Austrian finance transactions, including aviation finance transactions, are governed by the following main laws:
- the Civil Code, which:
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- sets out the basic legal framework for purchase and loan agreements in general; and
- governs proprietary issues such as the acquisition of ownership or security interest in an asset;
- the Company Act, which sets out rules on business-to-business relationships and supplements the general provisions of the Civil Code;
- the Aviation Act and related ordinances, which govern matters such as:
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- the aircraft register; and
- aircraft operation certificates;
- the Banking Act, which sets out the regulatory framework for commercial financing entities of aircraft; and
- the Insolvency Code, which sets out:
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- the implications of insolvency for the assets of a debtor or lessor; and
- the rights of holders of security interests.
A choice of law in civil contracts other than Austrian law can be validly agreed and will be upheld in the Austrian courts. However, if a civil contract relates to an Austrian registered Aircraft, based on the conflict of law rules, legal questions on property rights will need to comply with Austrian law (eg, the perfection of a pledge).
Choice of law clauses should be explicitly agreed on, meaning that:
- they should be put in writing; and
- the document should be signed by both parties (a simple signature will suffice).
Aircraft financing transactions are mostly structured as a finance lease or a hire purchase agreement. This is because a security interest in an Austrian registered aircraft cannot be created by registering a mortgage. Aircraft are considered movable assets and thus, based on the so-called ‘dead pledge’ principle, a pledge on an aircraft can only be perfected by physically handing over the pledged asset to the pledgee. In practice, this poses some difficulties if an aircraft acquisition is to be financed by means of a loan, as it is typically the borrower that wishes to use and operate the aircraft; therefore, handing over the aircraft to the lender is not practical. There are ways to structure a loan financing of an aircraft acquisition with a valid pledge, but this requires a third party to act as a middleman: it will be instructed by the lender and the borrower to possess the aircraft on behalf of the lender and respect that the aircraft is pledged to the lender.
In a finance lease or a hire purchase agreement, the financing party remains the legal owner of the aircraft until the last payment is made, providing the strongest security and allowing the financing entity to repossess the aircraft based on the ownership rights in cases of default. Most importantly, the financing party is protected in the lessee’s insolvency by a right of segregation from the lessee’s assets.
In a lease or hire purchase structure, the financing party remains the legal owner of the asset and thus has:
- the strongest possible proprietary right in the lessee’s insolvency; and
- the best chances of repossessing the aircraft and covering its losses through its sale.
In a loan structure, the lender’s protection relies on the valid perfection of the pledge on the aircraft, which requires that the aircraft be handed over to the lender. In practice, this is not feasible, as the borrower is typically the operator and thus needs to possess the aircraft. Using a third-party operator as a middleman bears risks and involves more complex transaction documentation.
Operators must consider:
- where the aircraft is registered; and
- who the parties involved are.
Austria has an operator-based registry, so neither ownership nor pledges can be registered in the registry.
In tripartite relationships, a loan financing is possible but bears higher risks for the financing parties of the pledge becoming unenforceable if one of the parties involved does not respect its contractual obligations.
Another factor to consider is the tax perspective and the question who should activate the asset in its balance sheet.
Aircraft finance is mostly provided by banks or leasing companies, which are subsidiaries of banks, as a banking licence is typically required to offer commercial financial services.
The transfer of ownership (title) as a right in rem is a twofold process (Article 380 of the Civil Code), which comprises:
- a title transaction (ie, signing of the sales contract); and
- a mode transaction (ie, physical delivery of the aircraft by handing over the asset).
While the title transaction gives the buyer the right to obtain ownership, it does not actually transfer the ownership title to the buyer (so the signing of a bill of sale is not sufficient to become the legal owner of an aircraft under Austrian law). This is done through the mode transaction, meaning that the aircraft as a movable asset must be physically handed over to the buyer. This is typically evidenced by signing a handover protocol on sight at the aircraft, possibly also with photographic evidence to underline that the handover has taken place.
In a three-party arrangement, an instruction to possess can also be a valid mode to transfer the ownership title. This is often used where a third party which is neither the seller nor the buyer is operating the aircraft and will continue to do so after the sale is completed. In this constellation:
- the seller will instruct the operator to possess the aircraft on behalf of the buyer from a designated moment; and
- the operator will acknowledge that from that moment on, it will possess the aircraft on behalf of the buyer and not the seller (which also means that the operator will follow the instructions of the buyer and not the seller relating to ownership).
It is recommended that a written sales contract be signed as evidence of the title transaction, although a sales contract is also valid when it is concluded orally.
For the mode transaction, a publicly visible physical transaction is required, which should be evidenced by:
- signing a handover protocol; and
- taking pictures evidencing the actual physical handover of the aircraft.
First, a sales contract is concluded, giving the legal right to transfer the ownership. The actual transfer of the ownership rights then requires that the mode transaction – a physical act – be performed. This is done by handing over the asset to the buyer.
Under certain circumstances, the sale of an aircraft may trigger value-added tax (VAT) if the buyer is Austrian. However, several exemptions apply in particular pursuant to Article 9(2) of the VAT Act, under which certain transactions in aviation are exempt from VAT, such as the delivery or lease of an aircraft intended for use:
- in predominantly cross-border transportation; or
- exclusively on routes outside of Austria.
Intra-EU sales are generally free from Austrian VAT and exports are usually exempt if shipped abroad. However, it is advisable to review a specifically planned export with legal and tax advisers in Austria and the destination country.
An owner’s rights might be defeated or deprived only by governmental expropriation, which is very rare and possibly not relevant with respect to aircraft. The ownership interest in an aircraft may also be lost if a third party purchases the aircraft and acquires ownership in good faith (eg, an authorised sales agent sells the aircraft to a purchaser which purchases it in good faith, trusting that the seller has title to the aircraft). In accordance with Articles 367 and following of the Civil Code, the acquisition of an ownership right in good faith is not possible for stolen assets or assets otherwise obtained by the seller in bad faith; so again, this possibility for aircraft is very remote. Finally, ownership can be lost if another party acquires ownership through prescription. That person must rightfully, physically and peacefully possess the asset for at least three years without having obtained possession through force, fraud or secrecy, while treating it as being the owner. If the prescribing person has not obtained legal possession of the asset but in good faith believes it has, the period of prescription extends to 30 years. The old owner has no claim against the new owner but can claim damages from anyone that caused or facilitated its loss of ownership.
The aircraft register is administered by Austro Control GmbH, the relevant authority. It can be found at www.austrocontrol.at/luftfahrtbehoerde/luftfahrzeuge/lfz_register.
The following information will be recorded in the aircraft register:
- the aircraft registration mark;
- the registration number;
- the manufacturer, model and serial number of the aircraft;
- the maximum take-off weight; and
- the operator (name and address).
This information is also publicly accessible online for free at www.austrocontrol.at/luftfahrtbehoerde/luftfahrzeuge/lfz_register/online-abfrage.
Changes to this information can be recorded.
Leases and mortgages interest cannot be recorded on the aircraft register.
To register an aircraft, an online form needs to be filled out providing the following documents:
- a registration form signed by the operator (www.austrocontrol.at/jart/prj3/ac/data/dokumente/fo_lfa_air_007_de_2023-07-03_0707252.pdf);
- proof of ownership in connection with a transfer of ownership (Form fo_lfa_air_013);
- transfer of operatorship (Form fo_lfa_air_016), if applicable;
- proof of citizenship of the operator (eg, a copy of their passport, an extract from the commercial register or an extract from the register of associations);
- proof of citizenship of the owner (eg, a copy of their passport, an excerpt from the commercial register or an excerpt from the register of associations);
- confirmation from the tax authorities in accordance with Article 27(1) ustg 1994, if applicable;
- a deletion or non-registration certificate from the relevant aviation authority; and
- a certificate proving that noise emissions comply with the provisions of ZLZV-2005.
All documents can principally be provided digitally. Certified translations of documents which are not in German or English are required.
The registration is declaratory only and does not constitute or create any title or interest in the aircraft. It serves as evidence that the aircraft has Austrian nationality and a registration mark. The same applies for deregistration, which will have the effect that the Austrian registration mark and the Austrian nationality are lost.
Austria has not ratified the Cape Town Convention. However, the European Union – of which Austria is a member state – has signed it, including the Aircraft Protocol. It thus has effect only insofar as the European Union has competence over subjects of the convention (and there is a discrepancy in the opinions of member states as to how and to what extent this is the case).
However, the possibility to obtain a deregistration power of authority is generally accepted and is regularly provided to financiers in Austrian-based transactions. It is important that the deregistration power of authority is provided by the operator, which is registered in the Austrian registry.
In this context, there is longstanding jurisprudence in Austria that a power of attorney of any kind:
- will be irrevocable only for a limited period (so a time limit must be agreed); and
- serves a special purpose coming from an underlying transaction.
If this is not the case, the agreement on irrevocability is null and void, meaning that the power of attorney can be revoked at any time.
Aircraft leases cannot be registered in Austria.
Austria does not have a registry for mortgages.
The operator is the person that “operates the civil aircraft for his own account and has the power of disposal over it that such operation requires”. The operator must be either a European entity or an entity established under the laws of a state treated as equal to an EU member state by international treaty.
The operator in the sense of Article 13 of the Aviation Act need not be the holder of the aircraft operation certificates; but if third-country aircraft operation certificates will be used for the operation of an Austrian registered aircraft:
- Austro Control GmbH (the Austrian civil aviation authority) must be consulted; and
- approval from the authority must be sought.
With regard to the owner of the aircraft, restrictions might apply under the applicable sanctions or embargo regimes, in particular those of the European Union. It is therefore advisable to consult the EU sanctions map before registering an aircraft in Austria where third-party nationals are involved.
There are none that pertain specifically to Austrian law. We generally recommend that anti-bribery, anti-corruption or anti-money laundering concerns be addressed in the terms, particularly if non-EU entities are involved.
Operating lease agreements are characterised as rental agreements and are therefore subject to stamp duty tax under the Stamp Duty Act in the amount of 1% of the value of the lease (and, if is it concluded for an indefinite period, 1% of three times the total yearly lease payment).
Stamp duty is payable when the legal transaction document is executed in the country. If the transaction document is executed abroad, stamp duty is payable if:
- the parties to the legal transaction have their domicile (habitual residence), their management or their registered office in Austria or maintain an Austrian place of business; and
- either:
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- the legal transaction concerns a matter located in Austria; or
- one of the parties is entitled or obliged to perform the legal transaction in Austria, at the relevant time for documents executed in Austria.
- If the above requirements are not met until such time as an addition or supplement is made, this will be the relevant time. Otherwise, the stamp duty will be payable if the document (certified copy) is brought into Austria and either:
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- the legal transaction fulfils one of the above requirements at the time of the document’s introduction into the country; or
- a legally relevant act is performed in the country on the basis of the legal transaction or the document (copy) is officially used, at the time of performance of these acts.
‘Execution’ means signing (physically or electronically); while ‘brought into’ means the document physically entering the territory of Austria. Uncertified copies of documents do not fulfil this requirement; however, electronic documents (ie, signed purely electronically), if sent to an addressee in Austria by email, will be considered to have been ‘brought into’ Austria for the purposes of stamp duty tax.
If stamp duty is not paid:
- all parties that signed the contract will be liable for payment of the stamp duty tax and possibly some penalties; and
- the Austrian tax authorities might enforce the debt judicially.
Yes – this:
- can be done by:
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- accession to a contract;
- assumption of contract; or
- novation; and
- requires the consent of the other contracting party.
In the case of a lessor that is also the owner of the aircraft, the sale of the aircraft will typically result in the new owner:
- automatically becoming the lessor; and
- assuming all rights and obligations under the lease agreement
Unless otherwise agreed, the lessor must deliver the aircraft:
- in airworthy condition;
- suitable for the intended use; and
- free from defects.
In operating leases, the lessor may also retain responsibility for certain maintenance or insurance obligations, depending on the contract. The lessor is generally liable for damages resulting from delivery of a defective aircraft, unless such defects were unknown and not discoverable by reasonable inspection.
The lessee must accept, operate and return the aircraft in accordance with the lease terms. This includes:
- maintaining the aircraft;
- bearing all operational risks; and
- complying with all legal and regulatory requirements.
The lessee is typically liable for all damages, third-party claims and losses arising from operation during the lease term. In finance leases, the lessee assumes nearly all risks and responsibilities as if it owned the aircraft.
Both parties often negotiate contractual exclusions and limitations of liability, particularly in cross-border leases. Registration, insurance and repossession rights are also key concerns; and care must be taken to ensure enforceability in the Austrian courts.
If the lessee under an operating lease is in default, the lease will typically provide for termination of the lease, which the lessor will be able to declare with immediate effect for good cause. The aircraft will then need to be returned.
If a lease agreement is terminated and the aircraft is not returned voluntarily, the owner has the right to repossess the aircraft but cannot resort to self-help in the sense of forcefully taking physical possession of the aircraft. There are legal remedies available for repossession of the aircraft and temporary injunctions are also available.
Repossession mostly is achieved voluntarily. If the aircraft is not handed over voluntarily, court proceedings will need to be initiated, as explained in question 5.5.
Austrian law recognises the concept of so-called ‘retention rights’. However, such retention rights can be excluded by agreement, but only vis-à-vis the respective party waiving such rights (which is recommended). Waivers for the detriment of other parties (eg, airports, traffic control or fuel companies) cannot be agreed upon between a lender/borrower or lessor/lessee; only with those entities themselves.
Only a party in direct possession of the asset may exercise a retention right. The asset may not forcefully be taken in order to exercise such rights. Only claims relating to the aircraft itself can invoked by third parties to exercise a retention right on an aircraft against the lessor (eg, maintenance costs). Costs relating to the operation or resulting from a contractual relationship with the lessee cannot be invoked against the lessor and the aircraft will need to be handed over to the lessor.
The most common disputes in operating leases relate to the termination of a lease and the existence of good cause which justifies termination with immediate effect. Very rarely will the lessee not hand back the aircraft voluntarily.
Other disputes might concern:
- the condition of the aircraft upon return; and
- possible damages or other reasons caused by the mishandling of the aircraft during the lease and a resulting claim for damages by the lessor.
If no out-of-court settlement can be achieved, court proceedings will be initiated.
Article 25b of the Insolvency Act provides that a clause which grants the lessor the right to terminate the lease for the sole reason that the lessee is insolvent (and insolvency proceedings are opened) is not permissible. This does not restrict the lessor’s right to terminate the contract for payment default, but it does restrict the lessor’s right to terminate the lease solely due to the insolvency proceedings. It is therefore crucial to monitor the financial fitness of the lessee closely and implement information and reporting obligations in the lease agreement to ensure that the lessor can terminate the lease early enough before insolvency proceedings are opened (eg, when the lessee is in arrears with lease payments).
An aircraft is considered movable property and therefore only a pledge over an aircraft can be created. A security interest cannot be registered in the Austrian Aircraft Registry and no separate registry for such collateral exists in Austria.
This is why aircraft are typically financed in the form of a finance lease or a hire purchase agreement, under which the financing party remains the legal owner of the aircraft and is thus protected in the case of insolvency as the owner of the asset, rather than by creating a pledge on the aircraft, which is a proprietary right nonetheless but bears a greater risk of the aircraft being lost.
Pursuant to the so-called ‘dead pledge’ principle in Austrian law, a pledged movable asset must be physically transferred to the creditor or a third party to secure a debt. This principle ensures that the debtor no longer has direct possession of the pledged item, preventing it from disposing of or using it to secure additional obligations.
As with any other right in rem, for a pledge to be perfected and have absolute effect, a twofold process is required, involving:
- a title transaction (ie, signing of the sales contract); and
- a mode transaction (ie, physical delivery of the aircraft by handing over the asset).
This principle is also known as the ‘principle of separation and abstraction’.
The title transaction is the legal basis for the transfer of a right. It creates the obligation between the parties but does not yet transfer the right itself. In the case of a pledge, this will be the pledge agreement, under which the debtor agrees to provide a movable object as security for a debt.
The mode transaction is the act that actually transfers the right. In the case of a pledge, this means the physical delivery of the pledged object to the creditor (or a third party). Without this act, the pledge has no effect against third parties. Physical delivery of a movable asset requires actual physical handover of the object. Only with this transfer of possession does the pledge become effective with absolute effect, meaning that it is enforceable against everyone, not just between the contracting parties.
The only possibility to use a movable asset, such as an aircraft, as collateral for financing of any sort is the creation of a pledge on the aircraft. A pledge over movable property is validly created only if the explained title and mode transactions are both performed – that is:
- a pledge agreement is signed; and
- the aircraft is subsequently also handed over to the pledgee.
A pledge can therefore be created only if the aircraft does not remain in the direct possession of the pledgor.
Therefore, typically, a third party is involved which operates the aircraft and is a different entity from the pledgor/owner. This third party acts as a possessory middleman and is instructed by the pledgor to possess the aircraft on behalf of the pledgee for the duration of the pledge agreement. The relationship between the pledgor, the pledgee and the third-party operator is typically laid down in a tripartite agreement, in which the third-party operator acknowledges the terms of the underlying agreement between the pledgor and the pledgee that will be secured by the pledge (eg, loan agreement).
Additionally, it is recommended to mark the aircraft as being subject to an Austrian law pledge by affixing plates to the airframe (and also to each engine, if the engines will also be pledged), to create external visibility of the pledge.
Anyone else involved in the use of the aircraft, such as a lessee or sublessee for which the third-party operator operates the aircraft commercially, must:
- acknowledge the existence of the pledge; and
- respect the pledge, so as to ensure that the pledge can be enforced in the event of a default under the pledge agreement.
Yes, see question 6.2.
There are no particular charges.
Under Austrian law, a security interest in the form of a pledge creates a legal relationship between the owner (pledgor) and the secured party (pledgee). Their respective obligations and liabilities:
- are governed by the Civil Code; and
- depending on the type of pledged asset, may also be affected by special statutory provisions.
The owner (pledgor) has the following obligations and liabilities:
- Transfer of possession (if movable):
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- The pledgor must transfer possession of the pledged item to the pledgee or a third party (constituting delivery) for the pledge to be effective (Civil Code, Sections 447 and following).
- For movable goods, actual or constructive delivery is required; for claims or rights, notification or assignment mechanisms may apply.
- Warranty obligations:
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- The pledgor is liable for:
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- the existence and enforceability of the secured claim; and
- being authorised to pledge the asset.
- If the pledge is defective (eg, the pledgor is not the owner), the pledgee can claim damages or rescind.
- Refrain from actions that diminish value: The pledgor must not impair the pledged asset or take actions that:
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- reduce its value; or
- impair the pledgee’s security.
- Repayment of secured debt: The primary obligation is to repay the secured debt in full and on time. Upon repayment, the pledge must be released.
The secured party (pledgee) has the following obligations and liabilities:
- Duty of care:
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- The pledgee must preserve and protect the pledged asset with the diligence of a prudent person (Civil Code, Section 460).
- The pledgee is liable for any damage or loss resulting from negligence or misuse.
- Prohibition of use: The pledgee may not use the pledged object unless:
- authorised by contract; or
- such use is necessary to maintain the asset (Civil Code, Section 460 analogue).
- Right to retain and realise:
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- The pledgee may retain the asset only for as long as the secured obligation is outstanding.
- If the debtor defaults, the pledgee may realise the pledge:
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- by public sale under Sections 464–467 of the Civil Code; or
- under contractual foreclosure rules if agreed (still subject to limits to prevent abuse).
- Obligation to return: Once the secured obligation is fulfilled, the pledgee must return the asset immediately to the pledgor.
A clause granting automatic ownership of the pledged item upon default is invalid under Austrian law (Civil Code, Section 1371 analogue).
Enforcement actions must always go through the court. However, the pledge agreement can provide for the right of the pledgor to sell the aircraft in out-of-court proceedings. This is typically included in the agreement and the pledgor then:
- sells the aircraft on the free market according to the provisions of the agreement (which typically provides for the requirement that an appraisal be made with respect to the value of the aircraft); and
- can then satisfy its claims from the proceeds (with any surplus to be handed over to the pledgee).
Foreign judgments will be recognised if there is a legal basis for this. Judgments of EU countries will be recognised based on the Brussels I Recast Regulation (1215/2012).
Judgments from third countries will require a bilateral or international treaty, such as the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, as a basis for any recognition.
It is essential that the process outlines in question 6.2 be followed.
Austria has not ratified the Cape Town Convention. However, the European Union – of which Austria is a member state – has signed it, including the Aircraft Protocol. It thus has effect only insofar as the European Union has competence over subjects of the convention (and there is a discrepancy in the opinions of member states as to how and to what extent this is the case).
Aircraft sales in Austria are typically conducted through a purchase agreement. Engines are commonly treated as separate assets, especially in leasing scenarios, and may be subject to individual sale agreements or encumbrances.
Key players include:
- the seller;
- the buyer;
- financiers (if applicable);
- legal counsel; and
- technical advisers.
In larger deals, escrow agents and registration experts are also involved.
While Austrian law does not impose a general statutory duty of disclosure, sellers must not engage in fraudulent concealment. Typical representations and warranties include:
- title;
- airworthiness;
- compliance with law;
- maintenance status; and
- absence of liens.
From a legal perspective, due diligence typically covers:
- ownership/title chain;
- maintenance and airworthiness records;
- existing liens or encumbrances;
- regulatory compliance;
- review of the Austrian Aircraft Registry; and
- insurance.
The buyer typically also performs a pre-buy inspection.
As with any other right in rem, for a pledge to be perfected and have absolute effect, a twofold process is required, involving:
- a title transaction (ie, signing of the sales contract); and
- a mode transaction (ie, physical delivery of the aircraft by handing over the asset).
The title transaction, as the sales contract, can be concluded orally, but written form is recommended.
No registration or filing is required to perfect the sale. However, it is recommended that the new owner be notified to the Austrian Aircraft Registry even though the owner is not registered therein.
The parties should:
- ensure compliance with EU safety and environmental regulations;
- confirm export/import licences where applicable; and
- consider lease novation or lender consent if the aircraft is subject to financing.
The refundability of deposits depends on the terms of the term sheet or letter of intent. They are usually non-refundable unless tied to specific conditions. Austrian contract law recognises the principle of good faith in contractual dealings, but pre-contractual negotiations may not give rise to obligations unless specifically agreed.
The buyer is typically responsible for pre-purchase inspections and due diligence, while the seller must ensure clear title and proper delivery. Subject to the contract terms, breaches may lead to:
- rescission;
- damages; or
- retention of deposits.
- in predominantly cross-border transportation; or
- exclusively on routes outside of Austria.
Intra-EU sales are generally free from Austrian VAT and exports are usually exempt if shipped abroad. However, it is advisable to review a specifically planned export with legal and tax advisers in Austria and the destination country.
Registration fees and notary costs (if any) are minimal.
Sale and purchase transactions of an aircraft are fairly straightforward. It is recommended, however, that payment modalities be ensured that give assurance for both parties.
If this is agreed upon, yes.
The insurance requirements for aircraft operating in Austria are primarily governed by EU Regulation 785/2004, which applies across all EU member states.
This regulation mandates minimum insurance cover for aircraft in respect of:
- passenger liability;
- third-party liability; and
- liability for baggage and cargo.
Third-party liability insurance minimum amounts are calculated based on the aircraft’s maximum take-off mass, with coverage ranging from 750,000 to 700 million Special Drawing Rights.
All aircraft operators must:
- carry proof of insurance on board; and
- present it to the competent authorities, such as Austro Control GmbH, when requested.
Under Section 164 of the Aviation Act, sufficient insurance coverage is a condition for operating an aircraft in Austrian airspace.
These rules apply to both commercial and private operators, with only a few limited exceptions (eg, state aircraft or historic aircraft under special conditions).
While hull insurance is not required by law, it is typically mandated by aircraft financing or leasing contracts.
No local insurance is required.
Not applicable.
Aircraft financing in Austria remains stable and aligned with broader EU practices, with leasing (especially operating leases) continuing to dominate. Austrian lenders are cautious but active, often working through international financing structures. Environmental, social and governance considerations and sustainability-linked financing are gaining traction. No major legislative reforms specific to aircraft financing are pending, but developments in EU taxonomy and environmental regulation may indirectly impact future financing terms over the next 12 months.
We always recommend that an aircraft financing transaction be structured in the form of:
- a finance lease; or
- a hire purchase agreement.
We do not recommend that an aircraft financing transaction be structured in the form of a loan with a pledge as security due to the lack of the possibility to register a mortgage.
