Aircraft legal and regulatory framework (Aircraft is a special asset…
Aircraft legal and regulatory framework
Aircraft is a special asset
The high cost of aircraft and the interchangeability of aircraft component parts make financiers more sensitive to legal and collateral risks
Specialized techniques of aircraft financing (EETC, operating leases, cross-border “double-dip” financing, lease-in/lease-out structures, expert credit financing) have achieved a high level of standardization, but significant legal issues remain
The mobile nature of aircraft raises complicated multi-jurisdictional issue
Jurisdiction Review for Cross Border Transactions
Minimum Criteria: One of the most important: The country of registry should be a party to the
registration, maintenance and operations
are carried out to a
certain degree of accuracy and standards are maintained.
It would also be beneficial for the country to be a signatory to the
Cape Town Convention or Geneva Convention
as a potential aid in potential enforcement proceedings.
The favorability of local laws and customs in the jurisdiction where the aircraft will be primarily operated is of vital importance to the financier
Enforceability of lease and mortgage provisions and ability to exercise remedies, including self help remedies.
Nature of maintenance standards imposed by the appropriate governmental authority and degree of oversight
Aircraft registry requirements and ability of the financier to de-register the aircraft
Air navigation, landing, mechanic’s, emissions trading and other potential aircraft liens.
Requirement for qualification to do business.
Bankruptcy, insolvency and sovereign immunity concerns
refers to a legal hold placed on an object by a party until all the debts are cleared by the debtor.
In aviation, liens can broadly be classified as:
FAA recording system:
the lease of a Cape Town-eligible engine would not need to be filed with the FAA in order to establish the priority of the lessor
Since the Cape Town Convention does not cover smaller airframes, propellers, or spare parts, the existing FAA rules remain applicable
A specifically identified aircraft engine having at least
550-rated takeoff horsepower
or its equivalent
A specifically identified aircraft propeller capable of absorbing at least
750-rated takeoff shaft horsepower
Consensual Liens Summary
Consensual liens are mainly those that are filed on instruments or parts used in an aircraft
Spare parts can be recorded only if they are being maintained for the benefit of a certified air carrier.
Non Consensual Liens
Materialman’s liens and
Judgment liens and tax liens(only state)
These liens mainly arise from supply of parts for an aircraft or from labor put into the repair of an aircraft.
Such liens on airframes can be filed only if the claimant is in the contracting state as provided by the rules under FAA.
A concerted effort towards development of international civil aviation.
ICAO was found in this convention with 191 parties.
:the agreement of its Members States on the necessary level of standardization for the operation of safe, efficient and regular air services
:Every state has complete and exclusive sovereignty over the airspace above its territory.
:the foreign airline is not allowing to fly point to point in a country
Nationality & Registration:
Nationality lies in the “State in which it is registered”.
Aircraft cannot be registered in more than one state.
Registration is critically important as the rules of the country where the aircraft is registered governs the maintenance and safety oversight of such aircraft.
The registration is normally made in the name of the owner(US) or the operator depending upon the particular registry.
Aircraft is required to compulsorily carry on board its certificate of registration and certificate of airworthiness.
Warsaw Convention and the Warsaw System,
Created a uniform body of rules governing the liability of commercial airlines in international air transportation and limited damages for injuries and death to 125,000 gold francs (about $8,300) arising from accidents on all international flights between treaty members
Set up rules for international carriage of persons, luggage or goods
The Montreal Convention is considered a revised form of the Warsaw Convention in order to make the rules more contemporary
In this Convention, liability was strictly based on possession as opposed to liability based on negligence in the Warsaw Convention.
The carrier is strictly liable up to 100,000 SDRs in provable damages for personal injury and death and is presumed liable to an unlimited amount unless the carrier can prove that it was not negligent.
States Parties shall require their carriers to maintain adequate
covering their liability under this Convention
Cape Town Convention
: first signed on 11/16/2001 with 20 countries. The convention entered into force on April 1st, 2004 and the protocol came into force on March 1st, 2006.
A. Original right representing collateral interest for creditor (chargee, conditional seller, lessor) would recorded by referenced to the manufacture's serial number
Two main functions available on the International Registry:
Registering an interest in an aircraft asset and searching against an aircraft asset to determine what registrations have been made and their relative priority.
The system is fully electronic.
International interest should be:
Granted by a charger/Vested in a conditional seller / Vested in a lessor
In addition to the interests, certain provisions are extended to include a “contract of sale, which approve that the ownership passes from the seller to the buyer
It allows parties to avoid any lex situs problem relating to the transfer as applicability of the Cape Town Convention to a particular sale does not initially take into account the location of the asset.
Airframes that are type certified to transport at least
Engines having at least
of thrust in case of jet propulsion and in case of turbine-powered or piston-powered aircraft engines having at least
550 rated take-off shaft horsepower
Helicopters that are type certified to transport at least
the debtor is situated in a contracting state
a. is incorporated or formed under the laws of a contracting state
b. Its registered or statutory seat is located in a contracting state
c. Its center of administration is located in a contracting state
d. Its principle place of business is located in a contracting state
Does the Transaction involve an "aircraft object"
Does the agreement constitute a:
Little reservation agreement, or
Contract of sale?*
Is the debtor (i.e., lessee, charger, conditional buyer or seller) situated in a contracting state?
Is the agreement in writing;
does lessor, charger, conditional seller or seller have “power to dispose”;
and is aircraft object sufficiently identified?**
Register international interest
Is the Aircraft registered in a contracting state or to be made pursuant to an agreement for registration?
Is the agreement in writing; does lessor, charger, conditional seller or seller have “power to dispose”; and is aircraft object sufficiently identified?**
Register international interest
the Cape Town Convention will allow registrations of “prospective international interests” which is an interest that is intended to be created or provided for an object as an international interest in the future upon the occurrence of a stated event, whether or not the occurrence of the event is certain.
it is a convention on the International Recognition of Rights in Aircraft, known as the Geneva Convention.
General recognition of rights in aircraft
Central registries established in each State
An overriding international preferences or priority order with respect to certain claims
Establishment of international conditions with respect to the execution of judgments and the sale of aircraft
Recognition of Rights
Rights under the Geneva
Convention take priority over any rights apart from those mentioned recognized by a contracting nation
For example: If a U.S. registered aircraft is seized by its financier within the borders of another contracting nation, the contracting nation has agreed that the effect of any interest in the aircraft properly registered with the FAA shall, with respect to a third party, be determined according to U.S. law.
Requirements of recognition
Registered as to the nationality of the contacting state.
Are regularly recorded in a public record of the Contracting State .
The benefits of Geneva convention are applicable only if
both the state of registration and the state of location
of the applicable aircraft are signatories.
The only enforcement remedy available under Geneva Convention is a judicial sale which requires a six week notice period
It lacks more robust enforcement rights typically required by financiers in order to adequately protect their collateral and/or leased assets
A great number of nations including, Japan, United Kingdom, Canada, Spain and most Asian countries are not signatories owing to the inherent difference of laws and legal structures in such countries and the specific requirements for compliance with the Geneva Convention
The following rights was recognized by contracting nation
Rights of property in aircraft;
Rights to acquire aircraft by purchase coupled with possession of the aircraft;
Rights to possession of aircraft under leases of six months or more;
Mortgages, hypotheques and similar rights in aircraft which are contractually created as security for payment of an indebtedness
Main factors behind registration Registration :
To certify an aircraft as to airworthiness.
To approve a specialized maintenance program for an airline.
To provide for recordation of security interests against such aircraft.
Registration of an aircraft under the FAA can be done only if it is not registered in any foreign country and it is owned by a citizen of the United States or a foreign national lawfully admitted for permanent residence or a corporation of the United States which is doing business under the laws of the United States
prepare the registration application form.1 green copy to FAA 1 PINK to keep on board untill the actual certificate is received
A registered owner is required to re-register his aircraft every 3 years after 2010
Individual (resident alien)
Corporation (over 75%of the voting interest is owned by US citizen and 2/3 of board of directors)
Non U.S Citizens:
Based and Primarily Used(This implies that at least 60% of the total flight hours be flown in the United States. )
FAA 8050 -1 Registration
FAA 8050 -2 Aircraft Bill of Sale AC
FAA 8050 -4 Repossession
State Liability law: financiers or lessors are not held liable because they are merely people who finance the operation and need not exactly know the defects in operation.