Aviation Finance Comparative Guide

1 Legal framework

1.1 Which laws typically govern aviation finance transactions in your jurisdiction?

• English law;
• New York law; and
• German law.

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?

A lease agreement involving a German airline or a lessor situated in Germany (or a loan agreement contemplating a German bank or borrower) is customarily governed by English law, New York law or German law, depending on where the lessor is situated. The recognition of judgments is subject to:

• applicable EU regulations;
• international treaties; and
• Germany's conflict of law rules.

The United Kingdom's accession to the 2019 Hague Convention on the recognition and enforcement of judgments (1 July 2025) will facilitate the enforcement of English judgements regarding aircraft leasing disputes in EU member states. The same applies to loan facility agreements governed by English law or New York law. The only mortgage interest recognised by German law (and German courts) in relation to an aircraft registered in Germany is a German aircraft mortgage, which is granted pursuant to a German law notarial mortgage deed.

2 Finance structures

2.1 What aviation finance structures are most commonly used in your jurisdiction?

• Finance lease structures (mainly non-German tax leases, Jolcos and French tax leases); and
• Operating lease transactions.

Direct loans into an airline are rather uncommon.

2.2 What are the advantages and disadvantages of these different types of structures?

The assessment for opting between finance leases and operating leases is:

• driven by:
• • commercial features; and
  • the classification into operating leases and finance leases; and
• based on decrees issued by the Federal Ministry of Finance.

Direct loans to airlines are not advisable due to the absence of creditor-friendly schemes as contemplated, for example, by the Cape Town Convention.

In broad terms:

• an 'operating lease' is to be classified as a rental contract as defined in Section 535 of the Civil Code. The lessor/owner bears the economic risk of the aircraft and typically the lease term is less than the economic life of the aircraft; and
• a 'finance lease' can – for tax purposes – be construed as a true lease or as financing; legally, finance lease contracts are classified as 'non-typical rental contracts' (Federal Court decision), which means that the provisions for rental contracts contemplated by the Civil Code generally apply.

2.3 What other factors should operators bear in mind when deciding on a financing structure?

The driver for deciding for or against a financing structure for German participants in the aircraft lending business is not the legal issues; instead, the commercial assessment – primarily tax issues and accounting issues – will drive the decision.

2.4 Who are the most common providers of aircraft finance in your jurisdiction? Do any restrictions apply in this regard?

In terms of German banks, the market has changed fundamentally over the last five years. DVB Bank and NORD/LB – which were among the biggest aviation lenders worldwide for commercial aircraft – have both sold their lending books and pulled out of the industry. HCOB recently announced its exit from aircraft lending just three years after its return to the market; while others, such as Heleba and Deka, are no longer as active as in the past. Airbus Bank and BayernLB (for aircraft operating in commercial air traffic) and Société General (for business jets) are still engaged.

In order to conduct commercial lending business in Germany for German customers, a banking or lending institution must assess whether licensing requirements under German and/or EU banking law regulations apply. Generally speaking, a licence from the Financial Supervisory Agency (or a banking licence issued by a financial supervisory authority of another EU member state) is required to conduct commercial lending business in Germany.

3 Title transfer

3.1 How is title to an aircraft legally transferred in your jurisdiction?

The transfer of title of an aircraft follows the ordinary civil law procedures for movable property (Section 929 of the Civil Code) – that is:

• there must be an agreement that title will pass; and
• possession needs to be transferred (in line with the options provided for in the Civil Code).

The entry of the new owner in the Aircraft Register is a duty that a new owner must comply with under applicable air law but serves no private law purposes. Therefore, failure to file notice of an ownership change has no impact on the validity of the title transfer itself. The scope of title covers:

• the 'essential parts' (ie, parts that cannot be removed without impacting on the functionality); and
• the accessory parts.

Attention should be paid to engines, which (pursuant to the leading opinion) are treated as 'non-essential parts'; the parties' intention in relation to these must therefore be properly documented. Specific care should be taken if the original engines of an aircraft are not attached at the time title passes. It depends on whether the separation is temporary or permanent whether title to the original engine, a replacement engine or no engine passes together with title to the airframe.

3.2 What are the formal and documentary requirements for transferring title?

The transfer of title is evidenced by a bill of sale. German law does not foresee any conditions in which the sale agreement or the bill of sale must be notarised or apostilled. The German conflict of laws rules will look to the aircraft registration to determine the governing law for the title transfer. The updating of the ownership entry in the Aircraft Register is not a legal requirement in order to perfect a title transfer.

3.3 What is the process for transferring title?

See questions 3.1 and 3.2.

3.4 Are any charges, fees or taxes levied on the transfer of title?

Generally, a title transfer incurs value-added tax, which must be filed with the competent tax authority. Neither the title transfer itself nor the execution of an aircraft sale and purchase agreement triggers a stamp tax burden. The gain generated by a seller that is a German tax resident triggers income tax liability. In case of a non-German resident selling an aircraft registered in Germany, capital gain tax duties may be relevant (and double tax treaties should be analysed).

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)?

The Act on the Seizure of Aircraft provides for very limited circumstances in which the seizure of an aircraft by government bodies is allowed in case of war or national emergency. Adequate compensation will be paid in such circumstances. Pursuant to the Criminal Code, the state has the right to confiscate an aircraft if it served as the major tool or device for committing crimes.

4 Registration

4.1 What body administers the aircraft register in your jurisdiction?

The Federal Civil Aviation Authority (CAA) maintains the aircraft register. A different authority – the Braunschweig Local Court – is charged with running the aircraft mortgage register for German registered aircraft.

4.2 What information is included in the aircraft register? Is this publicly accessible?

• The manufacturer, the model and manufacturer serial number, the nationality and the registration mark;
• If applicable, the file number earmarked for the relevant aircraft in the aircraft mortgage register;
• The name and address of the owner;
• The allocation of ownership shares in the case of multiple owners;
• Where the aircraft is leased to a German individual or entity by a foreign person for a term exceeding six months or a foreign owner (legal or natural person) is the legal owner of the aircraft, the name and address of the German operator;
• The regular location/habitual base of the aircraft;
• The usage mode of the aircraft;
• The type of engine or propeller used, equipment and emergency equipment;
• Noise insulation;
• Details of third-party liability insurance;
• The name and address of the operator (double entry where a foreign lessor is involved); and
• The date of aircraft registration.

This information is publicly accessible.

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?

Formal and documentary requirements for registration of an aircraft: Beyond the data and information listed in question 4.2, the following items must be provided to the CAA in order to register an aircraft registered and obtain a certificate of registration from the CAA:

• Proof of ownership;
• The process agent for receipt of official notices from the CAA (if the owner resides abroad);
• The corporate documents of the owner and (if applicable) the operator;
• A certificate of insurance (liability insurance) (Section 106 of the LuftVZO) (see question 8.1);
• A certificate of de-registration if the aircraft was registered elsewhere prior to registration with the CAA; or, if the aircraft is being registered directly after delivery from the original equipment manufacturer, confirmation of non-registration;
• A certificate of airworthiness for export;
• A noise certificate and radio licence (issued by the Regulatory Authority for Telecommunication);
• A certificate of inspection;
• A printed value-added tax notice;
• A customs certificate;
• Evidence of ownership;
• If a third-party operator operates the aircraft rather than the owner, a declaration from the owner and the operator confirming that the lease term exceeds six months; and
• A maintenance programme approved by the competent authority (under EU Regulation 2024/2003).

Registration process: A standard application form is used in order to apply for registration of an aircraft in the aircraft register. If the CAA is satisfied with the application form and the supporting evidence, it will issue the certificate of registration. The process for obtaining a permanent permit to fly in order for an aircraft to be registered in Germany goes hand in hand with the registration process. The CAA is the only government body involved in the approval process.

Effect of registration: Registration of an aircraft in the aircraft register accords the aircraft with German nationality (see Article 17 of the Chicago Convention on International Civil Aviation, 1944). German registration marks start with the letter 'D'. The registration of an aircraft and the listing of the owner do not constitute prima facie evidence regarding the title and ownership of the aircraft for private law aspects. Upon registration of an aircraft in the aircraft register and the issuance of a permanent permit to fly, the aircraft may be operated in German airspace.

Effect of deregistration: An aircraft registration will be terminated if:

• any of the requirements of the registration ceases to apply; or
• the owner applies for deregistration.

The latter is the standard case and is predominantly relevant where the owner prepares for a subsequent registration in another country, in which case an export certificate of airworthiness is required. Please see question 4.6 as regards the impact of the deregistration of an aircraft from the aircraft register on the validity of a registered German aircraft mortgage.

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?

Germany is not a treaty state of the Cape Town Convention. Conventional deregistration powers of attorney are used; however, the only relevant power of attorney is that granted by the owner, not by the operator, as only the owner is entitled to apply for registration and/or deregistration. A deregistration power of attorney must be presented as a notarised copy. In case of the owner's insolvency, a deregistration power ceases to be enforceable.

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?

Formal and documentary requirements: Any leasing arrangements must be approved the by CAA, but the lease will not be registered. The air operator certificate (AOC) of the operator (the lessee) must cover the aircraft (ie, the aircraft must be added to the AOC). The CAA must approve such lease agreement irrespective of whether the lessor is German or foreign. The regulation for wet leases is similar but not identical.

Process for registration: A lease must be approved by the CAA but will not be registered in the aircraft register. The name of the operator will be recorded, as the operator is the person responsible for ensuring compliance with air traffic and air safety rules (and in most cases will be the lessee).

Effect of registration: The registration of the name of the operator follows air traffic requirements. The lease itself is not registered.

Effect of deregistration: This has no effect, as the lease agreement is not registered.

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?

Only aircraft registered in the aircraft register are eligible to be encumbered with a German aircraft mortgage. A German aircraft mortgage is the only recognised security interest over an aircraft registered in Germany. The mortgagor and mortgagee must agree to grant an aircraft mortgage over the aircraft and the aircraft mortgage must be registered in the aircraft mortgage register (maintained by the Braunschweig Local Court; see question 4.1). Unlike in most other jurisdictions, the aircraft mortgage register is a separate register from the aircraft register and is maintained by a different authority from the aircraft register.

The agreement to grant an aircraft mortgage must be established by a notarised) deed. To the extent that the aircraft mortgage is provided in the form of third-party security, the consent of the owner of the aircraft to be mortgaged must be provided in notarised form. Subject to payment of the registration fees (which are based on the amount secured), the aircraft mortgage will then be registered in the aircraft mortgage register.

It is standard practice in Germany that an aircraft mortgage secures the claims stemming from an abstract acknowledgement of debt and not the underlying actual debt of a loan facility agreement. This mitigates various practical disadvantages resulting from the strict accessory nature of any German mortgage instrument, such as where:

• rights under the credit facility are assigned or novated; or
• the currency of the underlying debt changes.

Registration process: A German aircraft mortgage will be registered in the aircraft mortgage register upon receipt of a notarised aircraft mortgage deed and subject to fulfilment of the following procedural and formal conditions:

• The aircraft to be encumbered must also be registered in the aircraft register (at least concurrently with registration of the aircraft on the aircraft mortgage register).
• In order to assure that the information and data registered in the aircraft register and the (separate) aircraft mortgage register match, the applicant must evidence that certain key details match in both registers, including:
• • the aircraft model and manufacturer;
  • the serial number;
  • the name and address of the owner;
  • the nationality of the aircraft (which must be German); and
  • the file number in the aircraft register (Sections 80(1) and 80(2) of the Aircraft Mortgage Act).
• In practice, this is achieved on the basis of the official entry confirmation issued by the aircraft register to the aircraft mortgage register.
• Subject to payment of registration fees, and once the aircraft mortgage has been registered in the aircraft mortgage register, the aircraft mortgage register will release a notification to the aircraft register to assure matching information status (Section 91 of the Aircraft Mortgage Act).

Effect of registration: A German aircraft mortgage must be registered in order to be perfected – that is, registration is a condition to validity and enforceability.

Effect of deregistration: Focusing on the most relevant scenario, in which the secured debt is repaid and the debt obligations are discharged in full, the aircraft mortgage ceases to exist ipso facto. The deletion of the aircraft mortgage from the aircraft mortgage register is a pure correction of the register; however, formal deregistration consent from the secured party (mortgagee) is required. The mortgagor and mortgagee of an aircraft mortgage can also agree to terminate the aircraft mortgage, in which case formal deregistration consent from the secured party (mortgagee) is also required. The most relevant scenario for the latter case is a change of aircraft registration to another country's aircraft register (eg, in the context of a sublease or expiry of the lease involving German registration).

The deregistration of the aircraft from the aircraft register (but not the aircraft mortgage register) does not render the aircraft mortgage invalid. If – for example, for the purposes of an interim sublease term – the aircraft is registered in a different state of registration, the aircraft mortgage will remain valid; and no new mortgage filing is required if the aircraft is re-registered in Germany once the sublease and related foreign registration outside Germany have lapsed.

4.7 Can aircraft be registered in your jurisdiction even if the operator is not from your jurisdiction?

No. The duties of the CAA include:

• monitoring the safety of the aircraft (including maintenance);
• collecting relevant data on the owner and the operator; and
• monitoring compliance with air safety and air traffic regulations by the owner and the operator (to the extent that the operator is situated in Germany).

Only where the duties as regards air safety surveillance are transferred under an 'Article 83bis arrangement' (Chicago Convention 1944) may aircraft operated by foreign operators be registered in Germany.

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?

Aircraft leases are private law contracts under German civil law and should contain the following minimum terms (which match with lease terms under most other laws):

• The lessor must agree to grant the lessee the right to:
• • possess the aircraft for a specified time; and
  • enjoy undisturbed possession (subject to compliance with its contractual obligations).
• The lessee must agree to make rent payments (and possibly other payments, such as maintenance payments) as contemplated by the agreement.

Beyond that, no mandatory legal aspects must be considered. For accounting aspects, please see question 2.2.

5.2 What charges, fees or taxes arise from the execution of an operating lease?

There are no statutory fees and no taxes that derive directly from the execution of an operating lease itself. As regards taxes related to aircraft lease agreements, the tax treatment will depend on whether the lessee or the lessor is treated as the beneficial owner, which in turn will depend on:

• who is commercially entitled to the benefits and the substance of the aircraft; and
• who bears the risks.

In the case of a true lease/operating lease (where the lessor remains legal and beneficial owner of the aircraft), the rental income from the leasing of the aircraft is subject to corporate income tax (if the lessor is a German resident company, as is applicable for special purpose vehicles that are customarily used in operating lease structures), provided that:

• the lessor (or lessor vehicle) is German tax resident;
• the lessor acts through a German permanent establishment or
• the aircraft is registered in Germany (in the aircraft register).

In this set-up, the lessor is entitled to claim the depreciation deductions; the operator (as lessee) can treat the rent payments as operating expenses.

5.3 Can either the lessor or the lessee assign or novate its rights in an operating lease in your jurisdiction?

Yes, German law recognises the legal concepts of assignment and novation. In case of an assignment, the relevant rights, claims or receivables are transferred. As regards novation, the typical scenario is the assumption of an existing right or claim by another party.

5.4 What are the respective obligations and liabilities of the lessor and lessee under an aircraft lease?

There are numerous options as to what specific obligations a lessor and a lessee should assume – for example:

• structure of maintenance reserves;
• return conditions;
• end of lease payments;
• lessor contributions;
• specific usage terms;
• early termination options; and
• extension options.

There is no statutory allocation of obligations and liabilities. However, under any aircraft lease, the lessor will agree to give to the lessee undisturbed possession and usage rights, subject to the lessee complying with the contractual obligations, including the payment obligations.

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?

If the lessor has exercised its termination rights in case of an event of default and requested (in line with the applicable terms of the lease agreement) the return of the aircraft, but the lessee has failed to surrender possession, German law does not foresee any self-help remedies. Instead, the lessor must file a lawsuit in court and a bailiff will be engaged to enforce any order granted in favour of the lessor. Court fees and bailiff's fees are regulated by specific legislation and vary depending on the value of the claim.

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?

See question 5.5.

Can airports assert a lien over all of the lessee's aircraft until unpaid charges have been discharged?

No – in contrast to, for example, outstanding air traffic/navigation charges owed to Eurocontrol or outstanding charges imposed to sanction non-compliance with the Air Traffic Act, for which statutory liens exist, claims of airports are not protected by statutory liens. In relation to other statutory liens, only workmen's liens are explicitly prohibited by law. Whether this should also apply to other statutory liens is the subject of legal debate.

5.7 What disputes typically arise over operating leases in your jurisdiction and how are these typically resolved?

As is the case in most other jurisdictions, the most realistic reason for a dispute in an operating lease arrangement is the lessee's failure to pay rent (and/or supplemental rent/maintenance reserves) in full and on time.

5.8 What other considerations should be borne in mind when concluding an aircraft lease in your jurisdiction?

There is no specific legal topic to be addressed that goes beyond those aspects that are generally relevant and discussed in question 5.

6 Security

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)?

The typical security package granted to secure a loan facility involving an aircraft registered in Germany involves the following key security instruments:

• a German aircraft mortgage;
• assignment of the rights owed under the lease;
• warranty assignments; and
• assignment of insurance.

A customary set of ancillary security instruments provides for:

• pledges over rent collection accounts;
• deregistration powers of attorney; and
• the charge of the shares in an aircraft-owning entity.

Transfers of ownership as security are basically used as a security instrument only in the private jet and business jet financing segments and personal or corporate guarantees play a major role in this regard.

Although it has become common to also grant New York law mortgages (or English law mortgages) as a 'back-up interest' where the aircraft is registered in Germany:

• under German law, only German aircraft mortgages are recognised (as stated in the Aircraft Mortgage Act); and
• foreign mortgage interests will not be recognised by the German courts (see question 4.6).

In relation to leasing arrangements, a lessor will typically secure its rights under a lease with a security deposit.

6.2 What are the formal, documentary and procedural requirements for perfecting a security interest in an aircraft?

See question 4.2 for details on the registration of German aircraft mortgages in the aircraft mortgage register. In brief, the agreement to grant the aircraft mortgage must be established by a notarised deed (Section 86(1) of the Aircraft Mortgage Act). For the other security interests listed in question 6.1, no special requirements for perfection (eg, registration or notarisation) apply.

6.3 Can security be taken over engines and/or any other aircraft parts in your jurisdiction? If so, how?

As stated in question 3.1, aircraft engines are classified and treated as 'non-essential parts' under the terminology of the Civil Code. This means that engines can be charged separately from an airframe (and can generally be exposed to other rights than the airframe). Assuming that an engine does not fall within the scope of a German aircraft mortgage (eg, it is a replacement engine owned by a third party and the intention is to install it temporarily in a host aircraft; or it is not installed but 'in storage'), it can be pledged as security under a German law pledge in accordance with the rules applicable to pledges for movable property as contemplated by the Civil Code. This requires:

• the execution of a pledge agreement; and
• surrender of possession by the pledgor to the pledgee or a third party.

The typical solution foresees the establishment of a possession-holding arrangement, such as a lease agreement, in order to confirm that:

• the pledgor has surrendered possession; and
• a third party holds possession on behalf of the pledgee.

As aircraft engines are not registered individually in the aircraft register or the aircraft mortgage register, it is possible to encumber an engine with a New York engine mortgage (in the example scenario mentioned above).

6.4 What charges, fees or taxes arise from the perfection of a security interest in an aircraft?

For the fees charged for registration of an aircraft mortgage, see quesion 4.6; notary fees must also be considered.

6.5 What are the respective obligations and liabilities of the owner and the secured party under the security interest?

These are governed by the terms agreed in the security agreement entered into by the parties. Once a security interest is enforced and the mortgagee or pledgee assumes possession and control, specific obligations to preserve the value of the asset in order to generate adequate revenue from the enforcement action apply.

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?

Self-help remedies are generally not contemplated by German law. In order to enforce the security interest, the mortgagee under a German aircraft mortgage must file a lawsuit in court; a bailiff will then be engaged to enforce any such order granted in favour of the mortgagee. The main enforcement method is a public auction.

6.7 Will local courts recognise a foreign court judgement in favour of a lessor/financier?

It depends. Any foreign judgment contemplating an enforcement order based on a foreign law mortgage interest in relation to an aircraft registered in Germany will not be recognised (aircraft registered in the Aircraft Register can only be mortgaged in accordance with the Mortgage Act).

Other foreign judgments referring to other security instruments (eg, a court order relating to an English law lease agreement or a lease assignment governed by English law or New York law) will generally be recognised – subject to German conflict of laws rules and international treaties.

6.8 What other considerations should be borne in mind when perfecting a security interest in an aircraft in your jurisdiction?

There are none beyond those already mentioned.

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?

Germany has signed but never ratified the Cape Town Convention.

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?

The sale and purchase of aircraft and engines follows the same rules and procedures and is governed by the modus of title transfers applicable to movable property (see questions 3.1 and 3.2). There needs to be an agreement that title will pass and possession must be transferred in accordance with the options contemplated by the Civil Code (eg, by using a possession holder if the aircraft is on lease to a third-party operator or where the buyer already possesses the aircraft). There should be adequate documentation to evidence satisfaction of these two conditions.

As noted in question 3.1, special attention must be paid to the transfer of title to the engines. as aircraft engines are treated as 'non-essential parts' and may thus be subject to independent rights. There are no issues to be considered if the original engines are 'on-wing' at the time title passes. In the case of an original engine that is 'off-wing' but whose title is meant to be transferred together with the title to the original aircraft, proper documentation is required to evidence that the separation was only temporary. In the case of a standalone sale and title transfer of an aircraft engine, the parties should ensure that that the aircraft engine is not captured by the title to its current host aircraft (if the engine is 'on-wing' or was recently 'on-wing' for a longer period, this could be viewed as being a permanent separation).

7.2 What players are typically involved in an aircraft sale and purchase?

Beyond the seller and buyer, one typically sees the involvement of:

• an operator, if the aircraft is on lease (there will be a lease novation);
• a broker (predominantly in the context of business aviation);
• the relevant attorneys; and
• an escrow agent to accommodate escrow services as regards the purchase price.

7.3 Is the manufacturer/seller bound by a duty to disclose? What representations and warranties will it typically make?

Where a used aircraft is sold on an 'as is, where is' basis, the duty to disclose must be assessed carefully. In any event, failure to disclose known defects in bad faith might trigger the right to challenge the transfer and unwind the sale.

The standard representations and warranties to be given include:

• due execution of the sale agreement and due existence of the seller;
• having clean title, net of encumbrances;
• that the seller is not subject to any insolvency proceedings; and
• that:
• • the seller is not subject to sanctions; and
  • the aircraft is not connected to any action that breached applicable sanctions.

7.4 What due diligence is typically conducted in an aircraft sale and purchase?

One would typically check:

• whether there are entries of liens in the current mortgage register (in the case of a German registered aircraft, the German aircraft mortgage register);
• whether the owner recorded in the aircraft register and the aircraft mortgage register is identical to the seller;
• the international registry (as defined in the Cape Town Convention) for any registered interests (despite the fact that Germany is not a treaty state); and
• whether the seller is listed in any embargo or sanction lists or otherwise captured by sanctions.

7.5 What are the formal, documentary and procedural requirements for conclusion of an aircraft sale and purchase?

There is no requirement for notarisation, legalisation or registration of a sale to ensure the validity of the transfer or the sale and purchase agreement.

7.6 What are the respective obligations and liabilities of buyer and seller during the transaction, and what are the consequences of any breach?

The obligations and liabilities of buyer and seller are primarily governed by the sale and purchase agreement. The conditions precedent for closing should be drafted as an obligation to ensure that both parties work diligently towards closing. It will depend on the exact wording in the sale and purchase agreement as to which liabilities (if any) a party will incur if it tries to jeopardise the closing of a sale after signing a sale and purchase agreement. As stated in question 7.3, failure to disclose a hidden defect in bad faith might trigger a right to unwind the sale.

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?

See question 3.4. Neither the title transfer itself nor the execution of an aircraft sale and purchase agreement triggers a direct tax burden (eg, stamp tax). However:

• the title transfer itself generally triggers a value-added tax (VAT) liability; and
• the gain generated by a German tax resident seller triggers an income tax liability.

In the case of a non-German resident selling an aircraft registered in Germany, capital gains tax duties may be relevant (and double tax treaties should be analysed).

A VAT exemption applies to title transfers if the aircraft whose title passes is designated to be used by airlines that predominantly provide international commercial air transport.

7.8 What other considerations should be borne in mind when conducting a sale and purchase of an aircraft in your jurisdiction?

The parties should primarily focus on the specific tax implications that result from a title transfer in Germany. As regards the conclusion of a sale and purchase agreement under German law, the exclusion of warranty clauses is subject to legal boundaries that are stricter than those applicable in other jurisdictions. Otherwise, no features beyond those that apply to any other aircraft purchase agreement need be considered.

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?

Deposits paid pursuant to the terms of a term sheet in the usual circumstances are refundable if:

• the letter of intent has been executed; and
• the parties have agreed that this specific refund obligation is binding.

In terms of the duties of the parties in the negotiation process, for as long as the purchase agreement is not executed and nothing to the contrary had been agreed (binding agreement) in a letter of intent, there is no strict obligation to close the sale whatsoever. The overriding principles assuring that none of the parties acts in bad faith are:

• the prohibition against contravening good morals;
• the general principles of equity; and
• German public policy.

8 Insurance

8.1 What insurance requirements apply to aircraft in your jurisdiction?

In order to participate in aircraft traffic in the German airspace, it is mandatory to have liability insurance covering:

• the death and injury of passengers and third parties;
• delayed transportation of passengers; and
• damage or destruction and loss of:
• • transported goods; and
  • the property of third parties.

It is a condition for the operation of an aircraft that the operator permanently demonstrates the existence of adequate liability insurance coverage (see Section 106 of the LuftVZO). However, there is no obligation under statutory air traffic law to have hull and hull war insurance. This type of cover is nevertheless a mandatory feature in any financing or leasing arrangement.

8.2 If local insurance is required, can local insurers assign reinsurance contracts in your jurisdiction?

Under German law, there is no mandatory requirement that part of the insurance cover be underwritten domestically.

8.3 What other forms of insurance feature in the aircraft finance market in your jurisdiction?

An insurer underwriting insurance cover for an aircraft registered in Germany must have a licence to do business in Germany.

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?

No major developments are expected in the segment of financing, leasing and sales for commercial aircraft. Most purchases of private jets and business jets are still not financed but paid from free cash flow. Smaller business jets are still primarily financed by smaller leasing companies.

In terms of legislation, no substantive projects are expected in the near future, including in relation to the implementation of the Cape Town Convention. This excludes sanction regulations with an impact on aviation.

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?

As the Aircraft Mortgage Register is a small, non-digital office with limited office hours, diligent preparation is needed to ensure smooth closing, especially if the closing contemplates the lifting or registration of a German aircraft mortgage. This is even more so the case where the participants are located in different continents.

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.