Insights

The Aircraft Registration Act^[1] (the “ARA”) was enacted in 2010 with a vision to emulate the success story Malta achieved in the maritime sector^[2]. Having said that it is important to keep in mind that each sector has its own intrinsic potential and growth factors.

In the process of enacting the ARA, the legislator realised that the main players to attract in order to promote the aviation industry in Malta were first and foremost the financiers and the lessors. This meant that Malta had no choice but to implement the Cape Town Convention^[3] and the Aircraft Protocol^[4] (together the “CTC”). This was done by legislating on both national and Cape Town Convention systems and thus allowing for simultaneous application but introducing prevalence rules.

By enacting the Aircraft Registration Act, innovative concepts were introduced into Maltese law, which include:

(a) incorporating security interests not recognized under Maltese law;

(b) irrevocable mandate; and

(c) security by title transfer.

Under the previous law, ‘security interests’ were restricted to mortgages and privileges, while the ARA regulates a wider concept of security interest and introduces new concepts. Security interest means an interest granted in terms of a security agreement drawn up to secure the rights of:

(i) a person who is a conditional seller under a title reservation agreement; or

(ii) the rights of a person who is a lessor under a lease; and which is recognized and regulated in terms of Article 41 of the ARA.

These security interests are alien to Maltese law, however, the law has been amended to accommodate such interests^[5].

Prior to the enactment of the ARA security interests were registered in the National Aircraft Registry as mortgages, while the CTC has introduced the international registry and thus interests are registered both locally and internationally. However, the international registration prevails over domestic mortgages and security interests. This means that financiers and lessors who have a security interest can secure their rights in the international interest in relation to aircraft which have are registered in Malta.

Furthermore, the remedies which were available to the mortgagee, in the event of default, under the previous law^[6] included the right to take possession of the aircraft, have power to sell the aircraft or to apply for any extensions, pay fees and receive certificates. Such rights have been extended and under the ARA the mortgagee or the holder of a security interest now also has the power to lease the aircraft so as to generate income therefrom; the power to receive payment of the price, lease payments and any other income which may be generated from the management of the aircraft; and pursuant to an irrevocable de-registration authorisation granted and registered in the National Aircraft Registry or International Registry, request the cancellation of the registration.

Another innovative concept was the introduction of irrevocable mandate. Mandate under Maltese law is by its very nature revocable. Mandate can be terminated by virtue of a declaration of bankruptcy of either the mandator or the mandatary. In view of this the Civil Code^[7] was amended in order to introduce the concept of irrevocable mandate granted by way of security^[8]. Thus, in security documents a clause may be inserted granting the creditor an irrevocable mandate by way of security.

One such mandate takes the form of an irrevocable de-registration and export request authorisation (the “IDERA”). Therefore, the creditor will be able to de-register and export the aircraft upon default without the consent of the debtor. The IDERA is registered in the National Aircraft Register and provides an element of certainty and a level of comfort to the IDERA holder (typically the lessor or financier) that should there be an event of default, the IDERA holder could re-possess the aircraft accordingly.

The introduction of the CTC and the need to provide more security for creditors prompted further changes in the Civil Code, such as the concept of security by title transfer. The promulgation of trusts law in Malta was also one step in the right direction in that the trust concept could be used to get the borrower to declare a trust over assets for the benefit of the lender, until the underlying indebtedness is paid.

The amendments to the Civil Code^[9] have allowed for the possibility of providing security by title transfer whereby the security grantor actually transfers an asset to a creditor/third party by way of security. In doing so the creditor/third party acquires legal title to assets, but he owes fiduciary obligations to the security grantor.

Furthermore, if there is an arrangement of security by title transfer and subject to the terms of the agreement between the parties, in the event of a default, the creditor shall, upon giving notice in writing to the debtor and the transferor of property, be entitled to realise the property transferred:

(i) by sale; or

(ii) by setting off or netting their value, and applying their value in discharge or the secured obligations (this shall only be possible if it has been expressly agreed to  in the agreement between the parties).

The enactment of the ARA, the introduction of these innovative concepts and implementation of the CTC in our law have led to lessors and financiers becoming more comfortable providing funds or leasing aircraft to aircraft owners who register their aircraft in Malta or lease them to Air Operator Certificate (“AOC”) holders established in Malta who in turn operate and manage such aircraft.

The growing presence of AOC holders^[10] in Malta and the increase of aircraft registered^[11] in the National Aircraft Register is testament to the success story of the ARA. Naturally, there still is and will always be room for improvement, however, it is safe to state that the enactment of the ARA, together with the implementation of the CTC, was a step in the right direction.