A draft law providing emergency relief due to the COVID-19 pandemic has been submitted to the lower house of Congress. The impact of the draft law on the rights of aircraft lessors would be significant and would place into question Brazil's compliance with the Cape Town Convention on International Interests in Mobile Equipment and the Protocol to the Convention on Matters Specific to Aircraft Equipment.
The Federal Government recently issued an executive order with the potential to change the tax treatment of commercial aircraft leasing. Subject to that determination, the executive order sets new rules for commercial aircraft and engine leases. However, the executive order has created considerable confusion and doubts in the aviation sector.
A number of recent aircraft repossession actions have demonstrated that a majority of judges have correctly recognised lessor rights to repossession in the face of apparent lease agreement defaults. However, these decisions have not clearly cited the Cape Town Convention as their basis. The Brazilian judiciary's failure to unify repossession actions against a bankrupt lessee in a single court has meant that some lessors are subject to minority view decisions that can be upheld on appeal.
Following developments earlier in 2019, aircraft repossession has continued to be in the spotlight – yet again with regard to the Oceanair Linhas Aéreas SA (commonly known as 'Avianca Brazil') bankruptcy and, in particular, the experience of lessors that sought repossession of leased aircraft therefrom. In this case, and contrary to Avianca Brazil's pre-bankruptcy experience, a bankruptcy court failed to uphold the express provisions of the Bankruptcy Law 2005 and the Cape Town Convention
In respect of four aircraft that were recently repossessed before Avianca Brazil obtained bankruptcy protection, the Brazilian judiciary and civil aviation agency procedures worked reasonably well and Brazil's overall performance complied with its obligations under the Cape Town Convention. While all four aircraft were exported and de-registered within approximately two weeks, Brazilian customs authorities must still reassess the current export authorisation procedure.