Germany has signed and ratified:

Germany has signed, but not ratified, the Cape Town Convention on International Interests in Mobile Equipment 2001 (Cape Town Convention) and its Protocol on International Interests in Mobile Equipment on Matters specific to Aircraft Equipment (Protocol) (see Question 38).

Germany has not signed the Rome Convention on Damage Caused by Foreign Aircraft to Third Parties on the Surface 1952 and the Montreal Protocol 1978 to amend the Rome Convention.

The principal domestic legislation applicable to aviation finance is:

Aircraft purchases are typically financed by a secured bank loan, specifically an aircraft mortgage. German law provides for only one form of security over an aircraft to be registered, a mortgage in accordance with the provisions of the LuftFzgG. Mortgages can only be registered over aircrafts that are entered in the Aircraft Register (see Question 12). Other financing options are finance or operating lease agreements, sale and leaseback agreements, or forfaiting agreements between a lessor and a bank (see Question 4).

In addition, separate agreements for aircraft engines may exist with another party with different and more complex security arrangements. There is no register for securities over engines (in contrast to securities over aircraft (see Question 6 and Question 7)).

There are no particular legal issues in relation to aircraft financing through bank loans. They are denominated in US dollars. The financing bank is legally represented and the various forms of security, including the first-ranking mortgage, are granted during the complex deal closing between the seller and buyer.

A security trustee structure is recognised to an extent in the form of a managing bank leading a consortium of banks. A separate agreement between the banks participating in the consortium is concluded. This also determines the rules for the sharing of all security. However, the banks participating in a loan often require that they are registered as (equal) first-ranking mortgagees for their part of the financing.

Finance lease agreements are regularly concluded for tax reasons. The lessee is typically an airline. The lessor is typically a special purpose vehicle (SPV) set up by an internationally operating leasing company, which may operate as the arranger of the transaction.

The purpose of a German financial lease structure is that recourse bank financing should be limited (regresslos). This is achieved through using an SPV with the sole liability of fulfilling the leasing agreement with the lessee. The use of an SPV structure enables the risks arising from the airline's general business operations and the capital providers' activities to be strictly separated from the financing of the aircraft. Competition for security between the financing bank and other creditors is largely eliminated.

Implementing the arrangement. The lessor often buys the aircraft directly from the seller. Therefore, the sale and purchase agreement is concluded between the seller and the lessor; the lessor as new legal owner will make the payment. If the sale and purchase agreement is, however, originally concluded between the seller and the lessee, the lessee will assign the sale and purchase agreement to the lessor, who will step in into the original sale and purchase agreement as new legal owner instead of the originally envisaged lessee. Again the lessor will make the payment.

Alternatively, and if the aircraft is already operated by the airline, the lessor can purchase the aircraft through a sale and leaseback agreement (see below, Sale and Leaseback Agreements).

In both cases, the purchasing lessor SPV will request the transfer of the warranty for claims against the manufacturer of the aircraft frame and engine.

A finance lease agreement between a lessor and a lessee usually starts on the day the seller transfers the aircraft. A lessor SPV in Germany typically finances the purchase price through a mixture of own capital and a bank loan, or by forfaiting of the future leasing rates (see below, Forfaiting Agreements).

German tax rules determine the minimum and the maximum duration of the basic lease agreement (the first phase prior to any extension). During this time the agreement cannot be terminated without cause. After those terms, the parties can agree on an extension of the duration. Immediately after the end of the basic lease duration or after its extension, the parties can agree on various options to allow:

Characteristics of the arrangement. Under a finance lease agreement the lessor is the legal owner and the lessee the economic owner of the aircraft. The structure allocates all rights to the financing bank and all risks (or at least the administration of them) to the lessee including:

The financing bank:

The lessee:

The lessee may obtain a second-ranking mortgage on the aircraft, with respect to the risks it is carrying, on the basis of an abstract acknowledgement of debt securing a claim against the lessor for non-fulfilment of the lessor's obligations to the lessee.

The major difference between operating lease agreements and finance lease agreements is that under an operating lease the lessor is both the legal and economic owner of the aircraft. In other aspects, they generally differ little from finance lease agreements.

Sale and leaseback agreements are typically made in conjunction with finance lease agreements, but can also be made with operating lease agreements. The original purchaser of an aircraft (legal owner) sells the aircraft to a leasing company and at the same time agrees a lease agreement for the same aircraft with a limited duration. The leasing company usually refinances the purchase price with a bank, granting it a first-ranking aircraft mortgage.

Under a forfaiting agreement the seller of the claim (the lessor) does not refinance by a loan, but rather sells the claim to a bank without recourse. The seller is not liable for the good standing (creditworthiness) of the lessee, but only for the legal existence of the claim (that is, all (future) leasing rates) and its transferability. The purchase price is slightly lower than the added nominal value of the leasing rates because the bank is both:

The bank will demand a first-ranking mortgage on the aircraft on the basis of an abstract acknowledgement of debt. Depending on the exact structure, forfaiting may be more favourable than other structures with regards to tax.

The main terms of an aircraft sale and purchase agreement are:

Title is transferred not on the basis of the sale and purchase agreement (section 433 BGB) only, but the requirements of section 929 BGB must also be met, which are:

Both consent and handover are documented in the bill of sale. The bill of sale also contains information on existing encumbrances.

All German aircraft must be recorded in the Aircraft Register, an official non-public register listing all the aircraft that are registered for traffic in Germany (section 3, LuftVG). In contrast to the land register (Grundbuch), the Aircraft Register does not protect the buyer's good faith in the seller's title.

The transfer of title to an aircraft's engine is subject to the same rules as for the airframe (see above, Airframe).

The legal principle that components of an asset which cannot be separated from each other without destroying or changing the essence of one or the other (essential components (wesentliche Bestandteile)) cannot be the subject of separate title (section 93, BGB) does not apply to the engines of an aircraft. In contrast to other jurisdictions, for example the Netherlands, aircraft engines are not considered an integral and therefore essential component of the entire aircraft. They can be subject to separate rights (sonderrechtsfähig).

A lien (Pfandrecht), for example, a mortgage, is a claim or legal right against an asset which is typically used as collateral to satisfy a debt. It secures an underlying obligation, for example the repayment of a loan. If the obligation is not fulfilled, the lienholder can seize the asset subject to the lien.

The LuftFzgG contains the national rules on aircraft mortgages (Registerpfandrecht an einem Luftfahrzeug). A registered aircraft mortgage (Registerpfandrecht) is the only legally binding encumbrance of an aircraft (section 9(1), LuftFzgG).

A valid aircraft mortgage requires the owner and future lienholder's agreement and registration of the mortgage (sections 1 and 5(1), LuftFzgG). An aircraft mortgage is registered in the Aircraft Mortgage Register (Register für Pfandrechte an Luftfahrzeugen) at the District Court of Braunschweig (section 78, LuftFzgG). Generally, the lienholder, the claim amount, any interest rate, and the amount of the ancillary benefits must be specified (section 24, LuftFzgG).

Section 86, paragraph 1, sentence 1 of the LuftFzgG refers to sections 37, paragraph 1, sentences 1 and 29 of the Ship Registry Act (Schiffsregister-Gesetz) (SchRG). According to these provisions in the Ship Registry Act, registration requires the owner's consent (Eintragungsbewilligung) to be evidenced by a public certificate (öffentliche Urkunde) or publicly authenticated certificate (öffentlich beglaubigte Urkunde). Public certificates are documents that have been produced by a public authority or by a person with public authority, for example, a notary (section 415(1), ZPO).

Only aircraft that are registered in the Aircraft Register can be registered in the Aircraft Mortgage Register (section 1, LuftFzgG). The Aircraft Register is the official list of all aircraft registered for traffic in Germany (see Question 12).

A registered aircraft mortgage is strictly accessory (streng akzessorisches Sicherungsrech), meaning it is dependent on the underlying claim. Therefore, an existing claim is a prerequisite for the mortgage to come into existence and the expiry of the claim will cause the termination of the mortgage (sections 1 and 57, LuftFzgG).

The enforcement of an aircraft mortgage is effected by compulsory enforcement (Zwangsvollstreckung) (sections 47 to 50, LuftFzgG).

An aircraft mortgage is the only permissible lien on an aircraft (section 9(1), LuftFzgG). Therefore, any other lien will be invalid (section 134, BGB) and other mortgages and charges cannot take priority. The priority of multiple aircraft mortgages registered for the same aircraft is determined by the order in which they are registered (section 25(1), sentence 1, LuftFzgG).

A registered aircraft mortgage includes accessories and components (section 31, LuftFzgG). The general concept of accessory as defined by section 97(2), sentence 1 of the BGB does not apply to an object that is only temporarily utilised for the primary object. However, section 31(1), sentence 2 of the LuftFzgG extends the concept of accessory to those objects.

To avoid the discharge of liability under section 31, paragraphs 3 and 4 of the LuftFzgG (transfer of an accessory, or component, or both into a spare parts deposit), an aircraft mortgage can even be extended to cover the entire spare parts deposit of an airline (section 68, LuftFzgG). This extension requires the agreement of the owner and the lienholder and the registration of the extension in the Aircraft Mortgage Register. The extension does not constitute an independent lien. In German law, it is particularly noteworthy that the extension of a registered aircraft mortgage can cover a spare part deposit abroad (section 68(1), LuftFzgG). This means it can grant the lienholder a right in rem to an object located abroad.

A registered aircraft mortgage also includes claims against an insurer, provided that the subject objects are insured for the benefit of the aircraft owner (sections 32 to 38, LuftFzgG).

Engines can be subject of separate security arrangements (Sonderrechtsfähigkeit). These arrangements can be made prior to or after their attachment to the aircraft. If the engine and the aircraft are the property of the mortgagor and no separate arrangements exist, the aircraft mortgage can cover the engine from the moment the engine is attached to the aircraft. The engines can be removed at any time with the effect that they will no longer be covered by the aircraft mortgage. The parties are free to make further and separate arrangements in respect of the engines.

If an aircraft is leased or rented, the registered mortgage does not extend to the lease or rental claims, cargo claims, or claims of the aircraft owner under passenger contracts.

A registered aircraft mortgage is the only legally binding registered encumbrance of an aircraft (section 9(1), LuftFzgG). However, this does not exclude security through retention of title (Eigentumsvorbehalt) and transfer of ownership by way of security (Sicherungsübereignung), which are generally widely used security options in Germany. They can be agreed without formalities and therefore inexpensively.

In practice both forms of security are largely avoided in the aviation industry due to decisive disadvantages:

An assignment of security requires:

Although security and in-rem agreements usually occur together in practice, they must be viewed separately.

The general rules of assignment apply (sections 398 to 413, BGB).

Security agreement. The debtor and creditor conclude a security agreement which provides the basis for the creation or transfer of the security (BeckOGK/Lieder, 1.9.2022, BGB section 398 paragraph 211). It requires the assignor to provide a security, however, it does not establish a specific right for the assignee over the security. This is due to the unique German legal principle of separation and abstraction (Trennungs- und Abstraktionsprinzip):

(MüKoBGB/Kieninger, Edition 9, 2022, BGB section 398 paragraphs 24-26.)

The security agreement establishes a trust relationship between assignor and assignee (BeckOGK/Klinck, 1.9.2022, BGB section 930 para. 121). The security agreement must:

The security agreement generally contains specifications on the security's:

(BeckOGK/Lieder, 1.9.2022, BGB section 398 paragraph 215.)

In-rem agreement. As the security agreement is only the basis of the assignment at the level of contractual obligations, the assignor and assignee must conclude an in-rem agreement. Both parties directly agree to change the legal owner of the assigned claim and on the completion of this agreement, the assignee takes the place of the assignor.

There are no formal requirements for the in-rem agreement. An implied agreement is possible. However, a written agreement is recommended for evidential purposes (Ellenberger/Bunte BankR-HdB, section 75 Sicherungsabtretung paragraph 33). As a minimum, the agreement should specify the contracting parties and the claim with sufficient precision.

If the debtor insures the aircraft, they can provide security by assigning (future) claims against the insurance company to the creditor.

Security agreement. Clear identification of the security is particularly necessary where future claims against the insurer are assigned as security.

In-rem agreement. As future rights are assigned in insurance claims, the legal basis and the factual background from which the future claim arises must be described in such a way that the claim is clearly distinguishable from other claims at the time it comes into existence (Ellenberger/Bunte BankR-HdB, section 75 Sicherungsabtretung paragraph 48). The assignment of a future claim is not valid at the time of the agreement, but only becomes valid at the time the claim is created.

Notifying the insurer. Depending on the claim and the insurance contract, it may be necessary to notify the insurer of the existence of the security agreement. In aircraft financings the insurer should always be notified of the assignment and asked to confirm receipt of that notification. Otherwise, a payment from the insurer to the original policy holder instead of the financier will release the insurer from its obligation to make payments under the contract.

Security over bank accounts containing the income of the operated aircraft is a standard financial security. It is effected by an assignment agreement of the income accounts (in various currencies). The accounts will be blocked in favour of the financier.

The assignment of the warranty claims against the manufacturer for either of the aircraft or engine or both in favour of the financier is a standard financial security. The financier should notify the manufacturer of the assignment and the manufacturer should confirm receipt of the notification to the financier.

It is possible to encumber a debtor company's shares in favour of a financier.

Security agreement. The security agreement provides for the assignor to transfer the ownership of the shares to the assignee.

In-rem agreement. Agreement and delivery of the shares are required (section 929, BGB).

However, not all financiers are keen to take security over the shares of a debtor company (or its group superior, for example, its parent company) because of possible tax implications. The structure must safeguard the financier from having to state that the debtor company is a part of the financier in the financier’s annual return.

Aircraft are registered in the Aircraft Register (Luftfahrzeugrolle). It is maintained centrally for the whole of Germany by the German Federal Aviation Authority (Luftfahrt-Bundesamt) (LBA) in Braunschweig. The Aircraft Register is part of the German Aircraft Registration System. This also includes the register of air sports equipment (for example, microlight aircraft and hang gliders), which is, however, kept by the German Aero Club (DAeC). Aircraft that are equipped with their own power drive are registered in the Aircraft Register (section 14, LuftVZO). This includes aircraft, helicopters, airships, and motor gliders. Gliders, free and tethered balloons, kites, and parachutes are not eligible for registration.

Registration is carried out by the LBA at the time that the aircraft is licensed for traffic. Exceptionally, registration is possible prior to traffic licensing if a justified interest is asserted, for example, where early registration is necessary for financing (section 14(1), sentence 2, LuftVZO).

The following are prerequisites for registration:

All relevant registration forms can be found at LBA: Traffic permit forms, see especially Form LBA-Nr. 07.

Applicants for registration can be private persons, companies, associations, or societies (see above, Registration Requirements). The application can be sent by post or handed in personally with the accompanying documents. The LBA acknowledges receipt.

All relevant registration documents must be attached to the application in full, including:

The duration of the registration process and the applicable fees depend on the type of aircraft. Applications are processed as quickly as possible.

The Aircraft Register records the ownership of the aircraft (see Question 12, Aircraft Register and Registration Requirements). However, the Aircraft Register is not public or published and is subject to special data protection regulations. Information can usually only be provided to public bodies, for example, the police or public authorities, if necessary:

Therefore, the Aircraft Register primarily serves public law purposes. Unlike the land register, it does not protect the buyer that is acting in good faith by ensuring the validity of the seller's title.

Exceptionally, however, information may be provided to non-public (private) bodies, when it is credibly shown that the information is needed in connection with air traffic legal matters. In this case, the Aircraft Register can serve as a source of evidence of ownership.

On registration of an aircraft in the Aircraft Register, the LBA issues a registration certificate (Eintragungsschein). This registration certificate must be carried on board the aircraft at all times.

The registration of aircraft mortgages requires the owner and (future) lienholder's agreement and the registration of the aircraft mortgage (sections 1 and 5(1), LuftFzgG) in the Aircraft Mortgage Register which is located at and maintained by the District Court of Braunschweig (section 78, LuftFzgG).

The following are entitled to apply for registration of the mortgage:

(Section 79, LuftFzgG.)

The information to be given to the Aircraft Mortgage Register includes:

(Section 80, LuftFzgG.)

The law does not prescribe a specific form for the registration (section 86(1), sentence 2, LuftFzgG). However, the applicant must prove that their details correspond to the entries in the Aircraft Register (section 80(2), sentence 1, LuftFzgG). For this purpose, the applicant can submit a certified extract from the Aircraft Register. In addition, the owners must provide credible evidence of their title when registering the aircraft for the first time (section 80(2), sentence 2, LuftFzgG). This requirement can be met by means of an affidavit before a notary public, which must be notarised (section 38, BeurkG).

The duration of the registration process and the applicable fees depend on the type of aircraft. Applications are processed as quickly as possible.

When a mortgage is registered, there is a statutory presumption that it exists (section 15, LuftFzgG).

A registered mortgage applies over the aircraft itself and its essential components, including:

(Section 1, LuftFzgG.)

Engines are not considered essential components (cf. section 97 BGB) of the entire aircraft, and are, as a rule, not covered by an aircraft mortgage. The parties to the aircraft mortgage can make separate agreements in respect of the engines (see Question 8). There is no separate register for engines.

In addition to the aircraft itself, the registered mortgage also extends to its accessories, if they are owned by the aircraft owner (section 31(1), LuftFzgG). Items used only temporarily for the operation of the aircraft can also be classified as accessories. Typical accessories are wheels and parts of the aircraft interior.

The parties can agree to extend a registered aircraft mortgage to cover spare parts stored at a designated place (for example, a spare parts warehouse) in Germany or abroad (section 68(1), sentence 1, LuftFzgG) (see Question 8).

If the claim underlying the registered mortgage is not satisfied, the creditor can realise the mortgage by seizing the aircraft, through compulsory enforcement (section 47(1), LuftFzgG). The rules for compulsory enforcement are set out in section 99(1) of the LuftFzgG, in conjunction with sections 864 and 870a of the ZPO in accordance with the regulations on real estate enforcement.

German law provides for only one form of security over an aircraft to be registered, a mortgage in accordance with the provisions of the LuftFzgG.

There are no other registrable forms of security.

Aircraft leases cannot be registered.

Aircraft leases cannot be registered. As Germany did not ratify the Cape Town Convention (see Question 38), registration of international interests under the Cape Town Convention does not apply.

(For information on aircraft leasing in general, see Leaflet of the Federal Aviation Authority on Leasing and Code-Share (Merkblatt des Luftfahrt-Bundesamtes zu Leasing und Code Share).)

An aircraft mortgage is the only permissible security interest (section 9(1), LuftFzgG) (see Question 6 and Question 7). It is certified by registration in the Aircraft Mortgage Register (see Question 15).

Although the validity of an aircraft mortgage agreement is not dependent on a specific form, the LuftFzgG requires public certification or authentication (see Question 6). Therefore, the relevant declarations must be made in writing and the parties' signatures must be certified by a notary (section 129(1), BGB). The public certification can be replaced by notarial certification of the declaration (section 129(2), BGB).

The Aircraft Mortgage Register is publicly available (section 85(1), LuftFzgG).

If the aircraft is still registered in the Aircraft Mortgage Register but no longer registered in the Aircraft Register, it cannot be encumbered with a new mortgage. It is therefore prudent to check the Aircraft Register, even if certification of an aircraft mortgage is received.

The LBA issues an airworthiness certificate (Luftverkehrslizenz) on application. It is an air operator certificate (AOC) (Betriebserlaubnis zum Betreiben von Flugzeugen zur Beförderung von Personen und Fracht). An AOC is granted by a civil aviation authority to an aircraft operator to enable it to use an aircraft for commercial purposes. Applications are made on the LBA-Nr. 05 form (as of January 2023). Processing and reviewing the application and required documents takes about two to four weeks. The application can be combined with an application for entry in the Aircraft Register as the applications require much of the same information and many of the same documents. This may shorten the overall time to obtain all regulatory approval for an aircraft. However if registration in the Aircraft Registry is the primary concern, combining the applications may lengthen the processing time due to the detailed review of an airworthiness certificate application.

In general, it is possible to transfer security interests over an aircraft. A registered aircraft mortgage (Registerpfandrecht) is the only legally available registered security over an aircraft (section 9(1), LuftFzgG) (see Question 6 and Question 7). The transfer of a registered aircraft mortgage is subject to specific and strict regulations.

A registered aircraft mortgage is strictly accessory (streng akzessorisches Sicherungsrecht), meaning it is dependent on the underlying claim. Therefore, an existing claim is a prerequisite for the mortgage to come into existence and the expiry of the claim will cause the termination of the mortgage (sections 1 and 57, LuftFzgG). Transfer of the mortgage is exercised by the transfer of the underlying claim (section 51(1), LuftFzgG). The underlying claim cannot be transferred without the registered mortgage, and the registered mortgage cannot be transferred without the underlying claim (section 51(2), LuftFzgG).

After the transfer of the registered mortgage to the new creditor, the owner can raise any objection against the new creditor which they were entitled to raise against the original creditor (section 52(1), LuftFzgG).

To be effective, the transfer must be registered in the Aircraft Mortgage Register at the Braunschweig District Court (section 51(3), LuftFzgG).

If the claim underlying the registered mortgage is not fulfilled, the creditor can take possession of the aircraft. This seizure is carried out exclusively through compulsory enforcement (Zwangsvollstreckung) (section 47(1), LuftFzgG). To implement this, section 99, paragraph 1 of the LuftFzgG applies the general provisions for immovable objects (Zwangsvollstreckung in das unbewegliche Vermögen, Immobiliarvollstreckung) in sections 864 and 870a of the ZPO. In practice, the subject aircraft is usually compulsorily auctioned (Zwangsversteigerung) under section 171a ff. of the Compulsory Enforcement Act (Zwangsvollstreckungsgesetz) (ZVG). The general rules and requirements of compulsory enforcement apply (sections 704 to 802 ZPO).

A creditor can use a forfeiture clause in the mortgage agreement to demand the transfer of ownership or sale of an aircraft by means other than compulsory execution. A forfeiture clause only applies from the time the claim becomes due. If a forfeiture clause is not part of the agreement a creditor cannot take possession of the aircraft and sell it, and must rely on compulsory enforcement (section 49, LuftFzgG).

Seizure of an aircraft is carried out exclusively through compulsory enforcement (see Question 25).

The Braunschweig District Court is responsible for the compulsory auction of aircraft because the LBA is located there (section 171b(1), ZVG). As part of the compulsory enforcement, the court must guard the aircraft and keep it safe to protect the creditors' interests (section 171c(2), ZVG) and to do so can issue a grounding order. Since aircraft are economically used only if they are operated to generate income which is used to finance the aircraft, the law allows the court to order, with the consent of the creditor seeking enforcement, that the custody and safekeeping is transferred to a trustee selected by and under the court's supervision and mandate. The trustee can be authorised by the court with the consent of the creditor to operate the aircraft instead of the compulsory auction. The net proceeds are used to pay for the compulsory enforcement procedures and to satisfy the creditor (section 155, ZVG).

Alternatively, if the creditor's claim against the owner has become due (Gesamtfälligstellung) with termination of the loan agreement, the creditor can be granted the right to demand the transfer of ownership of the aircraft for the purpose of satisfaction or to dispose of the aircraft in another manner through a forfeiture clause (see Question 25). However, in accordance with the principles of property law (section 1149, BGB), a forfeiture clause is void before maturity (section 49, LuftFzgG). Therefore, it is common that when loan agreement obligations or the abstract promise of debt are violated, that the mortgage agreement provides that the agreement will become mature immediately and subject to termination without notice.

German aircraft mortgages must follow the rules of the LuftFzgG, which are mandatory (section 9(1), sentence 1, LuftFzgG). Therefore, German courts will not recognise a foreign choice of law in an aircraft mortgage for aircrafts registered in Germany.

This also applies under the rules of conflict of law. The German rules of conflict of law do not allow for a choice of law when it comes to international property law (Article 43 to 46, Introductory Law to the Civil Code (Einführungsgesetz BGB) (EGBGB)). Under this provision, the rights to an object are generally governed by the law of the state in which the object is located (lex rei sitae). This is because the publicity requirements of that law can be jeopardised or even circumvented by a choice of law and the legal interests of the parties in a transaction undermined.

It is possible that a court might find that a foreign law applies because it has a closer connection with the subject matter (Article 46, EGBGB).

The recognition and enforcement of foreign judgments is subject to sections 328 and 722 of the ZPO. European regulations also contain rules on the recognition and enforcement of foreign judgments for their respective areas that must be observed, particularly:

If international or European law agreements do not claim priority in explicit terms, it is necessary to consider whether the agreements are recognised under section 328 of the ZPO. Section 328 of the ZPO does not provide for an independent judicial recognition procedure. Where the recognition prerequisites of section 328 of the ZPO are met, a German court will automatically recognise a foreign judgment in favour of a mortgagee without making a special pronouncement.

Unless European or international law intervenes (in particular the Recast Brussels Regulation and the Lugano Convention, which provide for simplified enforcement procedures, see for example, section 39 Recast Brussels Regulation), enforcement is governed by sections 722 and 723 of the ZPO. The German court will recognise and enforce a foreign judgment in favour of a mortgagee, if the requirements of these provisions are satisfied.

The alternative permissible forms of security over the aircraft are the transfer of ownership by way of security (Sicherungsübereignung) and retention of title (Eigentumsvorbehalt) (section 9(1), LuftFzgG) (see Question 10).

To realise collateral secured by the transfer of ownership by way of security, the secured claim must be due and the contractually agreed security event must have materialised.

The underlying security agreement (Sicherungsübereignungsvertrag) usually specifies how the guarantee (secured party) can realise and potentially liquidate the collateral, as the parties are free to agree how the guarantor's (security provider's) default is dealt with. Since the transfer of ownership typically leaves possession of the collateral with the guarantor, the guarantee must first demand delivery of the collateral (this right will derive from the parties' contractual agreement and section 985 of the BGB). The guarantor's right to possess the collateral, through the security agreement, ends with the materialisation of the security event (MüKoBGB, BGB Anh. section 929 paragraph 51). The guarantee has a right to delivery not only under section 985 of the BGB but also under the parties' contractual agreement.

In relation to the taking of possession, however, German law distinguishes between possession (Besitz) and title (Eigentum). The possessor (Besitzer) of an asset is protected from the interference of third parties, including the person who is the rightful titleholder (Eigentümer) of the asset. Whoever deprives the owner of possession without the owner's consent or interferes with the owner's possession acts unlawfully (verbotene Eigenmacht) (section 858(1), BGB). Therefore, the guarantee cannot take possession on their own authority if the possessor does not want to voluntarily surrender the asset at that time. This applies even if the parties have previously agreed that the guarantee can take possession on its own authority (Rotter/Placzek BankR, section 13 Forderungsdurchsetzung und Verwertung von Sicherheiten paragraph 86).

Instead, where the guarantor refuses delivery, the guarantee must rely on legal action and a court-appointed enforcement officer. The guarantee must obtain an enforcement order for the delivery of a movable (or immovable) object. The order must precisely specify the item to be surrendered and the debtor. After the guarantee receives the enforcement order they can request the enforcement officer to execute the delivery (section 883(1), ZPO). The enforcement officer in the district of enforcement has local jurisdiction.

The security agreement imposes a general obligation on the guarantee to protect the legitimate interests of the guarantor when realising the collateral asset (BeckOGK/Klinck, 1.9.2022, BGB section 930 paragraph 132). This can mean that any further steps to liquidate the claims from the security are limited after taking possession of the aircraft.

Retention of title security does not allow the guarantee to take possession of the aircraft provided as collateral. This is because this form of security only allows the delivery of the aircraft to the guarantor (BeckOGK/Klinck, 1.9.2022, BGB section 929 paragraph 2). Although the guarantee remains the owner until the underlying claim is settled in full, the guarantor has a right of possession against the owner from the agreement with the guarantee (section 986(1), BGB). Therefore, if the guarantee wants to take possession of the aircraft, they must cancel the contract according to the applicable law. Usually, this is done by withdrawal from the agreement (section 323, BGB). After this, the guarantee can demand delivery (section 985, BGB), and, if necessary, enforce their claim as described above, see Transfer of Ownership by Way of Security.

Generally, in the event of a default event under an aircraft lease, the lessor cannot take possession of the aircraft without judicial intervention (section 858(1), BGB) (see Question 29, Transfer of Ownership by Way of Security).

If the lessor wishes to take possession of the aircraft before the expiration of the lease, first the lessor must terminate the lease. This requires a reason for termination, for example default of payment (section 543(1) and 543(2), sentence 1, No. 3, BGB analogously). Second, after effective termination of the lease, the lessee must return the asset, and the lessor has the right to claim for return (section 546(1), BGB). If the lessee does not comply, the lessor can apply for legal proceedings at the competent court.

Alongside the court proceedings, which can involve several instances and therefore be rather long, German law allows for interim remedies (einstweiliger Rechtsschutz). An interim remedy is allowed to temporarily resolve a dispute if that resolution appears necessary to avert substantial disadvantages (Einstweilige Verfügung zur Regelung eines einstweiligen Zustandes, Regelungsverfügung) (section 940, ZPO).

An interim remedy is admissible if the applicant can, prima facie, demonstrate the following:

Therefore, the lessor has the right to the return of the aircraft and argue a reasonable ground on the basis of potential but substantial disadvantages to them if the asset is left with the lessee. This generally applies if there is a risk of the asset being set aside, destroyed, processed, sold, or encumbered. If there is continued use of or a failure to return the aircraft, a reasonable ground can be established based on a clear breach of the agreed use, the impairment of the asset's substance, and the undermining of a claim for damages or restitution.

An interim remedy must not, however, conclusively resolve the dispute (keine Vorwegnahme der Hauptsache). An interim remedy is followed by a regular court proceeding in which the matter is conclusively resolved. If the interim remedy turns out to be unjust, the applicant (the lessor) is liable to the respondent (the lessee) for damages (section 945, ZPO). This applies even if the applicant is not at fault. For this reason, obtaining an interim injunction always represents a cost risk for the applicant.

If the lessee contests recovery of the aircraft even after a binding court judgment is obtained in favour of the lessor (which the lessee cannot appeal), the lessor can enforce the judgment (or alternative title). The enforcement is subject to sections 883 to 898 of the ZPO and carried out by a bailiff taking the aircraft away from the lessee and handing it over to the creditor (section 883(1), ZPO).

It is difficult to predict how long it is likely to take to gain possession of an aircraft. If the requirements for enforcement are met and the aircraft is in German jurisdiction, the title may be enforced in days.

The same principles apply as to the recognition and enforcement of foreign judgments in favour of a mortgagee (see Question 28).

To deregister an aircraft from the Aircraft Register, the owner of the aircraft must apply to the LBA for deregistration. The LBA provides the relevant form (LBA-No. 11) on its website. The application must include:

Where there are multiple owners, the signatures of all owners are required. Issuing a power of attorney for deregistration is possible but it must be notarised, apostilled, and in certified form translated into English or German.

The owner’s application does not require the lessee or mortgagee’s consent. Deregistration and issuance of a deregistration certificate usually takes two weeks.

Deregistration of the aircraft from the Aircraft Register does not generally affect the aircraft mortgage (section 98(2), sentence 2, LuftFzgG). However, at the LBA's request, the Mortgage Registry Court (Braunschweig District Court) records the deregistration from the Aircraft Register (section 91, LuftFzgG). Since an entry in the aircraft register is a prerequisite for the creation of a registered mortgage it is not possible to create a new registered mortgage.

To discharge the mortgage, the mortgagee must both:

(Section 56, LuftFzgG.)

An aircraft mortgage is the only permissible form of registered lien. The two other forms of security on aircraft, transfer of ownership by way of security and retention of title, are not registered (see Question 29). They can be discharged either by:

No certificate can be obtained in either case.

There is no specific register for aircraft leases. However, a change of the operator must be reported to the LBA immediately (section 11(2), LuftVZO). The LBA provides the relevant form on its website (LBA -No. 10) which the owner must submit. Consent of the former operator is not required.

Germany signed the Cape Town Convention on 17 September 2002 but did not ratify it. The author is not aware of any plans to proceed with ratification. However, the Cape Town Convention and its Protocol have been signed and ratified by the EU, which is competent to adopt measures relating to judicial co-operation in civil matters and matters with cross-border implications.

Germany has not ratified the Cape Town Convention and the EU’s ratification does not cause any conflicts or issues with local laws. The EU has made declarations that ensure the primacy of EU law in questions of jurisdiction and choice of law over any conflicting provisions in the Cape Town Convention, protecting the harmony of its private international law regime.

Germany has not ratified the Convention and the EU’s ratification does not bind Germany to Article 39 of the Convention.

Germany has not ratified the Convention, therefore the remedies on insolvency are not applicable. The EU has no competence to bind Germany on any substantive rules concerning insolvency issues.

IDERAs are not applicable, because Germany has not ratified the Convention (see Question 38).

An owner, lessor, or financier cannot be liable for the operation of the aircraft or the activities of the operator unless they become the operator of the aircraft, or the operator of the aircraft is unknown. German law does not impose general liability for the maintenance or operation of an aircraft or aircraft engine or strict liability for damage or loss caused by an asset on the owner, lessor, or financier.

On 11 May 2022, the European Commission published a proposal for a Council Directive on laying down rules on a debt-equity bias reduction allowance and on limiting the deductibility of interest for corporate income tax purposes. These new rules are separate and additional to the EU interest limitation rules introduced by the Anti-Tax Avoidance Directive (2016/1164) (ATAD). Unlike the ATAD interest limitation rules, which are detailed and contain several exceptions, the new rules propose simple restrictions on deductibility of interest, with limited exceptions. The deductibility of interest on borrowed capital is to be limited to 85% of net interest expenses (Article 6). The resulting amount is to be compared with the amount resulting after application of the interest barrier in Article 4 of the ATAD. Only the lower of these two amounts is to be deductible.

The transposition of the directive into national law is to take place by 31 December 2023 and the new regulations are to come into force on 1 January 2024. They will apply to all taxpayers subject to corporate income tax anywhere in the EU, including non-EU businesses with an EU permanent establishment. In particular, industries with traditionally high leverage, including the sector of aviation leasing, may be affected by the new rules.

A key development relevant to aviation finance in 2022 was the effectiveness of the Irish Limitation Rules (ILR), applicable since 1 January 2022. They constitute part of Ireland’s implementation of the Anti-Tax Avoidance Directive. The majority of the world's largest leasing companies are based in Ireland and therefore the ILR affect the industry as a whole.

The ILR introduce new interest limitation rules that have the potential to restrict interest deductions. Given the capital-intensive nature of the aviation finance industry and the high levels of relative leverage, this limitation could have a significant impact for some in the industry, potentially increasing effective tax rates on certain platforms. Therefore, they require aircraft lessors to consider their financing arrangements in detail, with the risk of tax deductions for interest on borrowings being partly denied.