all parties, for example, to a new financier or to a new lessee. However, a transfer is usually limited by the terms of the agreements to the financier side, whereas the lessee (or grantor of security) usually requires prior written consent by the financier to the transfer of its contractual position.

Security over spare engines

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

Airframes and engines are treated as separate items of property. Therefore, any security interest (either in the aircraft or airframe or in the engine) must be created separately. If airframes and engines are pledged, they are usually subject to the same pledge agreement. Separate pledge agreements may be more appropriate if the engines have not yet (at the time of perfection of the security interest in the aircraft or airframe) been installed on the aircraft. In general, a pledge over engines follows the same requirements for perfection as a pledge over the aircraft or airframe.