Publication

Aviation Finance & Leasing in Ukraine 2022

15/04/2022

Anna Sisetska

Partner, Attorney-at-Law

Antitrust and Competition,
Banking and Finance,
Trade and Commercial,
Aviation,
Consumer Goods and Retail,
Transport and Infrastructure

Yevhenii Senchenko

Associate

Antitrust and Competition,
Aviation

Published: Lexology/Getting The Deal Through, April 2022

Authors: Anna Sisetska, Partner, Yevhenii Senchenko, Associate

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OVERVIEW

Conventions

To which major air law treaties is your state a party?

Ukraine is a party to the Chicago Convention (1944), the Ottawa Convention (1988), the Montreal Convention (1999) and the Cape Town Convention, including the Aircraft Protocol thereto (2001). Ukraine is not a party to the Rome Convention (1933) or the Geneva Convention (1948).

Domestic legislation

What is the principal domestic legislation applicable to aviation fnance and leasing?

The principal domestic legislation includes the Civil Code, the Air Code, the Customs Code, the Law on Foreign Economic Activity and the Law on Private International Law, as well as a number of the subrogating regulations such as the Aviation Rules stipulating, inter alia, the procedures for registering civil aircraft in Ukraine, their operation and deregistration.

Governing law

Are there any restrictions on choice-of-law clauses in contracts to the transfer of interests in or creation of security over aircraft? If parties are not free to specify the applicable law, is the law of the place where the aircraft is located or where it is registered the relevant applicable law?

There are no restrictions on choice-of-law clauses in contracts to the transfer of interest in or creation of security over an aircraft. The parties may freely choose the law applicable to their contractual relations, except for certain issues associated with currency control, taxation, customs clearance and other aspects of public order that shall be governed by the laws of Ukraine irrespective of the will of the parties and the law chosen to govern the contract.

TITLE TRANSFER

Transfer of aircraft

How is title in an aircraft transferred?

The title to an aircraft is usually transferred in Ukraine on the basis of a sale and purchase agreement. Such agreement is usually accompanied by a delivery certifcate or equivalent confrming the actual delivery of the aircraft to the purchaser. The concept of a bill of sale is not commonly used in Ukraine, although Ukrainian law does not prohibit its execution by parties outside Ukraine. Thus, a bill of sale executed under the laws of a foreign jurisdiction will be enforceable in Ukraine and sufcient to prove the transfer of the title to an aircraft.

Transfer document requirements

What are the formalities for creating an enforceable transfer document for an aircraft?

There are no specifc requirements as to the transfer document, except for its form (ie, it shall be executed in a written form); neither notarisation, any registration nor any other public acknowledgement is required. The document may be executed in a language other than Ukrainian. However, if this document needs to be fled with the Ukrainian state authorities for any purpose, it must be accompanied by a Ukrainian translation performed by a certifed translator whose signature of authenticity must be confrmed by a notary. The State Aviation Administration of Ukraine will require a notarised and apostilled copy of the bill of sale accompanied by the certifed translation into Ukrainian for the purpose of registration of the aircraft leased by a Ukrainian operator from a foreign lessor.

REGISTRATION OF AIRCRAFT OWNERSHIP AND LEASE INTERESTS

Aircraft registry

Identify and describe the aircraft registry.

The Civil Aircraft Register of Ukraine (the Aircraft Register) is maintained by the State Aviation Administration of Ukraine (SAAU) in accordance with the Aviation Rules, Part 47, in the name of the owner. The Aircraft Register is available to the public via the SAAU's ofcial web page. The registration of the aircraft in the Aircraft Register defnes the national ownership of the aircraft as Ukraine, which means that it is the responsibility of the SAAU to supervise its airworthiness and operation. The Aircraft Register does not contain any information about the engines and there is no engine register in Ukraine. There are no well-used International Civil Aviation Organization 83-bis 83-bis arrangements in place between Ukraine and other jurisdictions.

Registrability of ownership of aircraft and lease interests

Can an ownership or lease interest in, or lease agreement over, aircraft be registered with the aircraft registry? Are there limitations on who can be recorded as owner? Can an ownership interest be registered with any other registry? Can owners’, operators’ and lessees’ interests in aircraft engines be registered?

All aircraft either owned by or leased to Ukrainian legal entities or individuals by foreign lessors may be registered in Ukraine. The Aircraft Register refects information on both an aircraft owner and an aircraft operator. However, this information does not constitute a due formal confrmation of any title or interest in the aircraft, including ownership or lease. Additionally, there is no other register in Ukraine provided for registration of ownership interest in the aircraft. There is no other register intended for registration of owners’, operators’ and lessees’ interests in aircraft engines either.

Registration of ownership interests

Summarise the process to register an ownership interest.

The registration of an aircraft in the Aircraft Register must be procured by an owner or a person acting upon its mandate. Usually, the Ukrainian lessee applies for registration of an aircraft owned by a non-resident. Aircraft registration is always subject to obtaining nationality and registration marks; the allocation of these marks will be confrmed by a respective notifcation issued by the SAAU.

For the purpose of the aircraft registration, an application to the SAAU must be accompanied by the following set of documents (with the certifed Ukrainian translation):

  • a document confrming the exclusion of the aircraft from the aircraft register of the state of former registration (eg, certifcate of deregistration) or confrmation from the aviation authority of the state of manufacture that the aircraft has not yet been registered in any register;
  • a document confrming ownership title to the aircraft (eg, a bill of sale or purchase agreement);
  • an operating lease agreement if the aircraft is subject to lease;
  • the owner’s consent to subleasing if the aircraft is subleased to the Ukrainian operator;
  • a delivery certifcate if the aircraft is subject to lease;
  • colour photos of the aircraft refecting nationality and registration marks once issued;
  • photos of the freproof identifcation plate;
  • a copy of the lessee's charter page refecting its name in Ukrainian and in a foreign language (if any);
  • and a document confrming the payment of registration fees.

The application is considered by the SAAU within 10 business days. The aircraft will be registered and the respective aircraft registration certifcate will be issued by the SAAU, provided that the documents submitted are in good order and the outcomes of the technical inspection conducted by an inspector of the SAAU are satisfactory.

The fee for an aircraft registration would amount to US$4 per 100kg of maximum take-off weight and in any case not less than US$70 and no more than US$4,000. The fee for registration of the aircraft address (S-mode) would amount to 51 hryvnias, and the fee for issuance of state and registration marks is 3 hryvnias.

Title and third parties

What is the effect of registration of an ownership interest as to proof of title and third parties?

The Aircraft Register is not the title register. It defnes that the aircraft belongs to Ukraine. Therefore, the Aircraft Register does not constitute a due confrmation of any title or interest in the aircraft, including ownership or lease. Following the purely formal approach, one cannot rely on the information mentioned in the Aircraft Register to confrm any title to or interest in the aircraft.

Registration of lease interests

Summarise the process to register a lease interest.

Except for the registration of the aircraft itself, for which purpose the lease agreement is submitted to SAAU, neither the lease agreement nor lease interest is subject to any registrations or flings in Ukraine.

Certifcate of registration

What is the regime for certifcation of registered aviation interests in your jurisdiction?

Upon successful completion of the aircraft registration procedure, the SAAU issues a certifcate of registration, which confrms aircraft registration in Ukraine. The registration certifcate contains the following information:

  • the nationality and registration mark;
  • the name of the manufacturer;
  • the aircraft model and serial number;
  • the name and address of the owner;
  • the date of issuance and expiry date of the certifcate;
  • and the lessee’s details.

The certifcate of registration does not confrm any title or interest in the aircraft, including ownership or lease. No certifcates are issued in relation to the aircraft engines.

Deregistration and export

Is an owner or mortgagee required to consent to any deregistration or export of the aircraft? Must the aviation authority give notice? Can the operator block any proposed deregistration or export by an owner or mortgagee?

Deregistration

There are three types of aircraft deregistration procedures effective in Ukraine, namely: consensual deregistration; nonconsensual deregistration; and mandatory deregistration.

Consensual deregistration

Consensual deregistration may be procured by an aircraft owner or a person acting upon its mandate. Usually, the Ukrainian lessee procures consensual deregistration of the aircraft owned by a non-resident.

To deregister the aircraft, a lessee must submit to the SAAU an application accompanied by the following documents (with a certifed Ukrainian translation):

  • consent of the state of future registration to register the aircraft after its deregistration from Ukraine (can be provided in an electronic notifcation);
  • a lease termination agreement or its equivalent;
  • a redelivery certifcate or its equivalent; and
  • confirmation of the deregistration fee payment.

In addition to this set of documents, the original certifcate of the aircraft registration in Ukraine, the original notifcation on allocation of nationality and registration marks and the original irrevocable deregistration and export request authorisation (IDERA) should be returned to the SAAU. The latter will also require the consent of mortgagee to deregistration if their interests in the aircraft are registered either in Ukraine or in the International Register under the Cape Town Convention.

Non-consensual deregistration

Non-consensual deregistration is procured by the aircraft owner on the basis of an IDERA. In such a case, the application of the aircraft owner must be accompanied by the following set of documents:

  • confirmation of prior notifcation of all interested parties within the meaning of the Cape Town Convention about the contemplated aircraft deregistration;
  • consent of the creditors whose registered international interests have higher priority over the international interests of the aircraft owner or the document (priority search certifcate) confrming the absence of all such creditors' international interests; and
  • confirmation of the deregistration fee payment.

In addition, the original IDERA and the original registration certifcate, if available to the owner, must be returned to the SAAU.

In both cases, consensual and non-consensual deregistration, the deregistration fee is 200 per cent of the registration fee; thus, it will not exceed in any case US$8,000. Upon fling the deregistration application with the SAAU, the aircraft must be provided for an inspection to be conducted by the SAAU's authorised ofcers. The deregistration procedure usually does not last for more than 10 business days. Upon deregistration, in accordance with the application submitted, the SAAU will issue a certifcate confrming aircraft deregistration from the Aircraft Register and an export certifcate of airworthiness, if requested.

Mandatory deregistration

The SAAU is authorised by law to deregister the aircraft from the Aircraft Register if one of the following has occurred:

  • cessation of operation of the aircraft type;
  • the aircraft was not provided for airworthiness inspection to be conducted by the SAAU's ofcers for 24 months; or
  • the operating lease has been terminated and neither the aircraft owner nor lessee has applied for the aircraft deregistration.

Once deregistration is completed, the SAAU will issue the deregistration resolution excluding the aircraft from the Aircraft Register.

There are not many legal means for the Ukrainian aircraft operator to block the deregistration process. Even if the latter decides not to furnish to the owner the original aircraft documentation required for deregistration purposes, the SAAU in such a case will request directly that the Ukrainian operator return all those documents.

Export

An aircraft may be exported from Ukraine either prior to or following the deregistration. The Ukrainian lessee is obliged, by virtue of Ukrainian customs law, to cancel the temporary import regime implying the tax benefts applicable to the aircraft and enjoyed by the Ukrainian lessee throughout the term of the lease. The lessee's failure to cancel the temporary import regime shall not impair the owner's rights to repossess the aircraft, although any protraction or reluctance of the lessee to extinguish the temporary import regime and to clear the aircraft could adversely impact the physical transfer of the aircraft from Ukraine.

Powers of attorney

What are the principal characteristics of deregistration and export powers of attorney?

Ukrainian laws do not stipulate any specifc requirements with regard to the content of a deregistration and export power of attorney (DPOA). It can be issued in Ukraine in a written form and no notarisation is required. However, all powers of attorney issued in Ukraine can be revoked as a matter of law. Therefore, to be irrevocable, the DPOA should be issued outside Ukraine under the laws of a foreign jurisdiction. These foreign DPOAs will be valid in Ukraine, provided that they are duly legalised. It means that such a DPOA shall be apostilled or legalised in the Ukrainian consulate of the respective state, provided that this state is not a party to the Hague Convention and is further accompanied by the certifed Ukrainian translation. By the means of the DPOA, an aircraft operator usually authorises the aircraft owner and mortgagee to take all actions and execute all documents that may be required to deregister the aircraft from Ukraine, although it may have some enforceability difculties as a matter of practical approach. DPOAs are not subject to registration in Ukraine.

Cape Town Convention and IDERA

If the Cape Town Convention is in effect in the jurisdiction, describe any notable features of the irrevocable deregistration and export request authorisation (IDERA) process.

As a matter of practice, IDERAs may be issued by a Ukrainian lessee in favour of an aircraft owner only without a right to assign powers thereunder to a third party. However, the Ukrainian regulation in this feld is still developing. IDERAs should be issued in the form provided by the Aircraft Protocol to the Cape Town Convention and further countersigned (registered) by the SAAU. The IDERA is usually held by the SAAU – for acknowledgement and registration purposes – for a month. In the case of non-consensual aircraft deregistration, it is advisable to use an IDERA as the Ukrainian authorities are obliged by the Cape Town Convention to provide all necessary assistance to the authorised party to exercise its rights granted by IDERAs.

SECURITY

Security document (mortgage) form and content

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

If the parties, the owner of the aircraft acting as the borrower (mortgagor) and the lender (mortgagee) decide on creating security under the laws of Ukraine, they will typically proceed with the execution of a mortgage agreement, which must be executed in Ukrainian (or accompanied by a certifed Ukrainian translation) and notarised, while the mortgage interest itself must be registered in a public register. The mortgage agreement – in addition to all formal requirements, such as parties' details, description of the mortgaged property and secured obligations – usually stipulates a value of the mortgaged property, a total and maximum amount of the secured claims, an enforcement and settlement procedure, etc.

Security documentary requirements and costs

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

An aircraft mortgage agreement must be certifed by a notary and the mortgage interest itself must be registered. The total amount of disbursements implying the payment of stamp duty, a registration fee and notary fees would usually not exceed 0.1 per cent of the aircraft value.

Security registration requirements

Must the security document be fled 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

Once a mortgage agreement (being a security document) is notarised, the mortgage interest will be promptly refected by a notary in the Ukrainian Register of Encumbrances over the Movable Property (the Encumbrances Register). As a matter of law, the mortgage agreement is deemed to be valid and enforceable against the mortgagor once it is signed by the parties and certifed by a notary. The mortgage interest in and the security over the aircraft is deemed to be valid for third parties once it is refected in the Encumbrances Register. Usually, the execution of the mortgage agreement and the registration of the mortgage interest are performed on the same day. By default, the registration will be valid for the term of the security document; however, it cannot exceed fve years. The validity of the security interest can be extended for another fve years, if necessary, on the basis of the valid mortgage agreement and a renewal application submitted by the mortgagee. The number of these extensions is not limited.

Registration of security

How is registration of a security interest certifed?

Following the registration of the security in the Encumbrances Register, the relevant extract from the Emcumbrances Register will be issued to confrm that the security is registered as at the date of such an extract. The registered security interest will have higher priority over any subsequent security interest registered in relation to the same aircraft. In the case of enforcement, the secured claims will be satisfed in the order of registration of the security interests.

Effect of registration of a security interest

What is the effect of registration as to third parties?

The registered security interest will have higher priority over any subsequent security interest registered in relation to the same aircraft. In the case of enforcement, the secured claims will be satisfed in the order of registration of the security interests. Third parties can rely on the accuracy of the information refected in the Encumbrances Register.

Security structure and alteration

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

There are different ways to structure an aircraft fnance deal. Usually, an aircraft owner is advanced a loan facility by an international banking institution, acting either directly or through a security trustee. Then, the aircraft is leased to the Ukrainian airline operator either directly from the owner acting as a lessor or through the chain of entities. Considering that the Ukrainian tax regulation provides for benefts as to the operating lease, leases are usually structured as aircraft operating lease agreements.

As security for the performance of the aircraft owner's obligation under the loan, an aircraft owner and a lender (security trustee) enter into a mortgage agreement governed by the laws of a jurisdiction other than Ukraine. In addition to that, the parties execute a security assignment in favour of the lender (security trustee). Additional security may be created by the parties in relation to the aircraft under the laws of Ukraine to protect the fnanciers' interests in Ukraine.

Although Ukrainian law does not recognise the concept of a trust, Ukrainian courts and state bodies will enforce the rights of the security trustee acting for the lender or a pool of lenders under the loan agreement. This applies to the rights of the security trustee as a mortgagee under the respective mortgage agreement. Consequently, if the group of benefciaries has changed, neither the security document nor the security registration record requires any changes to be inserted thereto, provided, however, that the security trustee remains the same.

As Ukraine is a party to the Cape Town Convention and the Aircraft Protocol thereto, it is also advisable to register the international interests in the aircraft in the International Registry. The registration of such an interest, however, is subject to obtaining authorisation entry point codes from the State Aviation Administration of Ukraine, as Ukraine has made such a declaration under article XIX of the Aircraft Protocol to the Cape Town Convention. 

Security over spare engines

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

If the engines are installed on an airframe, the mortgage agreement typically covers the airframe, engines and all other spare parts, provided that all of these belong to one and the same owner. However, security over the engines may be created separately from the airframe if an engine owner and an airframe owner are different persons. Security over engines is created in the form of a pledge. The pledge is not subject to mandatory notarisation or registration. However, the registered security interests in the pledge will have higher priority over non-registered interests and the interests registered later. Therefore, it is advisable to register security interests over the engines in the Encumbrances Register. Security may be registered over the engines regardless of their installation on the airframe.

ENFORCEMENT MEASURES

Repossession following lease termination

Outline the basic repossession procedures following lease termination. How may the lessee lawfully impede the owner’s rights to exercise default remedies?

Aircraft repossession following lease termination is mainly governed by the procedure set out in the lease agreement, usually stipulating a few self-help remedies. In addition, the Cape Town Convention contains self-help remedies for a lessor, which may be enforced against the lessee without any court order. However, there are some requirements provided by Ukrainian law that are implied in the case of the aircraft lease termination, namely the aircraft shall be:

  • deregistered from the Civil Aircraft Register of Ukraine; and
  • cleared with the Ukrainian customs authorities and exported.

The deregistration process is a rather standard one, conducted within the framework of either consensual or nonconsensual deregistration. As to the customs clearance and export, the Ukrainian lessee is obliged by virtue of Ukrainian customs laws to cancel a temporary import regime implying the tax benefts, which are applicable to the aircraft and enjoyed by the Ukrainian lessee throughout the term of the lease. However, the lessee's failure to cancel the temporary import regime shall not impair the owner's rights to repossess the aircraft. The law does not provide for any legal means for the Ukrainian lessee to impede the owner's rights to exercise default remedies

Enforcement of security

Outline the basic measures to enforce a security interest. How may the owner lawfully impede the mortgagee’s right to enforce?

A mortgagee may enforce the security interest if a mortgagor has failed to perform the secured obligations. The foreclosure over the aircraft may be exercised without a court ruling, provided that the parties have agreed on the procedure for out-of-court enforcement. Subject to certain local law requirements, Ukrainian law stipulates the following options the parties may choose with respect to the out-of-court enforcement, to wit:

  • title to the mortgaged property (an aircraft) shall transfer to the mortgagee; or
  • the mortgagee is vested with the right to sell the mortgaged property.

In the case of initiation of insolvency proceedings against the debtor, the creditor is entitled to demand the satisfaction of its secured claims regardless of the term granted to the debtor to perform the obligation secured by the mortgage, unless the parties have agreed otherwise.

Priority liens and rights

Which liens and rights will have priority over aircraft ownership or an aircraft security interest? If an aircraft can be taken, seized or detained, is any form of compensation available to an owner or mortgagee?

Ukrainian laws provide for the right of the lawful possessor of the property to withhold it as a measure to secure the performance of obligations by the owner of that property if this performance is overdue. None of the third parties, who have no claim against the owner of the property, are entitled to such possessory rights.

The applicable laws of Ukraine provide for a seizure (lien) of an aircraft either as:

an injunctive measure under the court proceedings initiated by the creditor against the debtor; or

an injunctive measure under the enforcement proceedings initiated by the state authorities for the purpose of securing the foreclosure and execution of the court decision obtained by the creditor against the debtor.

The law allows the seizure against the property in possession of the debtor to apply. The Ukrainian courts interpret the above in a way that only property in the ownership of the debtor may be seized.

Ukrainian aviation law provides for detention as a security instrument for securing the recovery of debt for aeronautical servicing that was not settled or challenged during the established time period. Ukrainian law is not precise as to whether the debtor needs to hold ownership title to the aircraft to be detained or whether a leased aircraft may be subject to the detention as well. Although it would hardly be possible for the creditors of the Ukrainian aircraft operator to foreclose on the leased aircraft, they may deny the further service of the aircraft, which would effectively prevent the aircraft from leaving the airport.

The laws of Ukraine guarantee the protection of property from expropriation without fair compensation. The aircraft may, however, be forfeited pursuant to a court decision as a result of a criminal offence, which is hardly applicable to the lessor, the aircraft owner or the security trustee, all being legal entities that are not subject to criminal liability in Ukraine. Although, according to Ukrainian criminal law, confscation could be applied to the property owned only by the offender, special confscation of the aircraft could potentially be effectuated pursuant to criminal procedure law, including in drug trafcking cases and even when the aircraft owner itself was not aware of the relevant offence. However, the practice of special confscation of an aircraft is not well-established yet and is rather sporadic and uncommon in Ukraine because of the sheer complexity of proving that the aircraft was operated as a crime instrument

Enforcement of foreign judgments and arbitral awards

How are judgments of foreign courts enforced? Is your jurisdiction party to the 1958 New York Convention?

The decision of a foreign court, including English or American, shall be recognised and enforced in Ukraine either by virtue of a bilateral or multilateral legal assistance treaty executed between Ukraine and the state where the decision was made, or on a reciprocity basis.

By default, any judgment obtained in foreign courts (and, in particular, the courts of England or New York) in respect of the lease will be enforceable in the courts of Ukraine without retrial or re-examination of the merits of the case if, inter alia:

  • it has entered into effect under the laws of the relevant jurisdiction;
  • it was duly fled with the Ukrainian court within three years of its adoption;
  • the party, against whom the decision was rendered, was duly notifed of the proceedings and had the opportunity to participate therein;
  • the matter in the dispute is subjected to trial in Ukraine;
  • the decision was made in the case subject to the exclusive competence of the Ukrainian court or other lawfully authorised Ukrainian body;
  • there is no other decision of a Ukrainian court on the same matter and between the same parties; and
  • its enforcement would not result in a violation of Ukrainian public order.

Ukraine is a party to the 1958 New York Convention; thus, foreign arbitration awards will be recognised and enforced in Ukraine without the need for retrial or re-examination on the merits.

TAXES AND PAYMENT RESTRICTIONS

Taxes

What taxes may apply to aviation-related lease payments, loan repayments and transfers of aircraft? How may tax liability be lawfully minimised?

There will be no transfer taxes, value added tax (VAT), stamp duty, charges or other taxes on behalf of the seller, the new owner, or the buyer or issuer associated with a transfer of title to the aircraft or of the benefcial interest while the aircraft is outside of Ukraine, provided that this transfer does not involve Ukrainian parties and assets.

By default, lease payments paid by the Ukrainian lessee in favour of the non-resident lessor under the lease are subject to Ukrainian withholding tax at a rate of 15 per cent, unless this tax is reduced or eliminated pursuant to the terms of a valid and effective double tax treaty. VAT is not applicable to the lease payments made by the Ukrainian lessee in favour of non-residents.

The laws of Ukraine generally prohibit contractual provisions under which residents undertake to pay taxes for nonresidents on their income received from sources in Ukraine. If interpreted broadly, this restriction would also apply to gross-up and tax indemnity provisions of the lease as well as obligations of the lessee to pay additional amounts thereunder. As a result, the gross-up and tax indemnity provisions could be found null and void and, therefore, unenforceable in Ukraine. However, we are not aware of any well-established practice in relation to successfully challenging these provisions.

Exchange control

Are there any restrictions on international payments and exchange controls in effect in your jurisdiction?

There are no specifc exchange control requirements set in relation to payments under the lease, loan or other security documents. However, a payment cannot be processed by a Ukrainian servicing bank if the benefciary of this payment is subject to either international or Ukrainian sanctions. For this purpose, the lessee's servicing bank will conduct the know-your-customer (KYC) procedures with regard to the lessor, owner and other fnanciers, as the case may be, and their ownership structure. In the course of such KYC procedures, the Ukrainian bank is entitled to request all documents and information that it may deem necessary to identify the ultimate benefcial owners of the aforementioned parties. The Ukrainian banks will always ask the payment initiator to provide the bank with the document on the basis of which the payment is made.

Default interest

Are there any limitations on the amount of default interest that can be charged on lease or loan payments?

Since 2019, there have been no limitations applicable to the amount of default interest that can be charged on lease or loan payments. However, as a matter of currency control provisions, the Ukrainian servicing banks supervise the foreign exchange transactions with non-residents if they have doubts regarding the consistency of the transaction and the conditions upon which they are performed within the market conditions.

Customs, import and export

Are there any costs to bring the aircraft into the jurisdiction or take it out of the jurisdiction? Does the liability attach to the owner or mortgagee?

By default, aircraft that are imported into Ukraine are subject to import duty in the amount of 20 per cent of the aircraft customs value. This rule does not apply to aircraft imported from countries that have a favourable economic regime with Ukraine (including the United States, France and Brazil).

Aircraft that are imported into Ukraine by Ukrainian operators on the basis of an operating lease agreement may be placed into a temporary import regime. This regime provides for the conditional full exemption of customs duties and a zero-customs duty rate applicable to all civil aircraft.

By default, the duration of the temporary import regime shall not exceed three years, but it can be extended by the Ukrainian customs authorities upon consideration of the Ukrainian lessee's application. Usually, aircraft remain in the temporary import regime throughout the term of the operating lease.

Aircraft repossessions and exports from Ukraine are also exempt from customs duties, provided that the Ukrainian lessee has observed a temporary importation regime, according to which the aircraft was imported into Ukraine. The temporary importation regime is extinguished by fling an export customs declaration and actually re-exporting the aircraft from Ukraine. In the case of violating the customs regime of temporary importation, the Ukrainian lessee must pay to the state budget the amount of tax liability accrued but not paid as well as penalties. If this tax liability is incurred, the aircraft would unlikely be exported until the settlement. Usually, exporting the aircraft would require the lessee’s cooperation to properly extinguish the temporary import regime and avoid any potential penalties from the customs authorities or airport charges and duties for their services provided.

INSURANCE AND REINSURANCE

Captive insurance

Summarise any captive insurance regime in your jurisdiction as applicable to aviation.

There are mandatory insurance requirements in the aviation feld effective in Ukraine. An aircraft operator must maintain the following types of insurance:

  • crew members and other aviation personnel;
  • third-party liability;
  • persons entitled to be present on the board of the aircraft without an obligation to buy tickets; and
  • damage to passengers, luggage, cargo and post.

Aircraft registered in Ukraine also need to be insured. Insurance must be provided by Ukrainian insurers accredited with the State Aviation Administration of Ukraine with no requirements as to a minimum or maximum percentage of the insurance that must be retained. Usually, Ukrainian insurers reinsure themselves with foreign insurers.

Cut-through clauses

Are cut-through clauses under the insurance and reinsurance documentation legally effective?

Nothing in the Ukrainian regulations prevents the parties from including a cut-through clause in the insurance or reinsurance agreement.

Reinsurance

Are assignments of reinsurance (by domestic or captive insurers) legally effective? Are assignments of reinsurance typically provided on aviation leasing and fnance transactions?

The assignments of reinsurance are legally effective in Ukraine, and are usually provided on aviation leasing and fnance transactions

Liability

Can an owner, lessor or fnancier be liable for the operation of the aircraft or the activities of the operator?

No. Neither the owner, lessor nor fnancier is liable for the aircraft operation or the activities of the aircraft operator.

Third-party liability insurance

Are there minimum requirements for the amount of third-party liability cover that must be in place?

The minimum amount of the third-party liability insurance coverage depends on the aircraft take-off weight, but in any case, it cannot be less than 75,000 special drawing rights and more than 42.5 million special drawing rights for fights made within Ukraine.

For international fights, the minimum amount of the third-party liability insurance coverage is determined by the international treaty or national legislation of states whose territory the aircraft traverses during the fight, but in any case, it shall not be less than that established for internal fights.

UPDATE AND TRENDS

Key developments of the past year

What were the key cases, decisions, judgments and policy and legislative developments of the past year?

The State Aviation Administration of Ukraine (SAAU) continues to record unlawful violations of Ukrainian airspace committed by the aircraft operators by the means of carrying out fights to or over the territory of the Crimean Peninsula, which has been occupied by Russia since 2014. The SAAU imposes fnes on aircraft operators for each unlawful fight over the Crimean Peninsula.

In connection with the aforementioned, the Ukrainian Security Service has initiated a criminal investigation against the aircraft operators performing fights over the Crimean Peninsula. Although the investigation is classifed as secret, the Ukrainian prosecutor's ofce has publicly reported on the court rulings ordering the seizure of 263 aircraft operated by Russian aircraft operators. These aircraft may be seized by the competent authorities upon their landing either in Ukraine or any other country that has a treaty on mutual legal assistance in criminal matters in force with Ukraine, or on a reciprocity basis. There are also some criminal investigations conducted against the pilots of the aircraft that unlawfully crossed the airspace of the Crimean Peninsula.

As regards legislative changes, on 1 January 2022, the new procedure for obtaining air operator certifcates entered into force. The procedure was adopted to bring the existing requirements set towards Ukrainian air operators in line with European Union Aviation Safety Agency standards.

Also, on 13 February 2022, the Ukrainian government established a temporary monetary fund in the amount of 16.6 billion hryvnias aimed to guarantee the safety of fights over Ukraine to insurance companies, lessors and air operators. It is planned that the funds will be placed on a special escrow account and their total volume will be sufcient to provide guarantees for at least 23 aircraft. 

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