i The transport finance industry

The total costs for transport in Switzerland by rail and air are surveyed every five years. In 2010 they amounted to 93.5 billion francs,2 out of which 72.8 billion francs was accounted for by passenger transport and 20.7 billion francs by the transport of goods. These figures include the cost of accidents and the cost of transport-related damage to the environment and health, in addition to the cost of transportation assets and of transport infrastructure. This chapter only addresses the financing of transportation assets.

The Swiss lending market, which is largely dominated by banking institutions, has remained stable for the past few years despite the financial crisis, and has brought the necessary financial support to the transport industry.

The transportation of goods ensures the supply of commodities to trading companies and of consumption goods to the Swiss population. It also allows commodities trading to take place on a worldwide scale. For those reasons, in addition to the support provided by the banking industry, the Swiss federal government also supports freight transport companies by offering them investments, contributions and compensation - particularly to encourage the transfer of ‘transalpine' freight from road to rail and to develop rail freight traffic.3


In 2010, the cost of aviation transport amounted to 6.4 billion francs. The majority of this amount (i.e., 5.2 billion francs) was generated by passenger flights and charters. On the other hand, the cost of transport of goods by air amounted to 0.7 billion francs, and the cost of general aviation, including general smaller aircraft, amounted to 0.5 billion francs.

The most important category of aviation costs - aviation transport assets - was 4.1 billion francs.

Aviation transport users (passengers, freight forwarders, etc.) incurred a significant part of the aviation costs - 5.3 billion francs, representing 83 per cent of the total cost. 0.9 billion francs were deferred to the community, representing 14 per cent of the cost. The balance of 0.2 billion francs was borne by airlines and airports, which offset the deficit suffered in relation to aviation with profits made from ancillary activities.


The Swiss merchant marine fleet is composed of 49 ships with a total capacity of 1.7 million tons (deadweight tonnage), which corresponds to 0.001 per cent of global tonnage. The Swiss fleet operates worldwide, as needed.

Shipowners finance the building and purchase of their fleet essentially by means of bank loans with preferential interest rates. These loans are granted on the basis of a guarantee facility provided by the Swiss Confederation. In exchange for this guarantee facility, shipowners have agreed to provide the Swiss Confederation with the use of their fleet to secure national economic supply of essential goods and services in the case of serious shortages that the private sector itself is unable to counteract.


In Switzerland, the largest transport volumes are undertaken by rail and motorised transportation. In 2013, the total cost of rail transport amounted to 10.3 billion francs out of which 4.8 billion francs represented the cost of rail transport assets. The cost of passenger rail transportation amounted to 8.4 billion francs, 6.8 billion francs of which was financed by private transportation companies and 1.1 billion francs of which was financed by the Swiss authorities.

The total cost with respect to rail transportation of goods amounted to 1.9 billion francs, out of which 0.8 billion francs were spent on rail transportation assets. 1.4 billion francs out of the total cost related to rail transportation of goods were financed by private transportation companies, and 0.2 billion francs were financed by the Swiss authorities.4

ii Recent changes

The most significant change in the Swiss transport finance sector relates to the shipping industry.

The size of the Swiss fleet has increased considerably over the past few years, owing to the fact that shipowners have been able to obtain bank loans more easily, with preferential interest rates on the basis of the guarantee facility granted by the Swiss Confederation.

Until 2012, the guarantee facility was capped at 600 million francs. It was then increased to 1.1 billion francs and extended until June 2017. The guarantee facility has not been utilised until recently but, for the first time, the Swiss Confederation might be requested to assist a shipowner in financial difficulty.

Owing to the fall in commodity and freight prices, the international and Swiss shipping industry is facing a worse storm today than it did following the global financial crisis, and the Swiss market has not been spared despite the celebration of the Swiss flag's 75th anniversary in spring 2016.

Owing to the risks associated with the shipping industry, the Swiss government has announced that it will not extend the guarantee facility any further in favour of the Swiss fleet after June 2017. The direct consequence of this decision would be for banks to pull back on loans and to stop granting preferential interest rates, which may lead to the disappearance of the Swiss fleet in the long term.


i Domestic and international law and regulation

The principal domestic legislation applicable to aviation, ship and railway finance is the Swiss Code of Obligations (SCO), Swiss Civil Code (SCC) and the Federal Act on International Private Law. The specific domestic and international legislation applicable to these different areas are outlined below.


Relevant domestic law related to aviation finance also includes the Federal Aviation Act, the Ordinance on Aviation, the Federal Act on Aircraft Records Register and its implementing Regulations.

On the international side, Switzerland is a party to the Rome Convention 1933 and the Geneva Convention 1948.

Switzerland has signed, but not yet ratified, the Cape Town Convention 2001 and the Aircraft Protocol. It has also joined the Multilateral Agreement on Commercial Rights of Non-Scheduled Air Services in Europe 1956.

Finally, the majority of the European aviation legislation applies in Switzerland on the basis of the Agreement between the European Community and Switzerland on Air Transport 1999.


In addition to the SCO and SCC, the domestic law in relation to ship finance includes the Federal Act on Vessel Records Register, the Federal Act on Maritime Navigation under the Swiss Flag and the Ordinance on Maritime Navigation.

The Federal Act on the National Economic Supply, the Ordinance on the Constitution Reserves and the Ordinance on the Guarantee Facility to Finance Swiss Vessels in High Seas are also applicable.

The international legislation includes the International Conventions for the Unification of Certain Rules related to Privileges and Maritime Mortgages 1954, the Convention in relation with the Registration of Interior Navigation Vessels 1965 and for the Unification of certain Rules related to the Conservatory Attachment of Sea Vessels 1952.

ii Specific practices

Aircraft, vessels and rolling stock are all moveable properties pursuant to Article 655 SCC. Unless otherwise prescribed by the law, moveable property cannot be subject to a mortgage (which represents the most common form of security granted over immoveable property).

However, according to Swiss law, aircraft and vessels can - unlike rolling stock - be subject to a mortgage on the basis of the Federal Act on Aircraft Records Register and the Federal Act on Vessel Records Register.

The legal effect of this is that taking a security interest over an aircraft or a vessel in the context of secured lending is equivalent to taking security interest over an immoveable property, namely, in the form of a transfer for security purposes of a ‘mortgage note' charging the relevant immoveable property.

However, with respect to the railway industry, Swiss law does not presently provide for the possibility to create a mortgage over rolling stock. Pursuant to Swiss law, the security interest over tangible moveable property would take the form of a pledge and would require that possession of the pledged asset be transferred to the secured lenders, taking a security interest over operational moveable assets. If the assets represent operational moveable assets, such as rolling stock, such security interest is not obviously compatible with the operational requirements of the security provider. For those reasons, this form of security is rarely adopted in Switzerland and is not applied - although it is available to rolling stock - despite its tangible moveable characteristics.

For the reasons given above, other types of credit support are adopted in the case of rolling stock, such as pledges over funds and title retention agreements, as well as sale and leaseback arrangements.


i Regulatory capital and liquidity

The financial markets not only form part of the economy, they also represent its most heavily regulated sector. Regulation aims to protect creditors, investors and insured individuals, to maintain the stability of the system and to ensure the smooth functioning of the financial markets.

Owing to the increasing cross-border integration of financial markets, Swiss regulations have been considerably impacted by international standards. In light of these changes, Switzerland has recently revised its financial market regulation to promote its financial centre and its competitiveness.

Although the recent changes have not had a major impact on the Swiss corporate lending market, the capital and liquidity requirements applied to Swiss banking institutions have changed. A limit has been placed on the overall volume of available credit and collateral requirements in relation to lending transactions, including within the transport industry, have increased.

The Basel Committee on Banking Supervision (BCBS) aims to enhance the security and reliability of the international banking system. The Committee is made up of representatives of the central banks and banking supervisory authorities of 27 countries. Switzerland is represented on the Committee by the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank.

Drawing on the lessons of the global financial crisis, the BCBS (which aims to enhance the security and reliability of the international banking system) published a reform package in 2010 known as Basel III to reinforce capital and liquidity requirements.

In Switzerland, the Basel III standards are being implemented by adapting the Capital Adequacy Ordinance and the relevant FINMA Circulars. The new provisions entered into force in 2013, and should be fully implemented by the end of 2018.

Swiss financial institutions are required to comply with the Basel III standards when providing finance to the transport industry.

ii Supervisory regime

Switzerland is governed by a continental legal system. FINMA has adopted a principle-based approach that is reflected in the Swiss capital rules. First, the rules remain less specific than the Basel standards in several areas and second, while a substantial part of Swiss Basel rules are established in primary legislation, a large part are also contained in secondary legislation and the remainder in tertiary legislation. In light of the above, FINMA has the discretion and flexibility to specify the technical requirements.

FINMA's supervision of banks and financial institutions has traditionally been characterised by a two-tier system: substantial reliance on external auditors who perform a formal supervisory function and are, thereby, part of the supervisory system, in addition to the supervisory role of FINMA. To a certain extent, the auditors act as an extension of FINMA. The auditors are requested to examine the annual financial statements with an independent valuation of assets and liabilities and review whether the banks comply with their articles of association and their organisational rules, as well as with applicable Swiss law, the FINMA Circulars and any applicable self-regulatory provisions.

FINMA also assesses on an annual basis the ‘long-form reports' prepared by external auditors, which provide a comprehensive overview of the business activities and the internal organisation of the relevant financial institution.

The Swiss supervisory regime ensures that financial institutions comply with regulatory requirements while providing financing support to the Swiss transport sector. In the same way, it will ensure that the general corporate lending market in Switzerland complies with those same regulatory requirements.


i Financing of contracts

An aircraft is an example of moveable property pursuant to Article 655(2) SCC a contrario. Except where otherwise provided by the law, moveable property may be pledged only by the transfer of possession of the pledged moveable property to the pledgee.5 Article 885(3) SCC provides, however, that the transfer of possession is not established as long as the pledgor retains exclusive possession of the moveable property.

To remedy this issue, the Federal Act on Aircraft Records Register provides that an aircraft, although moveable property, can be subject to a mortgage unless otherwise provided by the law. In practice, the financing of aircraft in Switzerland is generally done by way of a financial lease, which is usually structured as a sale and lease back or with a pre-delivery financing under assignment of the purchase agreement to the financing institution or by way of a bank loan together with an aircraft mortgage.

A security package will be required by the financing institution in a typical transaction. Depending on the circumstances, such security package may include:

  • a a personal or corporate guarantee;
  • b security assignments;
  • c a multipartite agreement;
  • d a pledge of managed assets; or
  • e a charge over shares in the company that owns the aircraft or has the latter on lease.

An aircraft mortgage can secure an obligation (present, future or contingent) even if the secured amount is undetermined or floating provided that the aircraft is registered with the Swiss Aircraft Records Register (SARR). The registration of an aircraft mortgage is necessary for the creation and perfection of the mortgage. In this respect, the registration of the mortgage can be requested simultaneously with the registration of the aircraft.

In order to register a mortgage with the SARR, the owner of the aircraft is required to submit the mortgage agreement together with the relevant Federal Office of Civil Aviation form.

The mortgage is then attributed a fixed rank for a maximum secured amount. If several mortgages are registered with the SARR, the priority order depends on the ranking. Aircraft subject to a registered mortgage cannot, however, be subject to any retention right or pledge. Therefore, under Swiss law, other mortgages or charges cannot conflict with registered mortgages.

The mortgage covers the aircraft itself and its integral parts and accessories. It can also cover various aircraft belonging to the same owner or to jointly liable debtors in relation to the same debt.

Obligations secured by an aircraft mortgage are not subject to statutory limitations.

In addition to a contractual mortgage, the mortgagee is also entitled to an accessory legal mortgage over claims that the aircraft owner may have against third parties in relation to any loss or damage to the aircraft. It covers any specific reserve of assets (including cash) that the owner may have set up in anticipation of such events. Such legal mortgages take priority over all contractual mortgages registered on or before the date on which the legal mortgage have been announced for registration with the SARR.

Unlike aircraft mortgages, aircraft leases cannot be registered with the SARR. Swiss law does not provide for a specific form of security over aircraft leases. An assignment of the rights and claims under an aircraft lease may, however, be provided to a creditor as security in case of an event of default. Such assignment, which must be in writing, is possible even without the consent of the debtor, unless the assignment is prohibited by the terms of the lease.

The rights and claims under an aircraft lease may also be pledged in favour of a creditor. However, this is unusual in practice.

Airframes and aircraft engines may also be subject to legal or contractual mortgages as well as retention rights, pledges or reservation of title, depending whether they are registered with the SARR or with the Swiss Aircraft Register only.


Similar to aircraft, a vessel represents a chattel pursuant to Article 655(2) SCC a contrario, which may be pledged only by the transfer of possession of the pledged chattel to the pledgee.6 As indicated above, the transfer of possession is not established if the pledgor retains exclusive possession of the chattel.

To remedy this issue in relation to vessels, the Federal Act on Vessel Records Register provides that a mortgage may be created over a vessel to secure an obligation, which may be either present, future or contingent, provided that the secured amount is determined and indicated in Swiss francs. Should the secured amount not be determined, the parties shall indicate a fixed sum as the maximum secured amount.

The vessel must be expressly designated when the mortgage is created. However, it does not need to be owned by the debtor.

The mortgage covers the vessel itself and its integral parts and accessories. It can also cover various vessels belonging to the same owner or to jointly liable debtors in relation to the same debt. In all other cases, where a mortgage is created over several vessels, each of them shall be mortgaged up to a determined portion of the debt as the guaranty allotment is done proportionally to the value of the vessels unless provided otherwise.

Similar to an aircraft mortgage, a vessel mortgage can only exist if it has been registered with the Swiss Vessel Records Register (SVRR). A written mortgage agreement must be submitted to the SVRR to register the security.

Obligations secured by a vessel mortgage are not subject to statutory limitations.

As is the case with aircraft, vessels subject to a registered mortgage cannot be subject to any retention right or pledge.

Finally, legal mortgages and privileges (i.e., legal mortgages that are not registered with the SVRR) can also be created over a vessel in certain circumstances and by specific individuals pursuant to Articles 51 and 53 bis of the Federal Act on Vessel Records Register provided that they are also registered with the SVRR.

Rolling stock

In practice, the financing of rolling stock intended to remain in Switzerland is generally done by way of a lease of 10 to 25 years, structured as a sale and lease back with a fixed interest rate. The lease agreement is usually based on the value of the rolling stock and beneficiary company. Security can be required in certain circumstances, however, this is usually not the case as the bank or financial institution has title to the asset. If the rolling stock does not remain in Switzerland, the financing will not be done by way of a lease but by means of loans generally unsecured. In certain situations, banks will require security.

Rolling stock is subject to the law on ordinary moveable property pursuant to Articles 655 SCC.

The taking of security over moveable property requires that the secured party obtains physical possession and control of the relevant assets. Thus, Swiss law does not recognise the concept of floating charges or floating liens.

For practical purposes, the taking of security over rolling stock - serving in other jurisdictions as a collateral - is not practical under Swiss law. The requirement of physical possession and control over rolling stock is viewed as too burdensome and costly.

In light of the above, other types of credit support are adopted, most commonly pledges over funds and title retention agreements as well as sale and leaseback arrangements.

A fiduciary assignment of receivables or other claims that transfers title in the assigned claims (including interest, and certain ancillary security and other rights) to the assignee can also be envisaged. If the debtor defaults, the creditor can assert the claim against the third party to recover the debt. When a bank is acting as a lender, all of the debtor's claims (including existing and future ones) are usually assigned to the bank. As future receivables arising before a potential bankruptcy of the assignor may be assigned, this instrument is commonly used in practice.

A reservation of title could also be considered as it enables the seller of rolling stock to retain title over it until all amounts due by the purchaser have been paid. To be valid where the purchaser is carrying out business in Switzerland, the reservation of title agreement must be registered with a specific public registry held by the Debt Collection Office (the Office)7 located at the place of residence or the principal place of business of the purchaser.

ii Enforcement and arrest

The mortgage agreement generally provides for the circumstances in which a mortgagee can foreclose the mortgage. Enforcement can usually be required by the mortgagee when the secured obligations have become due and payable, and are unpaid.

The enforcement of a mortgage over an aircraft located in Switzerland is governed by Swiss debt enforcement law,8 regardless of the nationality of the aircraft.

A mortgagee is not entitled to take possession of the mortgaged aircraft on the simple basis that the debtor did not reimburse its debt. The mortgage must first be enforced through a forced execution proceeding under the compulsory control of the Office located at the domicile of the owner of the aircraft in respect of Swiss aircraft, and in respect of foreign aircraft at the place where the aircraft is located.

The mortgagee will start by filing a forced execution proceeding request with the competent Office. A payment order will then be served by the office to the debtor. The latter will have one month to comply with the payment order. At the same time that the payment order is served, the aircraft's administration is taken over by the Office to ensure that the aircraft is not taken away from the proceedings. An opposition may be made to the payment order by the debtor, in which case the mortgagee will have to set aside the opposition before proceeding with the enforcement process. Once the opposition is set aside, only then can the mortgagee require the sale of the aircraft through a public auction, unless a private sale has been agreed among the parties involved. The public auction or private sale - depending on what has been agreed - takes place three months after the mortgagee's request to sell.

If the mortgaged aircraft is likely to be removed from the Swiss jurisdiction and thereby will likely escape the enforcement proceedings, the mortgagee is entitled to request the competent Swiss court to arrest the aircraft as a precautionary measure. The arrest must however be done in compliance with the Rome Convention for the Unification of Certain Rules Relating to the Precautionary Arrest of Aircraft 1933.

The risk that a mortgaged aircraft is moved outside the Swiss territory is theoretical on the basis that the Office takes over the administration of the aircraft as soon as a payment order is served on the debtor.


Usually, a mortgage agreement will provide that enforcement may be required by the mortgagee when the secured obligations have become due and payable, and remain unpaid.

The enforcing of a mortgage over a vessel is similar, if not identical in procedure, to the enforcement of an aircraft mortgage. A mortgage over a vessel will be assimilated to an immoveable asset mortgage within the forced execution proceeding.

The proceedings will be controlled and directed by the Office located where the vessel is registered in Switzerland. The latter will also be in charge of the arrest, the administration and the sale of the vessel.

A vessel will only be arrested if the value of any available chattels and immoveable property is not sufficient to cover the amount of the debt, or if the arrest is requested by the creditor and debtor. If several vessels can be arrested, the ones which are not navigating will be arrested first and the ones navigating abroad last.

The Office is entitled to take into its custody an arrested vessel as a precautionary measure if there is a risk that the latter is removed from the Swiss jurisdiction thereby escaping the enforcement proceedings. This is unless the creditors renounce such a measure in writing.

The sale of the vessel may be requested by the mortgagee one month before, but at the latest one year after, the vessel has been arrested. When a vessel is sold through public auction, the amount of the mortgaged debts (including interest arrears secured by the mortgage) shall be repaid from the proceeds of sale, even if the principal is not overdue.

In the case of wreck removal by the authorities in the interest of the general public, the cost of the removal will also be paid using the proceeds of sale.

Rolling stock

The enforcement conditions of security are determined by law as well as by the relevant provisions of the relevant security or sale-leaseback contracts. The secured party must have a secured and matched claim to be entitled to enforce the security. As with aircraft and vessels, the security agreements simply refer to an event of default according to the credit agreement governing the secured loan. When a secured debt becomes due and has not yet been paid, the security for the loan automatically becomes enforceable.

Private enforcement measures become available in accordance with the security agreement. Enforcement is otherwise governed by the Swiss Debt Collection and Bankruptcy Act.


The most significant developments in the Swiss transport finance sector in 2016 relate to the shipping industry.

Although the Swiss lending market remains stable today, shipping banks have shown less appetite and have been pulling back on loans in 2016 against the background of rising market turbulence and regulatory pressure.

Moreover, the decision taken by the Swiss federal government not to extend any further the guarantee facility in favour of the Swiss fleet, will likely create additional challenges as until today this represented a fundamental form of credit support for banks engaged in lending to Swiss shipowners.


1 Olivier Bazin is a partner and Jennifer Pelosi is an associate at Holman Fenwick Willan Switzerland LLP.

2 The next statistics publication is scheduled for 2018.

3 Financement des transports www.bav.admin.ch.

4 OFS 2016 - Statistique des coûts et financement des transports.

5 Article 884(1) of the Swiss Civil Code (RS 210).

6 Ibidem.

7 Office des poursuites.

8 Swiss Debt Collection and Bankruptcy Act (RS 281.1).