New Regulatory Framework of Civil Aviation in Panama

I. Introduction

Through Laws No.21, 22 and 23 of 29th of January, 2003, the Republic of Panama adopted new regulations for civil aviation inits territory.

Law No.21 of January 23, 2003, which entered into force on April 1 st , 2003, repeals Cabinet Decree No.19 of 8 th August, 1963 and introduces important changes in several aspects of Panamanian Aeronautic Law, such as: the creation of the Civil Aeronautic Registry; the preference of credits on aircraft; the limits of civil liability on international and national transport of passengers, luggage and cargo; aircraft insurance; violations and penalties incurred by the owner, operator and charterer of the aircraft; and the inclusion of four articles to the Criminal Code.

Law No.22 of 23 rd January, 2003 repeals Cabinet Decree No.13 of 22nd January, 1969 and creates the Civil Aeronautics Authority as an autonomous entity of the State empowered to manage and regulate air transport services; to regulate and provide services to air navigation, to airport and operational safety; and to certify and manage airfields.

Law No. 23 of 23 rd January, 2003, sets forth the regulatory framework to enable the Panamanian government, through state-owned companies, to render the service of managing airports and airfields.

II. Law No.21 of 23 rd of January, 2003

Panama modernized its aeronautic regulations through this new Law 21 that superseded Law Decree No.19 of 8 th August, 1963, which in turn, regulated civil aviation in the Republic of Panama for almost thirty years.

In this article, we shall refer briefly to the most relevant aspects of Law 21:

• Jurisdiction:  Any aircraft that is located in the territory or air space of the Republic of Panama, as well as its crew, passengers and cargo are subject to the jurisdiction of the Panamanian authorities. Likewise, any acts committed on board the Panamanian or foreign aircraft within Panamanian territory, or on board Panamanian aircraft located on spaces not subject to the jurisdiction of another State are under Panamanian jurisdiction.

• Authorization:  Any construction of infrastructure or the operation of aircraft that may affect the environment, shall be subject to the authorization issued by the National Environment Authority and the Civil Aeronautics Authority (hereinafter the "AAC").

• Definition of Aircraft : An aircraft is defined as any machine that may sustain in the atmosphere by air reaction, that are not the reactions of it against the surface of the earth. The AAC shall establish the technical requirements that the aircraft must comply with and shall issue norms for its operation and maintenance. No aircraft may transit in Panamanian air space without a validly issued registration and the respective air-worthiness certificate in force.

• Nationality and Registration : Any aircraft registered and recorded in the National Aeronautic Registry shall be considered Panamanian aircraft. By means of the Panamanian registration the Panamanian nationality is granted. To the operators and owners of the aircraft a registration certificate is issued, which must always be placed in a visible spot on the aircraft.

The cancellation of the Panamanian registration may be obtained through a petition of the aircraft owner or any other authorized person, by judicial order or by order of the AAC. The cancellation causes are listed in article 24 of Law 21.

• Air-Worthiness : The AAC shall adopt air-worthiness norms based in the provisions of the Annexes to the Chicago Convention, particularly regarding the issuance, amendment, cancellation or revalidation of air-worthiness certificates and technical licenses; as well as the necessary provisions to enforce such standards.

• Civil Aeronautics Registry : The Civil Aeronautics Registry is created as a branch of the AAC, which is ruled by the register-related principles of publicity and legal certainty. In this Registry books shall be kept as well as all licenses granted to aeronautic personnel, air-worthiness certificates, operation and exploitation certificates, registration certificates and other technical contracts.

All acts and contracts related to transfer, sale and encumbering of aircraft; as well as any titles or judicial or administrative resolutions that affect title or ownership of the aircraft shall be contained in a public deed which must be registered in the Aeronautic Section of the Public Registry. In case of foreign aircraft, such acts shall be valid in Panama, after the applicable authentication procedure has been completed and then registered before the Public Registry.

• Mortgage Rights : Panamanian aircraft may be mortgaged, provided the respective public deed is registered in the Public Registry and same contains the necessary characteristics and signs for its identification. The mortgage may include the totality of the aircraft or only parts of it.

The debtor/mortgagor may not withdraw from the aircraft those parts that are covered under the mortgage, without the mortgagee's consent, unless for operational maintenance.

• Preferred Credits : Article 38 of Law 21 provides the priority of credits on aircraft. In this connection, the following are deemed to be preferred credits on the aircraft, on its price or on the amount for which they were insured, in the order so listed:

1. National taxes levied upon the aircraft;
2. A mortgage on the aircraft;
3. Wages and social benefits owed to the crew;
4. Sums owed to the air transport sector, by reason of the operations of the aircraft, on its last journey.

All other credits shall have the priority established in the Civil Code.

• Search and Salvage : The AAC shall coordinate and collaborate with any means at its disposal, in the tasks of search, rescue, assistance and salvage of aircrafts, crew and passengers that may be lost, in danger or in an accident, in Panamanian territory.

The operations of search and salvage, whether of a private or public nature, shall be undertaken under the control and direction of the AAC. Any person that due to his negligence, imprudence, inexperience or violation of the regulations causes a mobilization of the search and salvage resources, shall be liable for damages caused by such circumstance, even if the rescue had not been requested and notwithstanding the applicable criminal liability.

• Aeronautic Technical Personnel : This term is defined as any person that holds technical licenses issued by the AAC, qualified to carry out tasks related to air navigation, as well as the operation of aircraft and airports. The technical flight crew is formed by the flight commander, the co-pilot and the flight engineer.

No person may carry out the functions ascribed to the aeronautic technical personnel, unless he holds a license to this effect, issued in accordance with the Regulations of Law 21. The undertaking of functions of the technical crew if restricted to Panamanian citizens; nonetheless, if these are lacking, the AAC may authorize the engagement of temporary foreign personnel, with prior evidence of the duly justified need.

The AAC shall acknowledge the qualification certificates and licenses issued by foreign competent authorities, provided the requirements under which these were issued are the same or higher than those contained in the Panamanian Regulations, and provided that these countries always recognize and validate the licenses issued in the Republic of Panama.

• Special Attributions of the Commander : The aircraft commander shall be the pilot in charge, with the responsibility of her safety and operation and under whose authority all other members of the crew and passenger during the flight are subject.

In the event the commander has sound reasons to believe that a person has violated or is about to violate the criminal law on board, or that may put in danger the safety of the aircraft, the persons or good on board, or the good order of discipline, he is entitled to adopt, with respect to such person, the measures he deems reasonable, in order to protect the safety of the aircraft, of the persons and property on board, good order and discipline, as well as to deliver said person to the competent authorities upon landing.

• Definitions : Title V of Law 21 defines the terms "airfield", "airport" and "international airport". In this regard, "airfield" is area defined by land or water, totally or partially destined to the arrival, departure and movement of aircraft; "airport" is the airfield that is comprised of permanent facilities and public services, to regularly assist air traffic, to allow the parking and repair of air material and to receive or dispatch passengers or cargo; and "international airport" is the airport appointed by the AAC and qualified for international air traffic, from which the State renders immigration, customs and health services.

• Air Services : No person may render air commercial services, unless it holds the required operation and exploitation certificates. The AAC shall be entitled to grant such certificates, prior determination that the applicants possess the technical and financial resources to do so.

• Panamanian Carriers : Exploitation certificates for rendering air transport services in Panama are restricted to nationals with their operations' base in Panama.

In the case of legal persons, the interested party must provide evidence to the AAC that the beneficial ownership and effective control of the company is in Panamanian hands, by evidencing that 51% of the paid-in capital of the company is represented by means nominative shares issued to Panamanians. In domestic transport, such percentage is fixed at a minimum of 60%.

Holders of the share certificates must maintain the above-mentioned percentages during its period of validity.

• Tax Exemptions : Companies that hold exploitation certificates and provide air transport public services or air work services, shall be exempt from import taxes and consular fees, throughout the period of validity of the exploitation certificate, on the following:

1. Aircraft to be operated by Panamanian aviation companies;
2. Radio-telegraph equipment, radio and other equipment that at the discretion of the Executive Branch, are helpful to air navigation;
3. Specialized equipment for full service to aircraft, airfield equipment, landing stages, hangars and repair shops;
4. Spare parts and replacement engines for aircraft;
5. Fuel and lubricant that are brought with the aircraft not owned by them, according to the modalities of lease contract, charter contract, exchange and financial leasing.

• Contracts for Use of Aircraft : The holders of operation and exploitation certificates may be authorized by the AAC to operate, by means of aircraft not owned by them, according to the modalities of lease contract, charter contract, exchange and financial leasing.

• Investigation of Aviation Accidents : Any accident or aviation incident, regardless of its consequences, must be investigated by the AAC, in accordance with the Regulations issued pursuant to the provisions of Annex 13 of the Chicago Convention.

• Passenger Air Transport : The Law defines this term and provides that any issue related to domestic air transport shall be ruled by the provision of Law 21, or if these are lacking, by its principles; and that international air transport shall be governed, in the absence of treaties, agreements or international conventions, by the principles established by Law. In addition, the regime and limits of Civil Liability in International Air Transport of Passengers and Cargo in the event of death and injury of the passengers and/or loss, damage or destruction of luggage.

• Cargo Air Transport : The Law also defines this term and sets forth the obligations and rights of the issuer, the carrier and the consignee, indicating that these may only be modified by means of an explicit clause to this effect, included in the air way bill or in the cargo receipt. The regime and civil liability limitations in international air cargo transportation due to destruction, damage or loss of the cargo are also established.

• National Transport Regime : The Law establishes the regime and civil liability limitations in national cargo transport caused by death or injury of passengers; by loss, damage or destruction of luggage; collision and damage to surface due to collision.

Pardini & Associates has a complete Aviation Team . The firm has acted as Panama legal counsel for Continental Airlines in the acquisition of 49% of COPA, Panama's largest airline; represented FedEx in multiple matters and acted for international reinsurance companies in different cargo and collision casualties.

Should you have any questions or need more information regarding this matter, please contact Dr. JF Pardini at pardini@padela.com , Dr. JJ Espino at jjes@padela.com

by Silka Niño de Arrue