1 Legal framework
1.1 Which laws typically govern aviation finance transactions in your jurisdiction?
English law and New York law are the most common governing laws in aviation finance transactions.
1.2 If aviation finance documents are governed by laws other than your local law, what local law requirements (documentary and procedural) are required to ensure that foreign law documents are recognised and enforceable locally?
The choice of the laws of a foreign country to govern the finance documents will be recognised and given effect to as a valid choice of law in any action in the courts of Malta in accordance with Regulation 593/2008/EC of the European Parliament and of the Council on the law applicable to contractual obligations of 17 June 2008 (‘Rome I Regulation'). The Rome I Regulation applies to contracts concluded after 17 December 2009. The following should be noted, however:
- In terms of the Rome I Regulation, in certain cases other laws may prevail irrespective of the choice of governing law (including in the case of overriding mandatory provisions or the public policy of the forum). In particular:
- where all other elements relevant to the situation at the time of the choice are located in a country other than that whose law has been chosen, the choice of the parties does not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement; and
- where all other elements relevant to the situation at the time of choice are located in one or more EU member states, the parties' choice of applicable law other than that of a member state shall not prejudice the application of provisions of EU law, where appropriate as implemented in the member state of the forum, which cannot be derogated from by agreement.
- In certain cases, the Rome I Regulation also imposes limits on the autonomy of the will of the parties to select the applicable law in contract.
We cannot express any opinion on any foreign law to govern obligations falling outside the scope of the Rome I Regulation.
2 Finance structures
2.1 What aviation finance structures are most commonly used in your jurisdiction?
The National Aircraft Register is an operator's register, not an owner's register.
Local counsel will usually be engaged by both operator, owner and/or financiers in order to assist with:
- registering the aircraft in Malta; and/or
- registering the security over the aircraft.
Aircraft purchases are typically financed through either:
- a direct bank loan to the aircraft owner, secured by a mortgage; or
- a finance lease.
In a bank loan/mortgage scenario, the bank provides the requisite finance and, in return, takes a mortgage over the aircraft purchased by the borrower.
In a finance lease scenario, the owner of the aircraft (or a financing entity that has acquired the aircraft) leases the aircraft to the lessee for a specified period. At the end of the lease, the lessee can acquire the aircraft at a specified price.
There are other options for the financing of aircraft purchases. Acquiring an aircraft in cash is a possibility, although this is not very common. In recent years, there has also been growing interest in alternative sources of financing aircraft purchases, such as securitisation and the use of capital markets.
2.2 What are the advantages and disadvantages of these different types of structures?
These structures are not usually regulated by Maltese law, so therefore we cannot describe the advantages and disadvantages related to these.
2.3 What other factors should operators bear in mind when deciding on a financing structure?
In our experience, operators are not usually a party to or directly involved in the financing transaction or the finance documents.
The important factors to keep in mind for operators are their rights and obligations under the lease agreement, and whether they owe any obligations to the financier under any tripartite or assignment agreement.
2.4 Who are the most common providers of aircraft finance in your jurisdiction? Do any restrictions apply in this regard?
Aircraft finance is most usually provided by foreign financiers – we are not aware of any local financiers providing aircraft finance.
3 Title transfer
3.1 How is title to an aircraft legally transferred in your jurisdiction?
Malta is not a party to the Convention on the International Recognition of Rights in Aircraft 1948. Therefore, the sale and purchase of an aircraft is carried out solely in accordance with the provisions on sale under the laws of Malta. Airframes are considered movables under Maltese law and their sale is therefore subject to no particular formalities.
It is typical for the sale and purchase of an aircraft to be recorded in a bill of sale entered into by the seller and the buyer. The bill of sale is also typically made in writing – particularly as it will need to be submitted as proof of ownership of the aircraft to the registrar on seeking registration.
However, the registrar can also require evidence of the authority of the person executing a bill of sale and can therefore ask for a bill of sale to be notarised and apostilled to certify the identity and authority of the person signing the bill (particularly where the bill of sale is executed outside of the European Union).
3.2 What are the formal and documentary requirements for transferring title?
The Civil Aviation Directorate will need to be informed of any change of ownership in an aircraft. The interests of the owner/lessor should be recorded in the register. The Civil Aviation Directorate will also request certain statutory/constitutional documents of the new owner, together with a copy of the executed bill of sale.
3.3 What is the process for transferring title?
Please see question 3.1.
3.4 Are any charges, fees or taxes levied on the transfer of title?
There may be tax or value added tax (VAT) implications on the transfer of an aircraft –various issues should be kept in mind, such as:
- whether the aircraft is imported from an EU member state or otherwise;
- the location of the aircraft at the time of the transfer; and
- whether the aircraft is being used for private or commercial purposes.
There are no charges or fees for recording a transfer of ownership in the National Aircraft Register. Minimal charges may be incurred for updating the certificate of registration.
3.5 Other than in case of insolvency, are there any laws under which the registered title holder may be forced to relinquish ownership of the aircraft (eg, expropriation, confiscation)?
Except under laws relating to the expropriation of assets and subject to the terms relating to public interest and compensation, no government entity may confiscate, seize or otherwise take possession of foreign or locally owned aircraft without the owner's consent.
Property may be expropriated in terms of the following laws:
- The National Interest (Enabling Powers) Act, Chapter 365 of the Laws of Malta empowers the prime minister to issue regulations whenever the UN Security Council calls on member states to apply any measures to give effect to any of its decisions (being measures not involving the use of armed force), or whenever an entity set up by or under the UN Charter order UN member states to take such action. Such regulations may be made applicable, among other things, to vessels, aircraft and other means of transport registered in or belonging to Malta, or travelling to or from such countries as the prime minister may in the regulations determine.
- The Emergency Powers Act, Chapter 178 of the Laws of Malta, also establishes that the president of Malta may make regulations expedient for, among other things, securing public safety, the defence of Malta and the maintenance of public order, which may include the taking of possession or control on behalf of the government of any property or undertaking, and the acquisition on behalf of the government of any property other than land. The government will provide for payment of compensation and remuneration to persons affected by the regulations.
4.1 What body administers the aircraft register in your jurisdiction?
The Civil Aviation Directorate within Transport Malta is the authority for transport for Malta, established by the Authority for Transport in Malta Act (Chapter 499 of the laws of Malta).
4.2 What information is included in the aircraft register? Is this publicly accessible?
The National Aircraft Register is a public register – all information is available on request and includes the following:
- the physical details of the aircraft;
- the physical details of the engines attached to the aircraft and any replacement engines owned by the registrant;
- the name and address of the registrant and the capacity in which the registrant has registered the aircraft;
- the ownership rights of the aircraft or engine; and
- the details of any mortgages registered on the aircraft, or any irrevocable de-registration and export request authorisation or any other power of attorney.
4.3 What are the formal and documentary requirements for registration of an aircraft? What is the process for registration? What is the effect of registration? What is the effect of deregistration?
Procedure for registration: The National Aircraft Register is an operator register. Therefore, the following entities can register an aircraft in this register:
- the owner of an aircraft which operates that aircraft, or the owner of an aircraft under construction or temporarily not being operated or managed;
- the operator of an aircraft under a temporary title, which satisfies any conditions that can be prescribed by regulations issued under the Aircraft Registration Act (Chapter 503 of the Laws of Malta); and
- the buyer of an aircraft under a conditional sale, title reservation or similar agreement, which satisfies the conditions that may be prescribed (by regulations issued under the Aircraft Registration Act) and is authorised to operate the aircraft under this agreement.
Although the above potential registrants are limited by nationality requirements, these limitations do not generally apply where the aircraft is ‘in construction' or where it is ‘not used to provide air services'. The general rule is that the person registering the aircraft must be a citizen of the European Union, the European Economic Area or Switzerland. In the case of an undertaking, not less than 50% of the undertaking must be owned and effectively controlled by such persons.
To register an aircraft, an application form must be completed and submitted to the Civil Aviation Directorate in Malta. This must be accompanied by:
- a copy of the bill of sale through which the owner of the aircraft has acquired the aircraft; and
- proof of the temporary title under which the registrant holds the aircraft.
If the registrant is a legal entity, certified copies of the constitutional documents of this legal entity must also be submitted to the Civil Aviation Directorate.
Furthermore, in order to register an aircraft, the Civil Aviation Directorate will usually require the following documents:
- documents on the owner of the aircraft, such as the certificate of registration, memorandum and articles of association, and an extract from the commercial register or certificate of good standing;
- an application form signed by the operator;
- the constitutional documents of the operator;
- a radio licence;
- a photo of registration marks and fireproof plates;
- the lease agreement;
- proof of ownership – such as a bill of sale (and also a power of attorney); and
- a statement of no mortgages.
The Civil Aviation Directorate reserves the right to request more documents and therefore it always suggested to first file the application form and then request a list of the documents required to register the aircraft.
Effect of registration: Registration in the National Aircraft Register – whether by means of a record or a notation – shall have the following legal effects in relation to the information and the acts to which it refers:
- It renders such information public and the information shall be considered to be within the knowledge of third parties.
- The acts shall be effective against third parties.
- It shall create priority, according to the provisions of the Aircraft Registration Act and applicable law, between different rights – provided that, except as stated in Article 31 thereof (preservation of special privileges or reservation of title of aircraft on accessories of aircraft) and in the First Schedule thereof, the notation of ownership or lessee rights shall not imply any priority over those of the holder of a registered mortgage.
- Where expressly conditional on registration, it shall create legal effects between the parties to certain transactions.
- It shall have all other effects under the applicable law.
Once an aircraft is registered in Malta, it starts operating under and is regulated by the laws of Malta (which implement relevant EU regulations and directives) and the Maltese Civil Aviation Directorate (which forms part of the European Aviation Safety Agency).
Under the Aircraft Registration Act, aircraft are a particular class of movables that are separate and distinct assets within the estate of their owners with respect to actions and claims to which the aircraft is subject. Therefore, in the case of bankruptcy and/or insolvency of the owner of an aircraft, all actions and claims relating to the aircraft have preference over other debts of the estate of the debtor.
Although a lessor may request its details to be annotated in the register, the lessor will not be deemed to be resident, domiciled or carrying on business in Malta.
The change of ownership is effective upon delivery of the bill of sale. However, rights against third parties (including priority arising from security interests) are achieved only upon registration.
Deregistration: There are two ways to deregister an aircraft:
- through the submission of an application form to the Civil Aviation Directorate (the same form as that for registration of an aircraft, but completing different sections of the form); or
- through the use of an irrevocable deregistration and export request authorisation (IDERA), which is typically granted by way of security from the operator of an aircraft (and sometimes also by the owner and any other intermediate sub-lessor of the aircraft) to a secured creditor.
Where an IDERA has been granted, the holder of the IDERA becomes the sole person entitled to deregister and export the particular aircraft.
On deregistering an aircraft, the Civil Aviation Directorate will typically issue an aircraft deregistration certificate.
Although deregistration is generally a swift process, when deregistration is carried out through the use of an IDERA, the Civil Aviation Directorate (and any other relevant administrative authority) must "expeditiously co-operate" with and assist the authorised party in the exercise of its rights under the IDERA.
Additionally, the registrar general has the right to cancel the registration of an aircraft in certain instances. However, if a mortgage is registered over that aircraft, the registration cannot be cancelled without the consent of the mortgagee. The only exception to this rule is if the minister responsible for transport in Malta is of the opinion that it would be inexpedient in the public interest for the aircraft to be, or to continue to be, registered in Malta.
4.4 If your jurisdiction has ratified the Cape Town Convention, can a local law deregistration power of attorney be acquired by a lessor/financier, and if so, does it provide any additional protection for such parties?
Yes, a local law deregistration power of attorney can be acquired and registered by a lessor/financier. The deregistration power of attorney reinforces the rights of the grantee (authorised party) under the IDERA.
4.5 What are the formal and documentary requirements for registration of an aircraft lease? What is the process for registration? What is the effect of registration? What is the effect of deregistration?
An aircraft lease need not be registered. Annotation in the National Aircraft Register does not constitute a perfection or validity requirement. However, an aircraft lease (or any other document granting possession or control over an aircraft) must be presented to the registrar to prove the basis on which a person holds a particular aircraft, and prove the eligibility of the registrant to register the aircraft as a lessee or operator.
Registration of a lease as a Cape Town Convention international interest ensures that the lessor is treated as a creditor under the convention (and can benefit from the creditor rights provided in the convention).
The register in Malta is an operator's register and registration of the interest of the lessor in the register it will not provide the lessor with any particular rights, unless the lessor has an IDERA in its favour. The annotation of the lessor's interest will be in the public domain. The lessor's interest will also be included in the certificate of registration. In order for a lessor to have any remedies, either it must have an IDERA issued in its favour and/or the lease must be registered as an international interest.
4.6 What are the formal and documentary requirements for registration of an aircraft mortgage? What is the process for registration? What is the effect of registration? What is the effect of deregistration?
A mortgage provides security for debts or obligations and is executed by the mortgagor in favour of a mortgagee (in the presence of, and attested by, a witness).
Registration of a mortgage is required for the perfection and validity of the mortgage. Mortgages are recorded in the National Aircraft Register in the order of time in which they are filed. The director general of the register records the date and time of registration of the mortgage on each mortgage form presented to him.
An instrument of mortgage can also prohibit the creation of further mortgages over an aircraft without the prior written consent of the mortgagee. In this case, the director general must make a note of this in the register and apply this limitation accordingly.
Deregistration of an aircraft mortgage means that the security granted is discharged and priority is lost. An aircraft mortgage is deregistered by submitting the mortgage instrument to the Civil Aviation Directorate, with the discharge details included on the back of the statutory mortgage form. Evidence of the authority of the person requesting the discharge must also be provided to the Civil Aviation Directorate.
4.7 Can aircraft be registered in your jurisdiction even if the operator is not from your jurisdiction?
Please see question 4.3 above in relation to eligibility to register an aircraft in Malta.
Yes, it is possible for an operator from outside Malta to register an aircraft, as long as certain conditions are satisfied.
5 Operating leases
5.1 Are there any mandatory or advisable terms that should be included in an operating lease from a local law perspective?
The Civil Aviation Directorate insists that the lease agreement regulating the aircraft lease comply with the following:
- The agreement must be in English. If it is in any other language, it must be accompanied by a certified translation.
- The agreement must specify the date on which the agreement was made and the duration of the agreement.
- The agreement must be a certified true copy. If the agreement is from outside Europe it should be legalised and apostilled.
- The signatures on the agreement must be authenticated according to the list of signatories. This also applies to the initials on each page of the document.
- Reference must be made to the Maltese registration marks only and not to the previous registration marks of the aircraft.
- The agreement must clearly delineate the responsibilities of the parties involved pursuant to the applicable laws and regulations.
- The agreement must contain clear suspension/termination clauses.
5.2 What charges, fees or taxes arise from the execution of an operating lease?
No charges, fees or taxes arise from the execution of an operating lease.
However, fees are payable for the registration of an aircraft in Malta by an operator. The fees payable depend on the aircraft in question.
The following charges are payable to the director general for the issue of a
certificate of registration in respect of an aircraft:
- Aircraft with an empty weight not exceeding 150 kilograms (kg), a wing area of not less than 10 square metres and a wing loading not exceeding 10kg per square metre at empty weight and which are designed to carry not more than two persons: €60.
- Any other aircraft whose maximum take-off mass:
- does not exceed 750 kg: €80.
- exceeds 750 kg but not 2,730 kg: €150.
- exceeds 2,730 kg but not 5,700 kg: €220.
- exceeds 5,700 kg but not 15 tonnes: €300.
- exceeds 15 tonnes but not 50 tonnes: €450.
- exceeds 50 tonnes: €750.
Other fees apply for air operator certificates, air operator licences and the issuance of a certificate of airworthiness.
No taxes (including stamp duties) are payable for annotation the interest of a lessor in an aircraft. No consent is required from an official body in Malta in order to register the interest of the lessor.
5.3 Can either the lessor or the lessee assign or novate its rights in an operating lease in your jurisdiction?
It is possible for the lessor or lessee to assign its rights in an operating lease. An assignment of the benefits under a lease agreement does not require consent from the authorities in Malta.
However, if the lease is novated, then a copy of the novation deed (or new lease agreement with the new lessor) must be submitted to the National Aircraft Registry. Any security will need to be re-registered, since under Maltese law a novation will result in the extinguishment of the underlying obligations.
5.4 What are the respective obligations and liabilities of the lessor and lessee under an aircraft lease?
Lease agreements relating to aircraft are not usually governed by Maltese law and are also based on standardised contractual terms.
However, general principles under Maltese civil law relating to leases are applicable if the lease is regulated by Maltese law, including the following:
- the lessee's right to quiet enjoyment of the leased object (warranty of peaceful possession) – the lessor must guarantee against molestations, evictions, latent defects and similar;
- the lessee's obligation to maintain the leased object in a fit condition for the use for which it has been leased;
- the lessor's obligation to deliver the leased object in a good state of repair;
- the lessee's obligation to use the leased object for the purposes agreed upon and as ‘bonus paterfamilias'; and
- the lessee's obligation to pay the rent and for any damages caused by its own fault, and not to make alterations in the leased object without the lessor's prior consent.
5.5 In the event of default, what options are typically available to enforce the operating lease? Do all or some enforcement actions require court applications? If so what are the associated costs and timescales involved?
In case of a default event under an aircraft lease, the lessor can take possession of the aircraft without judicial intervention.
However, to ensure the validity, priority or enforceability of a lease, the lease must be registered as an international interest in the International Register. On registration, the lease will be recognised and enforceable under the laws of Malta, and the lessor will benefit from the status and all rights and powers specified in the First Schedule to the Aircraft Registration Act with regard to a registered aircraft, regardless of whether it is recorded in the National Aircraft Register.
If the lease is registered as an international interest in the International Register, the lessor can, following an event of default, terminate the agreement and take possession or control of any aircraft to which the agreement relates, without the need to apply to court (First Schedule, Aircraft Registration Act). This is one of the very few instances under Maltese law in which self-help remedies are available. However, a lessor can still apply for a court order to authorise these measures.
5.6 Upon termination of the operating lease, how is repossession of the aircraft effected? Can airports assert a lien over all of the lessee's aircraft until unpaid charges have been discharged?
A number of liens/privileges can attach to an aircraft. The debts specified below are secured by a special privilege upon the aircraft, as well as any proceeds from any indemnity arising from any mishaps and any insurance proceeds (although this will not apply in relation to an indemnity payable under a liability policy):
- judicial costs incurred in respect of the sale of the aircraft and the distribution of the proceeds thereof pursuant to the enforcement of any mortgage or other executive title;
- fees and other charges due to the director general arising under applicable law of Malta in respect of the aircraft;
- wages due to crew in respect of their employment on the aircraft;
- any debt due to the holder of a possessory lien for the repair, preservation of the aircraft to the extent of the service performed on and value added to the aircraft;
- expenses incurred for the repair and preservation of the aircraft, to the extent of the service performed on and value added to the aircraft; and
- wages and expenses for salvage in respect of the aircraft.
Any debt secured by a mortgage registered in the National Aircraft Register or a charge in the International Register, or secured by a foreign mortgage recognised under the Aircraft Registration Act shall rank after the debts secured by possessory liens and special privileges on aircraft (as specified above), and in preference to other hypothecary and privileged claims.
The debts mentioned below shall, on registration in the International Register, rank after the debts referred to above (special privileges), but after all debts secured by mortgages and charges in the International Register registered prior to the date of the registration of the relevant privilege.
The debts mentioned in the following paragraph are secured by a special privilege upon the aircraft, as well as any proceeds from any indemnity arising from any mishaps as well as any insurance proceeds, other than from a liability policy, if registered in the International Register after the effective date:
- taxes, duties and levies due to the government of Malta in respect of the aircraft; and
- wages and expenses for assistance or recovery in respect of the aircraft.
5.7 What disputes typically arise over operating leases in your jurisdiction and how are these typically resolved?
Issues relating to operating leases usually concern maintenance and operating costs of the aircraft and any payments under the lease agreement. These are typically resolved amicably between the parties; however, there have been a few instances in which the lessor has availed of self-help remedies to recover dues.
5.8 What other considerations should be borne in mind when concluding an aircraft lease in your jurisdiction?
Other considerations to keep in mind are whether:
- Cape Town Convention provisions have been included in the lease agreement; and
- the lease qualifies as an international interest.
6.1 What types of security interests in aircraft are available in your jurisdiction? Which are most commonly used and which would you recommend (if different)?
Security over an aircraft is typically registered as:
- a Maltese law mortgage;
- an irrevocable deregistration and export request authorisation (IDERAs); or
- an international interest.
Aircraft mortgages have been established in Maltese law as a particular type of security, and due to the familiarity of Maltese courts and industry players with aircraft mortgages (particularly in light of shipping mortgages, which are very similar to aircraft mortgages), other types of security over airframes are rarely granted. The advantages of aircraft mortgages also include the following:
- relatively cheap costs of constitution, amendment and discharge;
- ease of constitution; and
- ease of enforceability, where necessary.
However, an airframe can be:
- encumbered by obtaining a general hypothec over the debtor's assets. In this case, the hypothec will float over all assets of the debtor at any point in time (although the security will not encumber the airframe if it is transferred out of the patrimony of the debtor before enforcement);
- transferred/assigned by way of security from the debtor to the creditor. In this case, the creditor will be bound to maintain the airframe for the benefit of the debtor and to transfer the airframe back to the debtor on satisfaction of the secured debt; or
- pledged by the debtor to the creditor. The creditor must have possession of the airframe in order for the pledge to remain valid.
6.2 What are the formal, documentary and procedural requirements for perfecting a security interest in an aircraft?
Please see question 4.6 in relation to mortgages.
IDERAs must be filled out in the statutory form provided by the Civil Aviation Directorate, and must also be accompanied by the relevant power of attorney or corporate authorities evidencing the due authority of the signatory thereon.
6.3 Can security be taken over engines and/or any other aircraft parts in your jurisdiction? If so, how?
It is not possible to obtain an aircraft mortgage on an engine alone (ie, without the mortgage also referring to a particular airframe).
If a person wishes to obtain security specifically over an engine, then it is possible for the engine to be:
- encumbered by obtaining a general hypothec over the debtor's assets. In this case, the hypothec will float over all assets of the debtor at any point in time (although the security will not encumber the engine if it is transferred out of the patrimony of the debtor before enforcement);
- transferred/assigned by way of security from the debtor to the creditor. In this case, the creditor will be bound to maintain the engine for the benefit of the debtor and to transfer the engine back to the debtor on satisfaction of the secured debt; or
- pledged by the debtor to the creditor. The creditor must have possession of the engine in order for the pledge to remain valid.
6.4 What charges, fees or taxes arise from the perfection of a security interest in an aircraft?
The fees payable to the Civil Aviation Directorate in relation to the security mentioned here are as follows:
- Registration of an IDERA: €100.
- Registration of a mortgage: €500.
- Registration of an amendment mortgage: €250.
No taxes (including stamp duties) are payable for the registration of the above.
6.5 What are the respective obligations and liabilities of the owner and the secured party under the security interest?
The respective obligations and liabilities of the owner and the secured party are usually outlined in a separate security agreement ancillary to the mortgage instrument, which is not typically regulated by Maltese law. The security agreement will contain all terms and conditions relating to the mortgage, including:
- the definition of an event of default;
- the remedies available to the mortgagee in such event of default; and
- the standardised representations and warranties.
The main obligation that cannot be contracted out of under Maltese law is that notice in writing must be given to the mortgagor before the security is enforced.
6.6 In the event of default, what options are available to enforce the security interest? Is self-help available in your jurisdiction or does enforcement action have to go through the courts?
If only a Maltese mortgage is registered (ie, no international interest has been registered), then the mortgagee has the right to take possession of the aircraft and/or to sell the aircraft in the event of default under any term or condition of the registered mortgage or any agreement referred to in the mortgage. In this case, the mortgagee must give notice in writing to the debtor.
The powers mentioned above can be exercised by the mortgagee without leave of any court. If the mortgagee seeks the support of the court because of any hindrance caused by a person to the exercise of its rights, the court must give full support to the mortgagee as expeditiously as possible. The Aircraft Registration Act provides mortgagees with self-help remedies. Therefore, in the event of default, a mortgagee can repossess the aircraft without judicial intervention. Subject to any possessory liens, Maltese law provides that the debtor and the person in possession of the aircraft must cooperate fully with a mortgagee enforcing its rights, which includes surrendering and submitting all data, manuals, technical records, parts, accessories and appurtenances belonging to the aircraft.
A mortgagee proposing to sell (or to grant a lease over an aircraft) must give reasonable prior notice in writing of the proposed sale (or lease) to any debtor or guarantor, and any other person having rights over the aircraft object which have given notice of their rights to the chargee within a reasonable time before the sale (or lease).
A mortgagee giving 10 or more working days' prior written notice of a proposed sale or lease to any interested person is deemed to satisfy the requirement of reasonable prior notice.
If an international interest is registered over an aircraft in the International Register, then the Cape Town Convention will prevail over local law. In the event of default, and provided that the mortgagor has at any time so agreed, the mortgagee can take possession of the aircraft and/or sell the aircraft. The chargee (mortgagee) can, following an event of default and without the need to apply to court, either (First Schedule, Aircraft Registration Act):
- take possession or control of the aircraft; or
- sell the aircraft.
This is one of the very few instances under Maltese law in which self-help remedies are available. However, a chargee (mortgagee) can still apply for a court order to authorise the above measures.
In both circumstances, it is difficult to state how long it usually takes to gain possession, as this will depend on various factors (eg, the location of the aircraft).
6.7 Will local courts recognise a foreign court judgement in favour of a lessor/financier?
A judgment awarded by a competent court outside Malta will be recognised as a valid judgment and enforceable in the courts of Malta without re-examination of the merits of any matters considered in that judgment, subject to the following:
- The recognition of EU judgments is subject to the provisions of EU Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Regulation). Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Recast Brussels Regulation) applies to judgments arising out of proceedings instituted on or after 10 January 2015 (Article 66(1) of the Recast Brussels Regulation).
- Malta has a reciprocal enforcement agreement with the United Kingdom, but this operates in relation to money judgments only. UK money judgments are registered, on application, with the Court of Appeal in accordance with and subject to the terms of the British Judgments (Reciprocal Enforcement) Act (Chapter 52 of the Laws of Malta).
- The recognition and enforcement of judgments issued by the courts of Denmark, Iceland, Norway and Switzerland is subject to the provisions of the Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters 2007 (Lugano Convention).
- The recognition and enforcement of judgments that do not fall within the scope of EU regulations or the Lugano Convention is subject to Maltese law. A foreign judgment will be registered or confirmed in Malta, provided that the judgment:
- does not contain dispositions contrary to public policy; and
- cannot be set aside on any of the grounds for re-trial under the law of Malta on civil procedure.
6.8 What other considerations should be borne in mind when perfecting a security interest in an aircraft in your jurisdiction?
A mortgage should usually be accompanied by an ancillary security agreement outlining the terms and conditions of the mortgage. The mortgage instrument is a one-page document and it is therefore not possible to include these there. The security agreement need not be governed by Maltese law and need not be registered, but it can be cross-referred to in the mortgage recital.
If the mortgage is a third-party guarantee mortgage, then either a guarantee agreement should be in place to outline the guarantee obligations or these should be set out in the relevant transaction documents.
The Civil Aviation Directorate will always ask to be provided with a power of attorney indicating that the signatories on any security documents are duly authorised to sign the documents on behalf of the relevant grantor/mortgagor. This may need to be notarised and legalised.
6.9 Has your jurisdiction ratified the Cape Town Convention? If yes, are there any notable exceptions to the ratification? If yes, in your opinion, could any conflicts arise between the Cape Town Convention and local law in an enforcement scenario? If yes, have any enforcement issues arisen in relation with regard to conflicts between the Cape Town Convention and local law?
Malta has ratified the Cape Town Convention on 1 October 2010 and the convention came into force in Malta on 1 February 2011. The Cape Town Convention has been implemented into Maltese law in the First Schedule to the Aircraft Registration Act 2010.
The Cape Town Convention has not caused any conflicts or issues with local laws.
However, there has been an issue at a European level regarding the interplay between the Cape Town Convention and the Brussels Regulation. The issue is that, if a creditor under the Cape Town Convention and another creditor under the Brussels Regulation invoke their respective rights over an aircraft in a member state, there is a conflict as to which rights will prevail. Although the interplay between the Cape Town Convention and the Brussels Regulation was not discussed in any detail in the judgment, the Maltese courts implied that judgments (including provisional or protective measures) can be applied across borders within different EU member states, irrespective of the application or otherwise of the Cape Town Convention across different EU member states.
7 Aircraft sale and purchase
7.1 How are aircraft sale and purchases typically effected in your jurisdiction? Are there any differences in the sale of airframe versus engines?
Please see question 3.
The same formalities required for an airframe apply to the sale and purchase of an engine.
7.2 What players are typically involved in an aircraft sale and purchase?
The parties typically involved are the seller, the buyer, the financier and the operator.
7.3 Is the manufacturer/seller bound by a duty to disclose? What representations and warranties will it typically make?
Aircraft sale and purchase agreements are not typically regulated by Maltese law – we usually encounter English law or New York/US law agreements. These usually contain standardised representations and warranties.
7.4 What due diligence is typically conducted in an aircraft sale and purchase?
From a Maltese law perspective, searches on the aircraft will usually be conducted in the National Aircraft Register and the International Register. If a Maltese company is involved, full due diligence on the Maltese company will also usually be conducted.
7.5 What are the formal, documentary and procedural requirements for conclusion of an aircraft sale and purchase?
Please see question 3.1.
7.6 What are the respective obligations and liabilities of buyer and seller during the transaction, and what are the consequences of any breach?
Please see question 7.3.
7.7 What charges, fees or taxes arise from the conclusion of an aircraft sale and purchase? Are there sales tax exemptions – for example, if the aircraft is being sold to an operator that will continue to use the aircraft to generate revenue?
There may be tax or value added tax implications in the transfer of an aircraft – various issues must be kept in mind, such as:
- whether the aircraft is being imported from an EU member state or otherwise;
- the location of the aircraft at the time of the transfer; and
- whether the aircraft is being used for private or commercial purposes.
7.8 What other considerations should be borne in mind when conducting a sale and purchase of an aircraft in your jurisdiction?
No further considerations other than those mentioned above.
7.9 Are the payments of deposits refundable under term sheets if a sale does not proceed and do the parties have a duty of good faith in the conduct of sale and purchase negotiations?
Please see question 7.3.
8.1 What insurance requirements apply to aircraft in your jurisdiction?
As Malta is an EU member state, it abides by EU Regulation 785/2004 on insurance requirements for air carriers and aircraft operators.
8.2 If local insurance is required, can local insurers assign reinsurance contracts in your jurisdiction?
Insurance is required, but there is no requirement that this be local insurance.
As far as we are aware, aviation insurance activity by Maltese insurers is limited. However, an assignment of reinsurance contracts is permitted.
8.3 What other forms of insurance feature in the aircraft finance market in your jurisdiction?
We are not aware of any other forms of aviation insurance.
9 Trends and predictions
9.1 How would you describe the current aircraft financing landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
The COVID-19 pandemic has brought unprecedented turmoil to the aviation industry globally. As a result, it is difficult to assess the current financing landscape and prevailing trends.
While we are still actively assisting our clients with the registration of their aircraft and security over the aircraft, we expect the next few months to be characterised by numerous refinancing transactions and also potentially various insolvency scenarios for local operators.
Over the next few months, we also expect various amendments to the Aircraft Registration Act to come into force. A public consultation was held recently and the final stages for approval should begin soon.
10 Tips and traps
10.1 What are your top tips for the smooth conclusion of an aircraft financing transaction and what potential sticking points would you highlight?
Since the National Aircraft Register is an operator's register and the operator is not involved in the financing transaction generally, it is important that efforts are made locally to have all parties engaged at an early stage and that all parties have qualified representatives in Malta to liaise with the Civil Aviation Directorate.
Documents should be in place with the Civil Aviation Directorate in advance, and the local authorities should be kept abreast throughout the process and not only at the final stages.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.