ISRAEL Law and Practice Contributed by: Charles Gottlieb and Osnat Issan, Gottlieb Gera & Co Advocates
2. Aircraft and Engine Leasing 2.1 Overview 2.1.1 Non-Permissible Leases
2.2 Lease Terms 2.2.1 Mandatory Terms for Leases Governed by English or New York Law Leases governed by English or New York law should be drafted to reflect local legal terminology, local oper - ational and regulatory requirements and/or relevant conditions precedent. 2.2.2 Tax and Withholding Gross-Up Provisions Provisions relating to tax withholding and other with - holding gross-up provisions are generally permissible and enforceable in Israel, provided that such provi - sions are not contradictory to any mandatory Israeli law or public policy. 2.2.3 Parts Installed or Replaced After a Lease’s Execution An aircraft lease may also cover parts that are installed or replaced on an aircraft or engine after the execution of the lease. Good practice would require the amend - ment of the lease should such parts be identifiable. 2.2.4 Risk of Title Annexation The installation of an aircraft engine onto an airframe should not cause title in the engine to be annexed to that of the airframe. If an aircraft engine is owned or charged in favour of a third party, market practice is to put ownership plates on the engine that identify the owner and/or the holder of the charge, as well as providing for the appropriate contractual delineation and acknowledgement of the separate ownership of the engine. 2.2.5 Recognition of the Concepts of Trust/Trustee The concept of trust and the role of an owner trustee are recognised in Israel. 2.3 Lease Registration 2.3.1 Notation of Owner’s/Lessor’s Interests on Aircraft Register The interests of the owner of an aircraft are registered with the Israel Aircraft Registry (the “Registry”), which is an owner registry maintained and operated by the Civil Aviation Authority of Israel. As the Registry is an owner registry, non-owner lessor interests may not be registered in the Registry.
Operating leases, wet leases and finance leases are generally permitted and recognised under Israeli law, as are leases over engines or spare parts. 2.1.2 Application of Foreign Laws Leases involving a domestic party, or an asset situ - ated in Israel, may be governed by a foreign law. How - ever, Israeli courts may limit the application of foreign law if it is determined that its application would be incompatible with mandatory laws or the public policy of Israel – in each case, this has been narrowly con - strued. In certain cases, Israeli courts may also deter - mine that certain mandatory legislation is applicable to persons, actions or assets located in Israel, not - withstanding the expressed intention of the parties. 2.1.3 Restrictions Concerning Payments in US Dollars Subject to required tax withholding, if applicable, there are no material restrictions on payments by domestic lessees to foreign lessors being made in US dollars. 2.1.4 Exchange Controls Israeli law does not contain exchange controls that prevent rent payments under a lease or repatriation of realisation proceeds, except with regard to withhold - ing taxes and with regard to measures imposed by Israeli banks under applicable AML regulations. 2.1.5 Taxes/Duties Payable for Physical Execution of a Lease For taxes and duties payable upon the execution of a lease in Israel and/or by an Israeli party, see 1.1.1 Taxes/Duties Payable Upon Execution of the Sales Agreement. 2.1.6 Licensing/Qualification of Lessors A foreign lessor does not have to be licensed or oth - erwise qualified in Israel in order to do business with a domestic lessee. However, for restrictions on for - eign ownership of aircraft, see 2.3.4 Registration of Leases With the Domestic Aircraft Registry .
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