Aviation finance in Switzerland: overview

A Q&A guide to aviation finance in Switzerland.

This Q&A provides a high level overview of key practical issues including financing options for purchasing aircraft; registration and deregistration requirements; transfer of title; security, including aircraft mortgages; transfer of security; enforcement of security and repossession; and application of the Cape Town Convention.

To compare answers across multiple jurisdictions, visit the Aviation Finance Country Q&A tool.

The Q&A is part of the global guide to aviation finance. For a full list of jurisdictional Q&As visit www.practicallaw.com/aviationfinance-guide.

Contents

Financing options

1. What are the main options available for financing the purchase of an aircraft? How are aircraft purchases typically financed?

Although Swiss law is flexible regarding contractual matters, the main and most usual options for financing the purchase of an aircraft are:

  • A finance lease, usually structured as a sale and lease back or with a pre-delivery financing under assignment of the purchase agreement to the financing institution.

  • A bank loan coupled with an aircraft mortgage.

Under both options, the financing institution will require the usual security package, which can include, as applicable:

  • Personal or corporate guarantee.

  • Security assignments.

  • Multipartite agreement.

  • Pledge of managed assets.

  • Charge over the shares in the company owning the aircraft or taking the aircraft on lease.

 
2. What are the issues arising in relation to the various financing options?

Swiss financing institutions traditionally use contractual documentation that is either governed by English law or governed by Swiss law but adapted from English precedents.

This practice usually triggers the following issues:

  • The requirement for irrevocable powers of attorney (which is standard particularly in the business aviation sector) is problematic under Swiss law, as powers of attorney qualify as agency agreements, which are mandatorily revocable at any time under Swiss law.

  • The wording of personal guarantees must be carefully drafted to avoid the qualification as surety (cautionnement, Bürgschaft), which would require the personal guarantee to be entered into as a deed before a public notary (with significant fees, depending on the canton) and the maximum secured amount to be indicated.

  • Under Swiss law, a creditor cannot appropriate the mortgaged aircraft or the charged shares of a Swiss company in the case of the debtor's default.

 

Registration and deregistration requirements

Registration

3. What is the procedure for registration of an aircraft?

The Swiss Federal Office of Civil Aviation (FOCA) holds two aircraft registers, which are both public:

  • The Swiss Aircraft Register, with which all Swiss (HB) aircraft are registered. The Swiss Aircraft Register mentions the names of the owner and of the operator of the aircraft.

  • The Swiss Aircraft Records Register, with which a Swiss (HB) aircraft (already registered with the Swiss Aircraft Register) can be registered on request of its owner, provided that it has an address for notices in Switzerland. Ownership and security interests are registered with the Swiss Aircraft Records Register.

Registration with the Swiss Aircraft Register

To register an aircraft with the Swiss Aircraft Register, the applicant must reserve aircraft markings through the relevant form.

Once the reservation is confirmed, the applicant must submit an application for registration together with certain documents, including:

  • Evidence of the applicant's ownership of the aircraft (for example, a bill of sale).

  • Certificate of non-registration or deregistration from the previous register (if applicable).

  • Lien certificate confirming the absence of liens on the aircraft (if available).

  • In the case of a used aircraft, the relevant airworthiness review certificate (for aircraft previously registered in a member state of the European Aviation Safety Agency) or an export certificate of airworthiness.

In principle, an aircraft owned by a foreign person (individual or company) cannot be registered in Switzerland, subject to some exceptions. For example, a foreign owned aircraft can be registered with the Swiss Aircraft Register if it is to be used by a Swiss commercial aircraft operator for a certain period of time. In this case, the operator must submit a specific application, together with additional supporting documents, including:

  • An extract from the foreign register of companies regarding the owner.

  • The lease or management agreement between the owner and the operator.

On successful review of the complete application, the FOCA delivers a certificate of registration, unless the aircraft does obviously not meet the applicable airworthiness requirements or cannot meet the Swiss provisions on aircraft emissions.

The registration fees range between CHF300 and CHF600.

Registration with the Swiss Aircraft Records Register

To be registered with the Swiss Aircraft Records Register, an aircraft must first be registered with the Swiss Aircraft Register (that is, a certificate of registration must have been issued by the Swiss Aircraft Register).

The applicant must submit an application form together with proof of ownership (for example, original sale contract, bill of sale, invoice, and so on).

Once the application is complete, the FOCA must make a publication in the Swiss Official Gazette of Commerce inviting third parties to file any possible opposition and announce their possible rights in respect of the aircraft.

The aircraft is registered with the Swiss Aircraft Records Register if no opposition is raised within 30 days of the publication. The registration takes effect retroactively on the date of receipt of the application by the FOCA.

The registration fees range between CHF195 and CHF10,320, depending on the maximum takeoff weight of the aircraft (CHF9 per 100 kilograms).

 
4. What is the procedure for registration of aircraft mortgages?

Swiss aircraft mortgages are registered with the Swiss Aircraft Records Register.

An aircraft mortgage can secure any present, future or possible obligation, even if the secured amount is undetermined or floating. The mortgage is attributed a fixed rank for a maximum secured amount.

Spare parts or engines cannot be subject to independent mortgages. Engines can only be subject to an aircraft mortgage as integral parts or accessories of a mortgaged aircraft (see Question 9, Engine for details on the notions of integral parts and accessories). Spare parts can only be subject to an aircraft mortgage as integral parts or accessories of a mortgaged aircraft, or if the conditions for extension of an aircraft mortgage are satisfied (see Question 12).

An aircraft mortgage can only be registered against an aircraft registered with the Swiss Aircraft Records Register (see Question 3). The registration of a mortgage can be requested simultaneously with the registration of the aircraft with the Swiss Aircraft Records Register.

To register a mortgage, the owner of the aircraft must submit the appropriate Federal Office of Civil Aviation form, together with the mortgage agreement. The maximum amount of the secured obligations must be indicated in Swiss francs.

Foreign mortgagees must indicate a legal domicile in Switzerland.

The registration fees depend on the secured amount, as follows:

  • 2‰ up to CHF2 million.

  • 1‰ above CHF2 million.

In all cases, the registration fees range between a minimum of CHF385 and a maximum of CHF17,200.

 
5. Can aircraft leases be registered? If so what is the procedure for registration of aircraft leases?

Swiss Aircraft Register

Aircraft leases cannot be registered with the Swiss Aircraft Register.

However, the lessee of an aircraft can be registered as operator with the Swiss Aircraft Register subject to the same conditions as those applying in the case of owner registration (see Question 3).

Swiss Aircraft Records Register

The right to use an aircraft can be annotated in the Swiss Aircraft Records Register if it derives from a lease or charter agreement entered into for a minimum period of six months.

The annotation request requires in particular the filing of both a:

  • Federal Office of Civil Aviation form.

  • Copy of the lease or charter agreement.

 
6. What is the effect of registration of:
  • An aircraft?

  • An aircraft mortgage?

  • An aircraft lease?

Aircraft

Swiss Aircraft Register. Aircraft registered with the Swiss Aircraft Register are deemed Swiss for the purpose of Article 17 of the Chicago Convention on International Civil Aviation 1944. Registration has no legal effect regarding title to the aircraft.

Swiss Aircraft Records Register. Rules applicable to aircraft registered with the Swiss Aircraft Records Register are similar to those applying to immovable property. In particular:

  • A right in rem in respect of an aircraft only exists if it has been registered with the Swiss Aircraft Records Register.

  • The acquisition of a right in rem by a third party relying in good faith on a registration appearing in the Swiss Aircraft Records Register is in principle protected.

Aircraft mortgage

The registration of an aircraft mortgage with the Swiss Aircraft Records Register is necessary and sufficient for the creation and perfection of the mortgage.

An aircraft mortgage covers the aircraft itself and its integral parts and accessories.

Obligations secured by an aircraft mortgage are imprescriptible.

Under Swiss law, the mortgagee also has an accessory legal mortgage over claims that the aircraft owner may have against third parties in connection with any lasting seizure, damage, destruction or other loss of the mortgaged aircraft. This legal mortgage also covers any specific reserve of assets (including money) that the owner may have set up in anticipation of such events.

Aircraft lease

Swiss Aircraft Register. The registration of an operator in the Swiss Aircraft Register has no effect in respect of contractual rights.

Swiss Aircraft Records Register. The right to use an aircraft annotated in the Swiss Aircraft Records Register can be opposed to, and prevails over, any property or contractual right acquired subsequently in respect of the aircraft, even in good faith.

 
7. What is the procedure for obtaining a certificate of airworthiness?

To obtain a certificate of airworthiness, an aircraft must first be registered with the Swiss Aircraft Register (see Question 3).

The Federal Office of Civil Aviation (FOCA) then reviews the aircraft documentation, which must include:

  • For aircraft previously registered in a member state of the European Aviation Safety Agency (EASA), the EASA Form 52 (for new aircraft) or the relevant airworthiness review certificate.

  • For aircraft previously registered in other countries, an export certificate of airworthiness.

  • For all aircraft, all documents necessary to assess the airworthiness and proper maintenance of the aircraft (such as logbooks, supplemental type certificates, maintenance programmes, computerised aircraft maintenance programmes and so on).

In addition to reviewing these documents, the FOCA can decide to perform a physical inspection of the aircraft.

The FOCA delivers the certificate of airworthiness on satisfactory completion of the documentation review and of the physical inspection (if any).

It can take more than one month to obtain a certificate of airworthiness. This period can be reduced if the aircraft documentation is complete, well organised and complies with the applicable regulations. In the meantime, the FOCA can deliver a permit to fly on a request made through the filing of specific FOCA forms. The permit to fly is delivered for the period preceding the issuance of the certificate of airworthiness (pending or during examinations by the FOCA).

Deregistration

8. What is the effect of deregistration of:
  • An aircraft?

  • An aircraft mortgage?

  • An aircraft lease?

Aircraft

Swiss Aircraft Register. Deregistration from the Swiss Aircraft Register must be requested by the registered owner through the filing of a specific Federal Office of Civil Aviation (FOCA) form. The aircraft will only be deregistered once the FOCA is in possession of the originals of the certificate of registration and certificate of airworthiness.

If the aircraft is also registered with the Swiss Aircraft Records Register, deregistration from the latter must theoretically occur first (although in most instances, both deregistrations are completed simultaneously).

The FOCA delivers a certificate of deregistration (and notifies the civil aviation authority of the country of re-registration) and/or an export certificate of airworthiness on request.

Deregistration (and its notification to the civil aviation authority of the country of re-registration) can be completed very shortly (a couple of working hours, if not less) after filing of the deregistration request with all relevant documents. If an export certificate of airworthiness was requested, the FOCA performs an official conformity inspection of the aircraft as a condition for issuance of such certificate.

Swiss Aircraft Records Register. Deregistration from the Swiss Aircraft Records Register must be requested by the owner and is subject to the consent of any mortgagee. If a right to use the aircraft is annotated on the Swiss Aircraft Records Register, the FOCA informs the beneficiary (although under the current FOCA's practice, the consent of the beneficiary is not a condition to deregistration).

On deregistration, the aircraft becomes subject to property law applicable to movable assets (as any aircraft registered with the Swiss Aircraft Register only).

A confirmation of deregistration from (or non-registration with) the Swiss Aircraft Records Register appears in the certificate issued by the Swiss Aircraft Register (in the case of deregistration from both registers). If the aircraft is deregistered from the Swiss Aircraft Records Register but remains registered with the Swiss Aircraft Register, the Swiss Aircraft Records Register can provide an ad hoc confirmation of deregistration (or non-registration).

Aircraft mortgage

Deregistration of an aircraft mortgage from the Swiss Aircraft Records Register extinguishes the mortgage (as a Swiss mortgage). If the mortgage agreement is governed by a foreign law, it cannot be excluded that the mortgage remains valid under this law.

If the aircraft itself is not deregistered from the Swiss Aircraft Records Register simultaneously with deregistration of the mortgage, the FOCA can provide an ad hoc confirmation of deregistration of the mortgage. This certificate can be obtained at the time the mortgage is deregistered.

Aircraft lease

Swiss Aircraft Register. Deregistration of an operator from the Swiss Aircraft Register has no legal effect, but it can affect the eligibility of the aircraft for Swiss registration in the case of foreign ownership (see Question 3).

Swiss Aircraft Records Register. The deletion of the annotation of the right to use an aircraft can only occur with the consent of the holder of this right (or on the basis of a court judgment). On deletion, the right to use the aircraft cannot be opposed to any property or contractual right acquired subsequently.

 

Transfer of title

9. How is legal title to an aircraft transferred?

Airframe

Airframe registered with the Swiss Aircraft Register only. If the airframe is part of an aircraft registered with the Swiss Aircraft Register only and is located in Switzerland at the time of transfer of title, the transfer is in principle governed by Swiss movable property law. The conditions for a transfer of title are as follows:

  • A valid cause for the transfer (usually a sale and purchase agreement), which is not subject to any formal requirement.

  • An in rem contract (generally implicit), under which the parties express at the time of transfer their intent to complete the transfer.

  • The transfer of possession over the airframe.

The execution of a bill of sale is neither required nor sufficient under Swiss law.

Airframe registered with the Swiss Aircraft Records Register. If the airframe is registered with the Swiss Aircraft Records Register, the conditions for a transfer of title are as follows:

  • A valid cause for the transfer (usually a sale and purchase agreement), which must be in written form.

  • Registration of the new owner with the Swiss Aircraft Records Register, on the previous owner's request (through the filing of a dedicated Federal Office of Civil Aviation form).

The transfer of title is not effective until registration of the new owner.

Foreign airframe. In the case of a foreign registered airframe, the transfer of title is in principle governed by the law of its country of registration.

If the foreign registration has been cancelled (for example, in anticipation of the transfer of title) and the airframe is located in Switzerland at the time of transfer of title, the transfer is in principle governed by Swiss movable property law (as for an airframe registered with the Swiss Aircraft Register only (see above)).

Engine

The answer to this question is based on the assumption that Swiss substantive law applies to the transfer of title.

Transfer of title to an engine together with transfer of title to an airframe. If the airframe with which the engine is to be transferred is registered with the Swiss Aircraft Register only:

  • The conditions for the transfer of title to the engine are the same as for transfer of title to the airframe (that is, valid cause, in rem contract and transfer of possession (see above, Airframe)).

  • The cause can be the same for both transfers (for example, one sale and purchase agreement mentioning the airframe and the engine).

  • If the engine is deemed an accessory of the airframe (for example, because it has been installed on, or clearly affected to, the airframe), title to the engine will in principle be transferred together with title to the airframe, even if there is no reference to the engine in the sale and purchase agreement relating to the airframe. However, it is prudent to expressly mention in the agreement whether title to the engine is transferred.

The following applies if the airframe with which the engine is to be transferred is registered with the Swiss Aircraft Records Register:

  • If the engine is expressly designated and registered with the airframe with the Swiss Aircraft Records Register, it is deemed an integral part of the airframe, and title to the engine is transferred at the same time as title to the airframe (subject to a valid cause and to the registration of the new owner (see above, Airframe)) even if there is no reference to the engine in the sale and purchase agreement relating to the airframe. It is prudent to expressly mention in the agreement that title to the engine will be transferred with the title to the airframe. However, as the engine is deemed an integral part of the airframe, it is in principle not possible to transfer title to the airframe without transferring title to the engine.

  • If the engine is not an integral part of the airframe but is deemed an accessory of the airframe (for example, because it has been installed on, or clearly affected to, the airframe), title to the engine is in principle transferred at the same time as title to the airframe (subject to a valid cause and to the registration of the new owner) even if there is no reference to the engine in the sale and purchase agreement relating to the airframe. As it is possible not to transfer title to an accessory, it is prudent to expressly mention whether title to the engine will be transferred.

  • If the engine is neither an integral part nor an accessory, title to the engine is not automatically transferred with title to the airframe. The conditions for a transfer of title to the engine are those applicable to the transfer of title to movable assets (as opposed to those applicable to the transfer of title to airframes registered with the Swiss Aircraft Records Register). Whereas the transfer of title to the airframe requires a valid cause and the registration of the new owner with the Swiss Aircraft Records Register, the transfer of title to the engine requires:

    • a valid cause (which can be the same as for the airframe);

    • an in rem contract; and

    • transfer of possession over the engine.

The following applies if the airframe with which the engine is to be transferred is registered in a foreign registry:

  • If the engine is deemed an integral part or an accessory of the airframe under the law of the country of registration of the airframe, the transfer of title to the engine is likely to be governed by the law of the country of registration.

  • In other cases, the conditions for the transfer of title to the engine are in principle those applicable to the transfer of title to movable assets (that is, valid cause, in rem contract and transfer of possession). However, it is uncertain whether the transfer of title to an engine registered with a foreign engine register (but located in Switzerland) will be subject to Swiss law or to the law of the country of registration. Therefore, it is prudent to ensure compliance with the conditions for title transfer under both Swiss law and the law of the country of registration (and under the law governing the contract, if different).

Transfer of title to an engine without transfer of title to an airframe. Since there is no engine register in Switzerland, the transfer of title to an engine only is in principle governed by Swiss movable property law (requiring a valid cause, an in rem contract and transfer of possession).

If the engine is registered as an integral part of an airframe with the Swiss Aircraft Records Register, it is advisable to cancel this registration before initiating the transfer. The transfer can otherwise be deemed invalid, and the title status of the engine will follow the title status of the airframe (as an integral part of the airframe).

If the engine is deemed an accessory of an airframe (whether or not registered with the Swiss Aircraft Records Register), this does not in principle prevent the transfer of title, and the engine ceases to be an accessory of the airframe on transfer of title. However, if the engine is designated as an accessory (but not an integral part) of the airframe with the Swiss Aircraft Records Register (which is possible under Swiss law), it is recommended to request the deletion of this designation on or before initiation of the transfer.

If the engine is registered (individually or together with an airframe) with a foreign register, it is uncertain whether the transfer of title is subject to Swiss movable property law or to the law of the country where the engine is registered. Therefore, it is prudent to ensure compliance with the conditions for title transfer applicable under both Swiss law and the law of the country of registration (and under the law governing the contract, if different).

 

Security

Mortgages

10. What are the types of aircraft mortgages available? What are the validity requirements for aircraft mortgages?

There is only one type of aircraft mortgage (contractual or legal) under Swiss law. The mortgage is allocated a fixed rank for a maximum secured amount.

The validity of a Swiss contractual aircraft mortgage is subject to the following requirements:

  • A mortgage agreement, which must be in writing and indicate the:

    • maximum secured amount in Swiss francs;

    • interest rate; and

    • fixed rank allocated to the mortgage.

  • Registration of the mortgage with the Swiss Aircraft Records Register (see Question 4).

Under Swiss law, aircraft registered with the Swiss Aircraft Records Register can be subject to legal mortgages to secure claims resulting from any of the following:

  • Aircraft salvage or assistance.

  • Extraordinary expenses essential for the preservation of the aircraft.

  • Extraordinary expenses essential for claiming against third parties owing indemnity for the confiscation, damage, destruction or loss of the aircraft.

A legal mortgage arises simultaneously with the claim it is intended to secure. However, the legal mortgage extinguishes if the beneficiary fails, within three months to both:

  • File with the Federal Office of Civil Aviation (FOCA) a declaration signed by the debtor and the owner acknowledging the claim and the legal mortgage, or evidence that it has initiated proceedings.

  • Announce its legal mortgage to the FOCA for registration with the Swiss Aircraft Records Register.

 
11. Will a registered mortgage take priority over other mortgages and charges over the aircraft?

Contractual mortgages and rights

A mortgage over a Swiss aircraft can only exist if it is registered with the Swiss Aircraft Records Register.

Additionally, aircraft subject to a registered mortgage cannot be subject to any retention right or pledge (see Question 14).

Therefore, other mortgages and charges cannot conflict with registered mortgages (as they cannot exist in connection with an aircraft subject to a registered mortgage).

As between mortgages registered with the Swiss Aircraft Records Register, the priority order depends on their respective rankings.

Legal mortgages

Legal mortgages (see Question 10) take priority over all contractual mortgages registered on or before the date on which they have been announced for registration with the Swiss Aircraft Records Register.

 
12. Can spare parts be subject to an aircraft mortgage? If not, are there any other forms of security that can be taken over spare parts?

Spare parts cannot be subject to an independent aircraft mortgage (see Question 4).

If spare parts are deemed integral parts or accessories (within the meaning under Swiss law) of a mortgaged aircraft, they are subject to the mortgage affecting the aircraft.

Additionally, a mortgage over an aircraft extends to spare parts subject to the following conditions:

  • The extension of the mortgage to the spare parts must be in favour of the mortgagee of the aircraft (as opposed to another creditor).

  • The spare parts must be located in a dedicated area of a fixed warehouse in Switzerland or abroad.

  • A visible inscription must indicate the:

    • existence of the mortgage;

    • name and address of the creditor; and

    • registration of the mortgage with the Swiss Aircraft Records Register.

Since spare parts are movable assets, they can also be subject to an ordinary:

  • Retention right.

  • Pledge, which requires the transfer of effective control over the spare parts to the pledgee or to a third party exercising effective control on behalf of the pledgee.

  • Reservation of title.

Leases

13. What forms of security can be granted over an aircraft lease?

Swiss law does not provide a specific form of security over aircraft leases.

The rights and claims (even future) under an aircraft lease can be assigned as a security. The parties can agree that the assignment becomes effective on the occurrence of an event of default.

An assignment is possible without the consent of the debtor, unless the assignment is prohibited by the terms of the lease. However, it is prudent to:

  • Notify the debtor of the assignment (and of the law chosen by the parties to govern the assignment).

  • Obtain the debtor's acknowledgement.

The assignment agreement must be in writing.

It is also possible to pledge in favour of a creditor the rights and claims (even future) under an aircraft lease. However, this option is not used in practice.

Other forms of security

14. What other forms of security can be taken over an aircraft?

Airframe

Airframe registered with the Swiss Aircraft Records Register. The airframe can only be subject to a legal or contractual mortgage (to be registered with the Swiss Aircraft Records Register). In particular, it cannot be subject to any retention right or pledge.

Airframe registered with the Swiss Aircraft Register only. The airframe remains subject to ordinary movable property law. Therefore, it can be subject to a:

  • Retention right.

  • Pledge.

  • Reservation of title.

The conditions for a valid retention right are as follows:

  • The beneficiary of the retention right must be a creditor of the airframe owner.

  • The beneficiary received possession of the airframe with the consent of the owner.

  • The owner's obligation is due and payable (or the owner is insolvent).

  • There is a connection between the obligation and the airframe.

The beneficiary of the retention right can, on the owner's failure to pay after notice, require the sale of the airframe (under the same procedure as for a pledged airframe).

A retention right cannot be exercised if it conflicts with the provisions of the Rome Convention for the Unification of Certain Rules Relating to the Precautionary Arrest of Aircraft 1933 (Rome Convention), to which Switzerland is a party.

An ordinary pledge can theoretically be created over an airframe not registered with the Swiss Aircraft Records Register. However, this method is not used in practice, as an ordinary pledge is only valid if the owner transfers effective control over the airframe to the creditor (or to a third party exercising effective control on behalf of the creditor), which in most instances is not practicable.

Under Swiss law, a pledgee cannot appropriate the airframe as a remedy.

A reservation of title enables the seller of an airframe to retain title over it until all amounts due by the purchaser have been paid. To be valid, the reservation of title agreement must be registered with a specific public registry held by the debt enforcement office of the place of residence or principal place of business of the purchaser.

Engine

If an engine is registered with the Swiss Aircraft Records Register as an integral part of an airframe, it is subject to the same legal status as the airframe, and can only be subject to a legal or contractual mortgage (covering the airframe and the engine, as an integral part) until registration as integral part has been cancelled.

In other cases, an engine can be subject to the same forms of security as an airframe registered with the Swiss Aircraft Register only (that is, retention right, pledge or reservation of title (see above, Airframe: Airframe registered with the Swiss Aircraft Register only). However, in the case of an engine, the provisions of the Rome Convention do not apply.

 
15. What other forms of security over an aircraft can be registered?

A reservation of title over an aircraft (not registered with the Swiss Aircraft Records Register) can be registered with a specific register (see Question 14, Airframe). Registration is required for the validity of the reservation of title.

Pledges and retention rights cannot be registered.

 

Transfer of security

16. Is it possible to transfer security interests over an aircraft? Are there specific issues of local law when transferring security interests?

Under Swiss law, a security interest is deemed an accessory right of the obligation that it is intended to secure. Therefore, unless otherwise agreed between the parties, if an obligation secured by a security interest over an aircraft is assigned, this security interest is transferred together with the secured obligation. This applies in principle to aircraft mortgages, pledges, reservations of title and retention rights. However, there is a controversy as to whether retention rights in business-to-business relations are accessories of the secured obligations.

It is not possible to transfer a security interest over an aircraft if the assignment of the secured obligation is prohibited by law or by contract.

Subject to registration requirements (see Question 17), there are no known specific issues of local law when transferring security interests over an aircraft.

 
17. Is a transfer of security subject to registration requirements?

The transfer of an aircraft mortgage is in principle effective on transfer of the secured obligation to the new creditor. However, it is necessary to amend the registration of the mortgagee with the Swiss Aircraft Records Register. The modification must be requested by the previous mortgagee, through a dedicated form (together with documents evidencing the assignment of the mortgage and the identity of the new mortgagee).

The transfer of a reservation of title agreement must be registered with the specific registry held by the debt enforcement office.

There are no registration requirements for the transfer of pledges or retention rights.

 

Enforcement of security and repossession

Mortgages

18. What are the circumstances in which a mortgagee can take possession of the aircraft and/or sell the aircraft? What requirements must the mortgagee comply with?

Under Swiss law, a mortgagee cannot take possession of the aircraft. An aircraft mortgage must be enforced through a forced execution procedure under the compulsory control of the debt enforcement office of the domicile of the owner of the aircraft (for Swiss aircraft) or of the place where the aircraft is located (for foreign aircraft).

The enforcement of an aircraft mortgage is made through a public auction, unless all parties involved agree on a private sale.

The parties must agree in the mortgage agreement on the circumstances in which a mortgagee can require the enforcement of its mortgage (in principle, the secured obligations must have become due and payable).

 
19. What is the procedure for repossession of the aircraft?

Under Swiss law, the mortgagee cannot take possession of the aircraft (see Question 18).

The main steps for the enforcement of an aircraft mortgage can be summarised as follows:

  • When the aircraft mortgage has become enforceable under the terms of the mortgage agreement, the mortgagee must file a forced execution procedure request with the competent debt enforcement office (see Question 18).

  • The office serves a payment order on the debtor, with a one-month time limit for payment.

  • At the time of service of the payment order, the office takes over the administration of the aircraft (the office can entrust a third party with this task) to ensure that the aircraft is not taken away from the procedure.

  • The debtor can oppose to the payment order, in which case the mortgagee must require the dismissal of the opposition before a competent court.

  • Once the opposition has been dismissed, the mortgagee can require the sale of the aircraft through a public auction (unless all parties involved agree on a private sale). This request cannot be made sooner than one month following service of the payment order.

  • The public auction or private sale (as applicable) takes place during the third month following the mortgagee's sale request.

If an aircraft mortgage is enforceable and there is a risk that the mortgaged aircraft leaves Switzerland and escapes the enforcement procedure, the mortgagee can request from the competent court the precautionary arrest of the aircraft, unless this is contrary to the Rome Convention for the Unification of Certain Rules Relating to the Precautionary Arrest of Aircraft 1933. This possibility is rather theoretical, as the debt enforcement office takes over the administration of the aircraft as soon as a payment order is sent to the debtor.

 
20. Will local courts recognise a choice of foreign law in an aircraft mortgage? Are there any mandatory local rules that apply, despite a choice of foreign law?

Under Swiss private international law, the parties are free to choose the law applicable to the mortgage agreement, as "obligating act" (that is, the agreement generating the obligation to create the mortgage), as opposed to the "act of disposal" (that is, the actual creation of the mortgage, as performance of the obligation contracted under the obligating act).

The following applies regarding the law applicable to the act of disposal and the effects of the mortgage:

  • In the case of a Swiss aircraft, Swiss law applies and no choice of foreign law is permitted.

  • In the case of a foreign aircraft, the laws of the country of registration of the aircraft apply (some scholars consider that if this law allows a choice of law, a choice of law must be recognised by Swiss courts).

The enforcement of an aircraft mortgage in Switzerland is governed by Swiss debt enforcement law, regardless of the nationality of the aircraft.

 
21. Will local courts recognise and enforce a foreign court judgment in favour of a mortgagee?

Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters 2007 (New Lugano Convention)

If the judgment was rendered in a state that is party to the New Lugano Convention, the recognition and enforcement of the judgment are governed by the provisions of the New Lugano Convention. However, the New Lugano Convention is not applicable if the judgment was rendered in the context of bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings. In these cases, the Swiss Federal Act on Private International Law applies (see below, Swiss Federal Act on Private International Law).

The following applies in respect of a judgment issued in a contracting state to the New Lugano Convention:

  • The judgment is recognised in the other contracting states without any special procedure being required.

  • The reasons for which the judgment must not be recognised are limited and include the following:

    • manifest contrariety to public policy in the state in which recognition is sought;

    • the judgment is irreconcilable with a final judgment involving the same dispute between the same parties (res judicata);

    • infringement of certain mandatory rules on jurisdiction; and

    • the defendant was not served with the document that instituted the proceedings.

  • The substance of the judgment cannot be reviewed.

  • If the judgment is enforceable in the state in which it was issued, it must be enforced in another contracting state when it has been declared enforceable in the latter state on the application of any interested party.

It cannot be excluded that a foreign judgment allowing the mortgagee to appropriate the aircraft would be deemed manifestly contrary to Swiss public policy (particularly if the actual value of the aircraft significantly exceeds the amount of the secured obligations).

Swiss Federal Act on Private International Law

The recognition and enforcement of the following judgments are governed by the provisions of the Swiss Federal Act on Private International Law:

  • Judgments rendered in a state that is not a party to the New Lugano Convention.

  • Judgments rendered in the context of bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings.

Under the Federal Act on Private International Law:

  • A foreign judgment can be recognised and/or enforced through a dedicated procedure (recognition can also be requested as a preliminary issue).

  • The reasons for which a judgment must not be recognised are limited and similar to those under the New Lugano Convention, except that they also include:

    • any lack of jurisdiction (jurisdiction is systematically checked); and

    • the violation of fundamental principles relating to Swiss procedural law.

  • A foreign judgment cannot be reviewed on the merits.

UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention)

Switzerland is a party to the New York Convention. Therefore, the provisions of this Convention apply to the recognition and enforcement of arbitral awards relating to aircraft mortgages issued outside Switzerland.

Other forms of security

22. What is the applicable procedure for repossession of an aircraft under other forms of security interests?

Pledge

The pledgee of a pledged aircraft (which is therefore not registered with the Swiss Aircraft Records Register) cannot appropriate the aircraft as a remedy (see Question 14). The pledge must be enforced through a forced execution procedure under the compulsory control of the competent debt enforcement office.

The main steps for enforcement of an ordinary pledge are similar to those applicable to the enforcement of an aircraft mortgage (see Question 19), except (in particular) that:

  • The debt enforcement office is not obliged to take over the administration of the aircraft when the payment order is served on the debtor.

  • The public auction or private sale (as applicable) will take place between the tenth day and the end of the second month following the pledgee's realisation request.

Retention right

The creditor cannot appropriate the aircraft. The enforcement procedure for a retention right is the same as for an ordinary pledge (see above, Pledge).

Reservation of title

The beneficiary of a reservation of title retains title over the aircraft.

If the purchaser of the aircraft defaults on payment of the purchase price, the seller (and beneficiary of the reservation of title) can under certain conditions terminate the purchase agreement. In this case, it can bring an action before the competent court, as owner, to recover possession of the aircraft.

Self-help repossession is not possible under Swiss law.

If the purchase agreement provides for payments by instalments, the owner can in principle only recover the aircraft if it reimburses the payments already made, after deduction of an appropriate rental charge and compensation for wear and tear.

Leases

23. In the event of a default event under an aircraft lease, can the lessor take possession of the aircraft without judicial intervention?

In the event of a default event under an aircraft lease, the lessor, even as owner, cannot take possession of the aircraft without judicial intervention.

However, as owner of the aircraft, the lessor may be in a position to lead third parties (such as an operator or a maintenance company) to return the aircraft to the lessor based on its title to the aircraft, and to disregard the lessee's rights. Without the assistance of these third parties, actual repossession by the lessor through self-help remedies is unlikely to be successful.

 
24. What is the procedure for taking possession of an aircraft before the expiration of a lease?

There is no specific procedure for taking possession of an aircraft before the expiration of a lease.

The lease must first be terminated (potentially through a judicial decision, if termination is disputed). The owner can then bring an action before the competent court to recover the aircraft and possession of it. This action can be brought simultaneously with any action regarding the termination of the lease.

During or before the procedure for recovery, the owner can request interim measures if there is a risk of damage that would be difficult to remedy (for example, the lessee threatens to flee abroad with the aircraft). Provisional orders can include:

  • A ban on using the aircraft (possibly in conjunction with a similar order to the operator of the aircraft).

  • The precautionary arrest of the aircraft, unless the arrest is contrary to the provisions of the Rome Convention for the Unification of Certain Rules Relating to the Precautionary Arrest of Aircraft 1933.

 
25. If recovery of the aircraft is contested by the lessee and a court judgment is obtained in favour of the lessor, how long is it likely to take to gain possession of the aircraft?

The lessor can request the court dealing with the procedure for recovery of the aircraft to order directly in its judgment the necessary enforcement measures against the lessee (direct enforcement). Enforcement measures can include taking away the aircraft from the lessee, if necessary with the help of the competent authorities (police, airport authorities, and so on).

If direct enforcement is ordered, the enforcement measures can be implemented as soon as the court judgment is enforceable (executory), which occurs when the time period for bringing an appeal against the judgment has elapsed without an appeal being brought. This period is in principle 30 days (ten days in some cases). If an appeal is brought, enforcement measures can be taken as soon as the decision on appeal is enforceable (unless there is a second appeal to the Swiss Supreme Court).

Once the court judgment ordering direct enforcement is enforceable, the lessor should gain possession of the aircraft within a few days.

 
26. Will local courts recognise a foreign court judgment in favour of a lessor?

Rules applicable to recognition of a foreign court judgment in favour of a lessor are the same as for recognition of a foreign court judgment in favour of a mortgagee (see Question 21).

 

Cape Town Convention

27. Has your country signed and ratified the Convention on International Interests in Mobile Equipment (Cape Town Convention)?

Switzerland has signed but not yet ratified the Cape Town Convention. The Cape Town Convention ratification process is still on hold and should not be completed within the next three years.

 
28. Has ratification of the Cape Town Convention caused any conflicts or issues with local laws?

Not applicable (see Question 27).

 
29. What is the legal position regarding non-consensual rights and interests under Article 39 of the Cape Town Convention?

Not applicable (see Question 27).

 
30. Has your country adopted the remedies on insolvency provided under Article XI of the Protocol to the Cape Town Convention?

Not applicable (see Question 27).

 
31. What is the procedure to file an irrevocable deregistration and export request authorisation (IDERA)?

Not applicable (see Question 27).

 

Reform

32. Are there any proposals for reform in the area of aviation finance?

There are currently no proposals for reform in the area of aviation finance.

 

Online resources

Portal of the Swiss Government (classified compilation)

W www.admin.ch/gov/en/start/federal-law/classified-compilation.html

Description. This official website of the Swiss Government contains all federal acts and ordinances currently in force, in German, French and Italian. The online versions of these texts prevail over any other written versions. An English translation of the main acts is proposed for information purposes only (English versions are not binding).

Federal Office of Civil Aviation (FOCA)

W www.bazl.admin.ch/bazl/en/home.html

Description. This is the official website of the FOCA. It provides access to all information on the Swiss Aircraft Register (which is available for consultation online), the Swiss Aircraft Records Register, the registration procedures, and so on.



Contributor profiles

Frédéric Meyer, Partner

Meyer Avocats

T +41 718 80 00
F +41 718 80 01
E meyer@meyer-avocats.ch
W www.meyer-avocats.ch

Professional qualifications. Attorney-at-law, Geneva Bar, 1992

Areas of practice. Aviation law; aircraft transactions; aircraft holding and operation.

Non-professional qualifications. LLM, Institute of Air and Space Law, McGill University, 1997

Languages. French, English

Professional associations/memberships. Swiss Air and Space Law Association; Geneva Bar Association; Swiss Bar Association.

Raphaël Baeriswyl, Partner

Meyer Avocats

T +41 718 80 00
F +41 718 80 01
E baeriswyl@meyer-avocats.ch
W www.meyer-avocats.ch

Professional qualifications. Attorney-at-law, Geneva Bar, 2000

Areas of practice. Aviation law; aircraft transactions; aircraft holding and operation.

Languages. French, English, German

Professional associations/memberships. Geneva Bar Association; Swiss Bar Association.

Antoine Labaume, Associate

Meyer Avocats

T +41 718 80 00
F +41 718 80 01
E labaume@meyer-avocats.ch
W www.meyer-avocats.ch

Professional qualifications. Attorney-at-law, Geneva Bar, 2014

Areas of practice. Aviation law; aircraft transactions; aircraft holding and operation.

Non-professional qualifications. Bachelor of French law, University of Grenoble, 2011

Languages. French, English, German

Professional associations/memberships. Geneva Bar Association; Swiss Bar Association.


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