Doing Business in Brazil

29. Brazilian Code of Aeronautics

02/07/19

Registration of rights of a Brazilian registered aircraft

The Brazilian Aeronautical Registry (“RAB”) is the public registry whereby ownership and other rights in respect of a Brazilian registered aircraft are recorded. The RAB is operated by the Brazilian Agency of Civil Aviation (“ANAC”).

The RAB has as function to (i) issue certificates of registration and airworthiness of aircraft; (ii) register aircraft; (iii) register liens and encumbrances on aircraft; and (iv) provide certificates evidencing title to an aircraft and registration of liens and encumbrances.

It is a standard practice for the RAB to register leases, sub-leases, aircraft mortgages, novation agreements, security assignments any other relevant liens and security regarding a Brazilian registered aircraft. Evidence of such registration is obtained by the issuance of a RAB Certificate. The parties that execute documents that are filed with RAB must present evidence that certify their powers to execute documents on their behalf (such as a power of attorney or their corporate documents).

In the case of the transfer of title to an aircraft registered with the RAB, such transfer of title will be effective upon the execution of bill of sale and its registration with the RAB. The registration of documents that evidence ownership, such as a bill of sale, before the RAB, constitutes proof of ownership of the aircraft, as per Articles 72(II), 115(IV) and 116(V) of the Brazilian Aeronautical Code (“BAC”).

Documents that are executed abroad must be notarised and appostiled and translated into Portuguese by a sworn public translator before filing such document with the RAB. Furthermore, if such transfer is to be effective upon the execution a bill of sale, and, if such document is to be executed in Brazil, the bill of sale must comply with certain regulations in order to have the document filed with the RAB, such as: (i) executed by both seller and buyer; (ii) include the signatures of 02 witnesses; (iii) have all signatures notarized by authenticity (autenticidade); and (iv) translation into Portuguese by a sworn public translator.

In addition to the RAB registration, the creditor/owner/lessor of an aircraft usually makes the registration of their international interest for an aircraft transaction with the International Registry.

Further to the filing of the documents with the RAB and with the International Registry, the documents (accompanied by the their respective sworn public translation into Portuguese) must be registered with the competent Registry of Titles and Documents where the Brazilian debtor/lessee is headquartered in order to be valid and enforceable before third parties including without limitation, the Brazilian courts, Municipal, State or Federal authorities.

29.1 Leases

The RAB, the Brazilian courts, the Central Bank of Brazil, the Federal Revenue of Brazil and other authorities recognise the concept of a lease over an aircraft.

The choice of a foreign law to govern a lease agreement will be upheld as a valid choice of law in any action in Brazil, provided that the requirements of Article 9 of Lei de Introdução às Normas do Direito Brasileiro (Decree-law No. 4.657 of September 4, 1942) are met. Article 9 of Decree-law No. 4.657 of September 4, 1942 provides that the obligations resulting from contracts are governed and construed in accordance with the laws of the place where they were established, and, as second paragraph of the same Article 9 provides that the obligations resulting from contracts are deemed to have been constituted in the place where the proponent is resident. The Brazilian court may request the party who argues matters of foreign law to make proof of its existence and content, as well as that it is in effect.

A lease agreement does not need to be in a particular form. Lessor and lessee are free to negotiate the terms and all clauses of the lease agreement. The lease agreement does not need to be drafted in Portuguese. In order to be valid and enforceable in Brazil, the lease agreement must be signed by lessor, lessee and two (2) witnesses and their signatures must be duly notarized. If executed abroad by lessor, lessor´s signature will need to be notarized and apostilled. Once notarization and apostille are completed, the lease agreement (if drafted in any language other than Portuguese) will required to be translated by a sworn public translator.

The full copy of a lease agreement will be registered with the RAB and because the RAB is opened to public scrutiny, anyone can apply for a certificate of the aircraft which certificate will indicate a brief summary of the documents registered therein. In order to discharge a lease recorded with the RAB, lessor and lessee must enter into a lease termination agreement.

29.2 Termination and enforcement of leases (assuming the Brazilian debtor is not in a form of insolvency protection)

Self-help remedies are not permitted under Brazilian law. Upon the occurrence of an event of default and in the absence of a voluntary return of the aircraft to the foreign lessor by lessee, the legal proceeding to repossess an aircraft under Brazilian law is the repossession claim (“ação de reintegração de posse”) filed by lessor against lessee.

Repossession of an aircraft in Brazil is easier if the lease agreement contains express provisions, which allows the lessor to unilaterally terminate the lease agreement in the event of non-cured default by lessee (“cláusula resolutiva expressa”). The initial step for filing a repossession lawsuit, in this case, is the serving a default notice (notificação extra-judicial) on the defaulting lessee, by means of the relevant Registry of Titles and Documents. Such default notice should specifically state the events of default as set forth in the lease agreement and provide for a short cure period, usually 24 to 48 hours. The notice also should provide that in the event lessee fails to cure the default, the lease agreement shall be considered automatically terminated, without the need for any judicial action for this purpose, pursuant to the express resolutory clause (“cláusula resolutória expressa”) contained in the agreement.

If the lease agreement does not contain an express resolutory clause, in order to comply with the requirements set forth by Brazilian law for such a claim, the foreign lessor must file a judicial interpellation (“interpelação judicial”) against lessee, in accordance with article 474 of the Brazilian Civil Code, notifying that an event of default has occurred and is continuing under the lease agreement and, therefore, that Lessee should cure such event of default or the Lease will be considered terminated.

In either case, if the lessee does not cure the default, a repossession claim will then be presented to the court based on the fact that the termination of the lease has rendered continued possession of the aircraft by the lessee unlawful. If the judge is satisfied with the documentation presented with the initial claim, he/she may grant provisional repossession of the aircraft to lessor, without hearing the lessee.

In the event that the judge is not satisfied with the documentation presented with the initial claim, he/she may request lessor to justify its allegations and will summon lessee for the hearing where such justification will be presented. If the judge is satisfied with the justification he/she will issue an order for provisional repossession.

Whether or not the provisional repossession is granted to the lessor, the claim will proceed in accordance with the ordinary rite, as regulated by the Brazilian Code of Civil Procedure, until a final decision is granted by the court.

Provisional repossession can be obtained in as little as three (3) days, as a preliminary injunction, if the judge is satisfied with the documentation and arguments presented by the lessor. The claim will then proceed in accordance with the ordinary procedure. The decision on the claim at the lower court usually takes around a year. Timeframes for appeals to higher courts are very difficult to predict, as they often depend on the court docket at such time.

Brazilian legal system is complex and practically all the decisions granted by a court are subject to interlocutory and final appeals. Exercise of appeals may cause delays to any estimate of length of court proceedings.

Costs associated with a legal claim in Brazil depend essentially on the state law of the State in which the claim is filed. Generally, initial court costs will vary from 0.5 to 1% of the case value (valor da causa). The case value shall correspond to the economic benefit pursued by plaintiff (here, the lessor). In case of repossession claims based on debts, courts tend to understand that the case value is the amount of the debt. To appeal, courts will charge another fee, normally between 1 to 4% of the case value.

Also, in accordance with the provisions of Article 83 of the Brazilian Code of Civil Procedure, a plaintiff who is not resident in Brazil is required to post a bond in favour of the court. The bond can be posted in cash or some other type of security or guaranty (subject to approval of the court) to cover legal costs and lawyers’ fees, usually in an amount equivalent to 10% to 20% of the case value.

In order to be recognised and enforced in Brazil, foreign judgements must undergo an exequatur procedure conducted before the Brazilian Superior Court of Justice (“Superior Tribunal de Justiça”) (“STJ”).

The following are prerequisites for the enforcement of foreign judgments in Brazil, in accordance with article 15 of the Law of Introduction to the Civil Code, article 217 Internal Rules of Brazilian Supreme Court (Regimento Interno do Superior Tribunal de Justiça) and Resolution (Resolução) No. 9 of the STJ:

(a) Judgement has been issued by a court of competent jurisdiction;

(b) Parties to the claim were lawfully summoned before the foreign court (if the party to be summoned is domiciled in Brazil the summons should be made by means of Rogatory Letters (Cartas Rogatórias) or by service of process on a duly empowered attorney);

(c) Judgement is not subject to appeal and fulfils all the required formalities for the enforceability thereof in the country where the same was issued;

(d) Judgement has been apostilled and accompanied by a translation into Portuguese made by a certified translator; and

(e) Judgement is not offensive to Brazil’s national sovereignty, public policy or good moral customs.

In accordance with the provisions of Article 221 of the Internal Rules of the Brazilian Supreme Court (Regimento Interno do Supremo Tribunal Federal), the exequatur procedure before the STJ does not imply in a rehearing of the issues. The lessee’s defense in this case will be limited to the authenticity of the documents, the interpretation of the foreign decision and the non-observance of the requirements mentioned above.

The judicial procedure for collection of amounts due under a lease agreement is the collection lawsuit (“ação de cobrança”), also called ordinary lawsuit (“ação ordinária”). In this kind of procedure the parties have broad opportunities to produce evidence and to appeal from interlocutory or final court decisions. Depending on the characteristics of the lease agreement, it may allow the filing of a foreclosure lawsuit (“ação de execução”), which is a more expeditious proceeding.

29.3 Bankruptcy

Bankruptcy in Brazil encompasses both the reorganization of a debtor (judicial or out of courts) and the liquidation of the company.

Brazilian Reorganization and Bankruptcy Law (Lei de Falências e Recuperação de Empresas) (“Bankruptcy Law”) establishes that lessor’s rights shall not be affected by the judicial recovery or liquidation of Lessee, whether the aircraft is under an operating lease or a finance lease.

In the event of a judicial reorganization, it has been the understanding of Brazilian courts that rights arising out of lease agreements (of any type of assets) may be suspended for a period of one hundred and eighty (180) days, if the leased asset is absolutely necessary to preserve the activity of the company during this period. This is the period granted by the law for the debtor to present and have a recovery plan approved by its creditors. Notwithstanding the foregoing, the conditions of aircraft lease agreements cannot be impacted by recovery plans.

In case of liquidation, lessor may repossess the aircraft immediately, as long as it complies with the legal requirements and judicial procedure to do so (repossession lawsuit). The judicial administrator may discuss with the lessor the maintenance of the lease agreement, provided that the court authorizes the provisory continuance of the bankrupt company’s activities.

The ranking of credits in case of liquidation is set forth by Article 83 of the Bankruptcy Law, as follows:

(i) labour credits limited to 150 (one hundred and fifty) minimum wages per creditor and credits arising out of labour accidents,

(ii) credits secured with a “right in rem” up to the amount of the collateral;

(iii) fiscal credits;

(iv) credits with special privilege;

(v) credits with general privilege;

(vi) unsecured credits;

(vii) quasi-subordinated credits; and

(viii) subordinated credits.

29.4. Exportation and deregistration of Brazilian registered aircraft

Upon termination of the lease agreement, whether on expiry or otherwise, the foreign lessor may: (i) repossess the aircraft with the cooperation of lessee, or in the absence of such cooperation, by means of appropriate court action; (ii) deregister the aircraft from the RAB in accordance with the provisions of Article 75, of Law 7.565 of December 19, 1986; and (iii) export the aircraft out of Brazil. The approval of the customs authorities and ANAC is required in connection with the exportation of the aircraft out of Brazil.

As of March 1, 2012, the Convention on International Interests in Mobile Equipment (the “Cape Town Convention”) and the Protocol thereto on Matters Specific to Aircraft Equipment (the “Aircraft Protocol”) has been in effect in Brazil. Nevertheless, for local matters, the Cape Town Convention and the Aircraft Protocol are effective from May 16, 2013, pursuant to Decree No. 8008, dated as of May 15, 2013. The Aircraft Protocol has been fully implemented as of March 21, 2014 pursuant to the ANAC’s Resolution 309 (“Resolution”), dated as of March 18, 2014, and, as the designated authorizing point of entry for the purposes of registration with the International Registry, the RAB has issued internal regulation contemplating such mechanics allowing for the registration of interests over aircraft and engines registered in Brazil with the International Registry.

Pursuant to the Declaration made by Brazil under Article XXX, paragraph 1, with respect to Article XIII of the Aircraft Protocol, an irrevocable deregistration and export request authorization (“IDERA”) issued in the form required by the Cape Town Convention and registered with the RAB is fully effective to authorize lessor to act in accordance with the terms set out therein and procure the de-registration of the aircraft from the RAB and procure the export and physical transfer of the aircraft from Brazil, provided that the terms of Article IX of Aircraft Protocol are observed. The IDERA may not be revoked by the lessee without the consent in writing of the lessor.

We are aware of precedents in Brazil in connection with the use or acceptance of an irrevocable deregistration and export request authorization by the RAB in cases where repossessions were not hostile (amicable repossessions). In such cases, although the export and de-registration of an Aircraft registered in Brazil would require the issuance of an Export authorization by the Brazilian Federal Revenue Office (“SRF”), the RAB accepted the deregistration request of the aircraft based solely on an irrevocable deregistration and export request authorization, and permitted that the owner of the aircraft to take possession and fly the aircraft abroad. However, considering that the applicable RAB regulations require the prior export of the aircraft and that the SRF has not issued any regulation acknowledging the terms of the Cape Town Convention, it is not possible to ensure that in future cases the RAB will not request export documentation before proceeding with the deregistration based on irrevocable deregistration and export request authorizations.

29.5 Detention of a Brazilian registered aircraft

Article 303 of the BAC, provides that an aircraft may be detained by aeronautical authorities, customs authorities or the federal police in the following cases:

(i) if, in Brazilian air space, an aircraft violates the international conventions or the Brazilian aeronautical authorisations required to fly in the Brazilian airspace;

(ii) if, going through the Brazilian air space, an Aircraft violates the obligation of landing at an international airport;

(iii) to examine an aircraft’s certificates or other essential documents;

(iv) to inspect its load, in case of legal restriction, such as dangerous substances for public security;

(v) to verify any illegality.

Furthermore, in accordance with the provisions of Articles 305 and 306 of the BAC, an aircraft can be also interdicted (“interdição”) by the aeronautical authority which prevents it from flying, but allows it to operate only if required for purposes of maintenance. The interdiction can happen in the following situations:

(i) When an aircraft violates rules with respect to its use;
(ii) During the investigation of an accident in which an aircraft is involved.

Moreover, Article 308 of the Brazilian Aeronautical Code provides for the seizure of an aircraft in order to grant efficacy to the above mentioned detention or interdiction, which means that if the owner or operator of a detained or interdicted aircraft fails to obey the order, such aircraft shall be seized by the competent authority, until its demands are complied with.

The owner or operator of the aircraft shall have the right to be indemnified if any of the above mentioned acts is carried out with abuse of power, otherwise no indemnity will be due.

Other than in the cases above, which are related to irregular operations, instances of governmental interference would be rare. The requisition of the aircraft/engine may be ordered in the case of war, actual or imminent, or of great national emergency.

Aircraft used for smuggling or drug trafficking may be confiscated, after due process, as provided for in Article 91, item II (a) of the Brazilian Criminal Code and article 34 of the Law of Drugs (Law 6.368/76, as amended).

Brazilian Law further provides that an aircraft can be attached as result of a fiscal enforcement, by means the inclusion of the tax debt due by its owner in the relation of the credits of the Federal State (Fiscal Enforcement Law, article 2, paragraph 1).

29.6 Foreign capital in Brazilian airline companies

On December 13, 2018, the Brazilian Government issued the Provisional Measure No. 863/2018 which amended the BAC. The Provisional Measure approved the increase from 20% (twenty per cent) to 100% (one hundred per cent) of the authorized voting equity that a foreign company can hold in a Brazilian airline company.

The BAC enacted in 1986 limits the percentage of voting shares that foreign investors can own in Brazilian airlines to 20% (twenty per cent). Although issuance of non-voting shares (which are limited to half of a company’s total capital) could allow foreign investors to reach a total equity position of 60%, the voting share restriction has impeded foreign investment in Brazilian airlines. An increase in the foreign investment limit in Brazilian airlines has been widely discussed since 2009.

In order to be permanently incorporated into the Brazilian legal framework, Provisional Measure 863/2018 must be approved by the Brazilian House of Representatives and the Brazilian Senate, where amendments may be proposed, and subsequently approved by Brazil’s president.

The new rule will not only permit current foreign shareholders in Brazilian airlines to increase their ownership stakes, but it also offers Brazilian airlines the opportunity to attract new investors and opens the Brazilian market to new partnerships between Brazilian and foreign airlines. This could make the Brazilian airline sector more competitive and lead to an increase in domestic flights, as well as expansion of international routes offered by Brazilian airlines.

29.7 Aviation consumer protection

ANAC’s Resolution No. 400 dated as of December 13, 2016 aimed to protect passengers in case of flight delays, cancellations or denied boarding. Should there be a flight delay the airline will have to notify the passengers about the delay and the expected time of departure. In the event the flight is delayed for more than 4 hours, or if the flight is cancelled or a passenger is not able to board a connecting flight because of the delay, the airline must offer the following alternatives: (i) boarding another flight; (ii) reimbursement of the fare effectively paid, including taxes and airport fees; or (iii) completion of the transport through other transport modes.

In case of flight delays and cancellations, material assistance must be offered as follows: (i) exceeding 1 hour: access to means of communication; (ii) exceeding 2 hours: a meal compatible with the time of day, or a meal voucher; (iii) exceeding 4 hours: hotel accommodation if there is an overnight wait and ground transfers.

ANAC´s Resolution No. 280 dated as of July 11, 2013 aimed to protect passenger with special needs. According to such Resolution, passengers with special needs include: (a) persons with age of 60 and above; (b) pregnant and lactating women; (c) persons accompanied by an infant; (d) persons with reduced mobility; or (e) any person for whom a specific condition limits their autonomy as a passenger.

With respect to liability of the airlines before the Brazilian courts, based on a decision of the Brazilian Supreme Court, the Montreal Convention will be applied by the Brazilian courts instead of the Brazilian Consumer Protection Code in cases like loss of luggage. Before such decision, the Brazilian courts were inclined to deny enforceability of the Montreal Convention and used to adopt the Brazilian Consumer Protection Code in the vast majority of the cases. We believe that such change will have a big impact on how lawsuits are handled in view of the indemnity limitations and the statute of limitation provisions set forth by the conventions.

29.8 Air transport services

Air transport services in Brazil are regulated. In order to engage in air transport services, a company must obtain a concessionary licence to operate as an airline. Such licence is issued by ANAC for cargo and regularly scheduled passenger and non-scheduled passenger services.

Foreign airlines that seek authorization to operate in Brazil must begin the process by submitting ANAC a request to perform their activities in Brazil, in accordance with the provisions of Sections 205 to 213 of the BAC. Basically, a foreign airline must (i) be designated by the government of its own country to operate in Brazil, (ii) obtain the ANAC’s authorization to establish operations in Brazil and (iii) obtain ANAC’s authorization to operate aviation services in Brazil.

A foreign air carrier must appoint a permanent legal representative in Brazil and provide evidence of its incorporating and submit its articles of organization. In addition, a foreign airline will have to submit to ANAC (a) its technical and operational plan; (b) the airfares it plans to charge; (c) the cities it plans to stop in Brazil and its further stops outside Brazil and (d) the specific hours in which it plans to fly to and from Brazil.

Authors: Ana Luisa Castro Cunha Derenusson and Rita De Cassia Godoy

De Luca, Derenusson, Schuttoff e Azevedo Advogados – DDSA Advogados

 

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