Creating and registering security interests over aircraft in Panama

An extract from Lexology Getting the Deal Through - Aviation Leasing & Finance 2020

Author: Maria de Lourdes Marengo

Security

Security document (mortgage) form and content

What is the typical form of a security document over the aircraft and what must it contain?

The typical form of security over an aircraft is a mortgage. The mortgagor maintains the use and possession of the aircraft while mortgaged. It is possible to constitute several mortgages over an aircraft, provided that written notice is given to all prior mortgagees. There is no specific form. The mortgage must be translated into Spanish if executed in another language, and must include the following:

• the full names and details of the parties and their representatives;

• the economic terms including the maximum amount secured;

• the interest agreed;

• the manner in which payments will be made;

• a complete description of the mortgaged aircraft indicating its value;

• the place where the aircraft will be located; and

• any other lawful conditions agreed to by the parties.

Security documentary requirements and costs

What are the documentary formalities for creation of an enforceable security over an aircraft? What are the documentary costs?

The mortgage, evidence of the existence of mortgagor and mortgagee, and the corresponding corporate authorities must be translated into Spanish if executed in another language, and processed and registered with the Public Registry.

All documents coming from abroad must be certified by a notary public. The notary must state that the signature is authentic and that, pursuant to sufficient evidence provided to him or her, the party signing is duly authorised to sign on behalf of the company. Thereafter, the signature of the notary must be certified according to the 1961 Hague Convention on the apostille or by a Panamanian consul in the place of issuance.

The registration fees are US$100 for review by the Public Registry, plus US$2.50 for each US$1,000 or fraction thereofwith a cap of US$51,250. Additionally, notarial fees in the amount of US$14 per page and translation fees based on the length of the document apply.

Security registration requirements

Must the security document be filed with the aviation authority or any other registry as a condition to its effective creation or perfection against the debtor and third parties? Summarise the process to register a mortgagee interest.

According to the Aeronautical Law, the mortgage is valid between the parties as of the time of execution but must be recorded with the Public Registry in order to be effective against third parties. The law of Mortgages on Chattel Property provides that the mortgage will be effective against third parties as of the date of registration with the Public Registry. This discrepancy must be resolved in pending regulations. Registration can be achieved within five to 10 days. Registration may be expedited if fast-track registration fees in the amount of US$300 are paid. The mortgage will remain valid throughout the term of the mortgage.

Registration of security

How is registration of a security interest certified?

Public Registry certificates are issued to any interested party showing that the said party is a valid legal entity in existence, together with the name of its legal representative in respect of companies organised in accordance with the laws of Panama. If the owner is a foreign entity, it must file an official certificate of existence from its place of incorporation.

Upon registration, the Civil Aeronautics Authority (AAC) issues a certificate of registration to the owner or operator showing the registration number, owner, operator and type of service.

When the mortgage on an engine is recorded at the Public Registry, it is possible to obtain a Public Registry certificate stating ownership and mortgage details. Other security interests cannot be registered in Panama.

Effect of registration of a security interest

What is the effect of registration as to third parties?

It is not possible to register other security interests in Panama.

Security structure and alteration

How is security over aircraft and leases typically structured? What are the consequences of changes to the security or its beneficiaries?

Security over an aircraft is constituted through mortgages. Any changes to the mortgage must be filed with the Public Registry in order to be effective against third parties. The aircraft mortgage creates a right in rem.

Trusts are recognised and regulated in Panama as contractual arrangements and are commonly used in finance transactions. Generally a trust is created and the security trustee acts as mortgagee. The trust does not need to be registered and accordingly changes to the beneficiaries of the trust do not require registration.

Security over spare engines

What form does security over spare engines typically take and how does it operate?

Generally, a mortgage on an aircraft will cover its accessories and improvements, such as spare parts and engines incorporated therein, whether they are present or future accessories of improvements. Engines and other spare parts capable of individualisation and determination and able of being sufficiently identified can be mortgaged separately from the aircraft.

First published in Lexology