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02 April 2014
De-registration without certificates of airworthiness for export
Pinpointing effective date of title transfers
Registration renewal requirements
In November 2013 the Brazilian Civil Aviation Agency (ANAC) promulgated a number of new regulations relating to the functioning of the Brazilian Aeronautical Registry (RAB). Several of the new regulations will be of interest to both Brazilian operators and non-Brazilian lessors and holders of security interests – this update analyses those of greatest interest to lessors, banks and export credit agencies.
In addition, on March 21 2014 ANAC promulgated regulations concerning the issuance of authorising entry point codes for International Registry filings and for the use of irrevocable deregistration and export authorisations. These regulations, for the most part, follow the details previously announced (for further details please see "Procedures for international registration announced despite convention delay"). However, this update focuses on the RAB regulations issued in November 2013.
The provision attracting the most attention in the international financial community relates to the first mention of trust agreements in ANAC legal documents. The concept of a division of legal and beneficial title through trusts does not exist in Brazil. Nonetheless, the use of common law trusts has been widespread in Brazilian aircraft financing for many years.
Although trusts are frequently misunderstood in Brazil, there has been no impediment to the registration of interests in aircraft in the names of owner trustees. A frequent example of the misunderstandings relating to trusts can be illustrated by Brazilian airline bankruptcy cases, in which airlines and courts have initially sought to treat a trustee acting for multiple trusts as though it were a single creditor for the purposes of creditor meetings, including voting rights. In such cases, the courts have been persuaded to treat different trusts as distinct creditors, but the fact that such persuasion was necessary demonstrates the level of misconception of trusts in Brazil.
Although trustees are frequently registered as owners or mortgagees of aircraft, there is no registration for the holders of a beneficial title to trusts. This will not change under the new regulations. However, the RAB will now require the submission of copies of trust agreements in respect of all owner trusts. This new requirement applies prospectively – existing owner trusts will not be required to submit copies of their trust agreements, but transactions with existing aircraft that are transferred to owner trusts will fall within the scope of the new rule.
To qualify for submission, trust agreements must be:
In principle, parties should have the notarised, consularised and translated trust agreements ready when seeking to title an aircraft in the name of an owner trust. However, the RAB will usually provide parties with a 30-day period in which to procure such agreements, especially if the delay is due to the Brazilian consularisation process.
Initially, there was some doubt concerning the applicability of the new rule to security trustees. The new regulations expressly refer to owner trusts. However, the RAB began asking for copies of the trust agreements of security trustees when the new regulations were published. This has caused some concern, since security trustees are not trustees of distinct trusts and the appointment of security trustees rarely involves the execution of a separate trust agreement. More recent decisions of RAB analysts do not require trust agreements for security trustees.
One other development of this new regulation is that it is not easier to use the same trust company to serve as owner trustee and security trustee. Although this was never expressly prohibited, use of the same trustee may have caused confusion and was, for this and other reasons, avoided.
The submission of trust agreements will not affect the confidentiality of parties to a transaction. The RAB will maintain trust agreements in its records, but it does not intend to record trust agreements. Thus, trust agreements submitted to the RAB will not fall into the public domain and third parties will not be entitled to obtain copies thereof.
The mere mention of trust agreements in the new RAB regulations represents a departure from previous practice in Brazil, which did not consider the mechanics of trusts.
Another innovation in the new regulations is an express provision dealing with interchange agreements. The regulations contain a section on temporary assignment, rental, interchange and other rights of use – this direct reference to 'interchange' is new.
At least two airlines groups have emerged in South America with distinct operating entities in different countries – the Latam group, headquartered in Chile, and the Avianca group, headquartered in Colombia. Both groups have affiliate airlines in Brazil. These groups are constantly seeking greater operational efficiencies. One effective method to attain this is through an interchange agreement, an arrangement perfected by the Latam group. Interchange agreements allow different operators to use the same aircraft for their respective flights. For example, an aircraft can perform its first flight of a day from Sao Paulo to Chile with a flight code from TAM Brazilian Airlines, then continue from Chile to Ecuador with a LAN (Chile) code, and eventually return to Brazil with a TAM code.
Although interchange agreements have been used for several years, there were previously no express provisions in the ANAC Regulations allowing for them and officials of the RAB did not always know how to treat them for registration purposes. They have some similarities to dry leases, wet leases and charter agreements, but there are also significant differences.
The new regulations expressly provide for the registration of interchange agreements, which reduces most doubts as to the ability of interested airlines to enter into them. Curiously, the new regulations do not explicitly mention interchange agreements of aircraft registered in jurisdictions outside Brazil. However, some informal materials circulated by the RAB imply that it will now accept interchange agreements with non-Brazilian registration.
In relation to formalities, the new regulations confirm a practice that has been in effect for several years regarding notarisation. The RAB requires filed documents signed in Brazil to be notarised by Brazilian notaries. In Brazil, there are two methods for notarising documents – notarisation by authenticity and notarisation by similarity. In both cases, the signatory must register his or her signature with a Brazilian notarial office by filing signature cards.
Notarisation by authenticity is similar to the notarisation procedure in the United States or the United Kingdom, as the signatory signs in the presence of a notary and the notary affirms his or her witnessing of the signature. In contrast, notarisation by similarity does not require a document to be signed in the presence of a notary. Instead, signed documents can be brought to the notarial office after they have been signed, where the notary will compare the signatures to previously registered signatures on file and then stamp the signature as 'notarised by similarity'. Notarisation by similarity allows parties to pre-sign undated documents to be subsequently dated and notarised. Notarisation by authenticity does not allow for this flexibility, since the notary attributes a date to the document when witnessing and notarising a signature.
The new regulations clarify the RAB's notarisation requirements by stipulating that bills of sale and other title transfer instruments must be notarised by authenticity. Other documents, such as leases and mortgages, may be notarised by similarity. This does not represent a new rule with the RAB. However, the superseded regulations were unclear on these requirements and the new regulations eliminate prior doubts.
The new regulations amend a prior requirement for a certificate of airworthiness for export when an aircraft is being registered. The RAB's prior regulations required such export certificates of airworthiness to be procured whenever aircraft were being exported. However, this requirement for issuance of an export certificate of airworthiness is one that the new civil aircraft register should determine. There are many cases where certificates of airworthiness for export are not required by other jurisdictions. For example, the US Federal Aviation Administration (FAA) does not require such certificates for most aircraft that were manufactured in the United States or previously registered with the FAA. Some countries do not require export certificates of airworthiness at all and some require regular certificates of airworthiness that have been issued within a stipulated period.
Over the past few years the RAB has taken a constructive and practical approach to requests to de-register aircraft without certificates of airworthiness for export. However, such de-registrations were arguably contrary to the RAB's own regulations. The new regulations expressly provide that the RAB will de-register an aircraft without an export certificate of airworthiness, provided that the rules of the next country of registration do not require one. In practice, the RAB will probably continue to ask owners to consent in writing to such de-registration.
Aircraft owners should be aware that once an aircraft has been de-registered from the RAB, the Brazilian authorities will typically not issue an export certificate of airworthiness. Therefore, parties should be sure that they will not need such certificates before de-registering aircraft from the RAB.
Another issue that the new regulations clarify is the effective date of title transfers. The Aeronautical Code requires registration of a title transfer document to transfer a title effectively. In the past, this has caused some doubts concerning the effective date of transfer, as there are a few possible dates that could be considered the effective date in regard to the sale of an aircraft registered with the RAB, such as:
Furthermore, at some point between the date on which a bill of sale is filed with the RAB and the date on which the RAB confirms that the bill of sale has been registered is another relevant date – the date on which the sale is actually entered in the RAB's records. Thus, there are at least four different effective dates in a typical sale transaction.
The RAB's new regulations now expressly provide that the filing date is the effective date of a sale, provided that the parties meet all document submission guidelines within the RAB's requirements. Although doubts concerning the effective date of title transfer were not causing major problems in finance transactions, the clarity of the new regulations is welcome, as it eliminates any lingering doubts.
The new regulations require aircraft that have not made any filings, including inspection renewals, for a period of five years to be re-registered. This requirement is not expected to affect many aircraft leased to commercial airlines, air taxi companies or active business aircraft operators.
The new regulations are a positive step towards achieving additional clarity on a variety of issues and demonstrate the RAB's responsiveness to the aviation finance community. The next step towards clarity will be publication of the RAB's rules on the issuance of authorising entry point codes for international registry filings and the use of irrevocable deregistration and export authorisations, which it is hoped will be finalised soon.
For further information on this topic please contact Kenneth D Basch at Basch & Rameh by telephone (+55 11 3064 8599), fax (+1 561 431 5808) or email (email@example.com). The Basch & Rameh website can be accessed at www.baschrameh.com.br.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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