Chambers Practice Area Overview 2020 – Transportation: Aviation (Portugal)
I. Overview of the Portuguese aviation market
Portugal remains a very attractive market for aviation investors due to its regulatory environment, extensive expertise in the aerospace sector and privileged location. In fact, Portugal is an important gateway to the European Union and a strategic hub between Europe, America and Africa.
The regulatory authority in Portugal for the commercial aviation industry is the Civil Aviation Authority in Portugal (“Autoridade Nacional de Aviação Civil” or “ANAC”), which oversees all aspects of civil aviation in the territory of Portugal and all its dependencies.
The aircraft, its engines and its equipment, the ownership interest in the aircraft, its engines, any lease agreement, and any specific mortgage must be registered with the National Aircraft Registry (“Registo Aeronáutico Nacional” or "RAN") which is managed and controlled by ANAC. Portugal is a single state registry so no filings/registrations are required under Portuguese Law other than those required to be made with the RAN.
A large proportion of the commercial fleet registered in Portugal is leased and around 90% of the fleet operated by the flag carrier airline Transportes Aéreos Portugueses (TAP) is subject to financial or operational leasing. Our experience shows that this is the same approach followed by other local carriers (a limited number of private airlines) that a have a higher percentage of leased aircraft versus owned.
Portugal has not ratified the Cape Town Convention. Therefore, the ANAC will not process the registration of any lien over an aircraft created by a mortgage agreement with the International Registry that operates under the legal framework of the Cape Town Convention.
Although there are several virtues of the Cape Town Convention, which are very interesting from the perspective of aircraft financers, it is difficult to say how long it will take for Portugal to become a ratifying state, because this matter has not been considered as priority by successive governments. The publication of an aircraft registration act should also be treated as a matter of great importance and priority on the agenda of the Portuguese government.
Portugal is a party to the Convention for the Unification of Certain Rules Relating to International Carriage by Air of 1929 (also known as the Warsaw Convention), the Convention on International Civil Aviation of 1944 (also known as the Chicago Convention), the Convention on the International Recognition of Rights in Aircraft of 1948 (also known as the Geneva Convention) and the Convention for the Unification of Certain Rules for International Carriage by Air of 1999 (also known as the Montreal Convention).
II. Highlights and opportunities
The main player in the Portuguese aviation market is the flag carrier TAP, which is Portugal’s leading airline operating since 1945. It is also a member of Star Alliance.
Following the long privatisation process of TAP, the airline is now 50% owned by the Portuguese state (through the state holding company Parpública) and the remaining share capital is held by Atlantic Gateway with 45% and by a diverse group of TAP Group employees with 5%. These shares are held in TAP SGPS, the holding company that wholly owns TAP.
In 2019, TAP continued its fleet expansion and renewal programme and new deliveries are expected to take place in 2020. Highlights of this are the order placed by TAP for the delivery of fourteen A330-900neo and thirty-nine A320neo family aircraft, and the order made by the Portuguese airline Azores Airlines (previously known as SATA Internacional) for the lease of six new A321neo family aircraft.
Portuguese carriers have played a very important role in the most significant deliveries that took place in 2019 and new deliveries are expected to occur in 2020.
It is clear that Portuguese airlines are making a big financial effort to increase their average seat capacity and passenger comfort, improve their performance and expand their capacity with additional frequencies and schedules. Some of the most reputable international aircraft leasing companies are playing a major role in these transactions and new investors are already entering the aviation finance sector.
We expect the strong airline industry growth to continue and attractive opportunities to emerge in the Portuguese aviation sector. By way of example, foreign airlines with excess capacity could consider subleasing their aircraft to local carriers. Furthermore, banks and financial lessors could look to Portugal as an opportunity for the lease of new aircraft and/or the purchase of second-hand aircraft. Finally, the other players in the industry should pay particular attention to the ongoing works to refurbish, modify and upgrade the cabins of existing aircraft fleets.
Generally speaking, we expect that the growth in seat capacity of the local carriers will continue to result from the leasing of aircraft from international financial/leasing groups or from the subleasing of aircraft from other airlines. The reason for this lies in the difficulty in raising finance, but also in the costs of such a structure, particularly the stamp duty payable on the financing or the creation of mortgages over aircraft and possible difficulties associated with the enforcement of the security.
Moving on to the business aviation sector, NetJets Europe – the largest business aviation company in Europe – has its operations headquarters in Portugal and its European-based aircraft registered with the RAN managed by ANAC.
A special reference should also be made to the agreement signed between the Portuguese Government and ANA – the Portuguese airport management company – for the construction of a second airport in Montijo. The Portuguese Environmental Agency has recently released a favourable opinion on the construction of the Montijo airport provided that ANA agrees to implement a package of environmental mitigation and compensation measures amounting to about EUR 48 million.
Although the opening of the new airport was initially scheduled for 2022, it is now clear that the expansion of the Lisbon airport and the conversion of the Montijo airport may not occur within the expected schedule and this situation may expose local airlines (notably TAP) to greater operational constraints.
This agreement for the construction of the new airport had been long awaited by the Portuguese aviation and tourism sectors because it is expected to improve the operational efficiency of the Lisbon airport and mitigate the exposure of local airlines (notably TAP) to the consequences of the current saturation problem (e.g., costs of flight delays and lack of gates).
Needless to say, these investments in the Montijo and Lisbon airports should also represent a great opportunity for airport technology companies to enter the Portuguese market and present innovative solutions from the security and passenger experience perspectives.
III. New legislation
At the moment, we do not anticipate any new material legislative or regulatory proposals that could have particular effects on the aviation industry or potential investors in this market. The Portuguese legislation governing the commercial aviation industry is largely derived from the implementation of European Union law and, therefore, any potential regulatory changes that may impact the Portuguese aviation market would be more likely to arise from European legislation than from any legal and/or regulatory alteration implemented by the authorities in Portugal (notably ANAC).
Although we do not anticipate any material changes to be issued by the Portuguese authorities, we note the potential implications of the review of European Union law, notably the current review of Regulation (EC) No 1008/2008 of the European Parliament and of the Council of September 24, 2008 that the European Commission is currently undertaking including, in particular, its wet-leasing provisions.By Nuno Luís Sapateiro