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05 May 2021
This article is part of a series on protecting the interests of aircraft owners and lessors.(1) In the context of political uncertainty in Peru, this article explains the remedies that the Civil Aviation Law provides to aircraft and engine owners and lessors to guarantee their property and creditors' rights.
Until 2006 the Civil Aviation Law set out the following remedies:
However, since the enactment of the Security Interest Law, which replaced aircraft mortgages and engine pledges with security interests, detention is the only remedy offered by the Civil Aviation Law (other mechanisms are available in other statutes).
According to the Civil Aviation Law, aircraft and engine detention will proceed in cases of default of payment of:
In these situations, aircraft owners can obtain the detention of an aircraft or engine through an expeditious judicial proceeding.
Unlike detention relating to lease agreements, the detention of aircraft and engines would also apply to aircraft that operate international flights with foreign registration marks and without a Peruvian registration.
Certain issues arise from the judicial process required to obtain an aircraft or engine detention. According to the Civil Aviation Law, to request aircraft and engine detention, the owner or lessor must follow an expeditious proceeding that should take no more than three months. However, in practice, it takes no less than one year.
Further, the same law states that the judgment must be issued according to "the conditions or circumstances of the obligation, only in the following situations, in the case of default of payment...". This article provides no clarity to creditors on the circumstances of the obligation or how they may affect the judicial decision, making this remedy unpredictable.
The Civil Aviation Law indicates that it is possible to register the detention of aircraft or engines in the corresponding electronic file. This enables the owner to advertise the situation regarding the aircraft and engines to third parties to avoid acts against its interests. Certainly, an encumbrance on an asset discourages the performance of acts thereon and reduces its market value.
Further, it is possible to request the cancellation of registration marks, provided that the owner has obtained the aforementioned judgment from a local court.
The Civil Aviation Law refers to the detention of "aircraft and engines" but it is unclear whether this means only engines installed on an airframe that has also been detained. Because definitions relating to aircraft provided by the Civil Aviation Law and complementary regulations treat aircraft and engines in aircraft separately, it is thought that this remedy may be applied to engines on a separate basis.
The Civil Aviation Law also sets out detention provisions regarding aircraft subject to lease agreements. In relation to leased aircraft, detention proceeds due to:
In these scenarios, the Civil Aviation Law states that "detention of the leased aircraft proceeds by judgment or when the lease agreement is no longer in force in the Aircraft Public Registry".
It seems that this remedy applies only to aircraft carrying out domestic flights, as local registration of a lease agreement before the Peruvian Public Registry is required.
Administrative proceeding for aircraft detention
According to the regulations of the Civil Aviation Law, the registration of an aircraft lease agreement will no longer be considered in force in the Peruvian Public Registry where:
In these situations, once the lease agreement is no longer in force in the Peruvian Public Registry, the owner may request the Peruvian Civil Aviation Authority's intervention to carry out aircraft detention without the need of judicial intervention.
This remedy is a positive externality of the registry of a lease agreement before the Peruvian Public Registry. However, proving the termination of the agreement before such entity may be challenging.
Detention of leased engines
In the case of detention relating to a lease agreement, the Civil Aviation Law includes no reference to engines. However, it is thought that the rules for leased aircraft (airframe) detention would also apply to the detention of leased engines.
As an alternative to requesting the Peruvian Civil Aviation Authority's intervention in the detention of an aircraft, owners or lessors may initiate a judicial proceeding. However, this entails the aforementioned setbacks.
The authorities' efforts to protect aircraft property are undeniable. However, given the uncertain political scenario and the effects of the COVID-19 pandemic, it is imperative to create effective mechanisms in the best interests of aircraft owners and lessors in cases of contractual breaches.
For further information on this topic please contact Fernando Hurtado de Mendoza at Kennedys Law LLP by telephone (+51 1562 5150) or email (firstname.lastname@example.org). The Kennedys Law LLP website can be accessed at www.kennedyslaw.com.
(1) For the first article in the series, please see "Aircraft ownership: proving title through registration".
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