Creation and registration of security interests in aircraft in the United Kingdom (England and Wales)

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Security

Form and content of the guarantee document (mortgage)

What is the typical form of a security document above the aircraft and what should it contain?

A mortgage is the typical form of security on an aircraft. In English law, a mortgage on an aircraft includes two things:

  • a personal contract to pay the debt; and
  • the creation of a security on the aircraft to guarantee the repayment of the debt.

Mortgages on aircraft may be legal or equitable and should be distinguished from other forms of security available under English law (charges, liens and liens).

There are no statutory requirements for the terms of aircraft mortgages in England and in practice aircraft mortgages are tailor-made to meet the requirements of the parties. It is not necessary to stipulate a maximum amount that can be secured by the mortgage and mortgages almost invariably secure all amounts owed by the mortgagor (or other parties) to the mortgagee. The economic terms of the agreement (principal, interest or repayment terms) need not be reflected in the mortgage itself, although they will of course need to be verifiable upon execution (e.g. , usually by reference to the relevant loan agreement) . Under English law it is permissible for the mortgagor to provide security such as a mortgage on an aircraft for the debts of a third party, provided there is a counterparty to do so, otherwise the mortgage is performed as an act.

The mortgage does not need to be written in English; however, for the purposes of proceedings in an English court, a certified translation will be required if the Mortgage is not in English.

To constitute an international interest under the Convention on International Interests in Mobile Equipment 2001 and its Protocol Relating to Matters Specific to Aircraft Equipment 2001 (collectively, the Cape Town Convention), the Mortgage must satisfy the requirement of validity of an international interest set out in the Cape Town Convention.

Security Document Requirements and Costs

What are the documentary formalities to constitute an opposable security on an aircraft? What are the documentary costs?

The mortgage does not require notarization, apostille, legislation or stamp. It is common for the mortgage to be constituted by deed and the formalities for the creation of a deed must therefore be respected. There are no stamp fees or other documentary costs as such.

Security registration requirements

Must the security document be filed with the aviation authority or any other registry as a condition of its constitution or effective opposability against the debtor and third parties? Summarize the process of registering a mortgagee interest.

The Civil Aviation Authority (CAA) maintains the register of mortgages on aircraft, in accordance with the Aircraft Mortgage Ordinance 1972. There are no restrictions on who can be registered as a mortgagee. A mortgage on an aircraft registered in the Aircraft Mortgage Register has priority over any other mortgage or encumbrance on that aircraft, other than another mortgage registered in the Aircraft Mortgage Register before the mortgage in question.

Applicants for mortgage registration must complete and provide the CAA with Form CA1577, along with a certified copy of the mortgage. Entry fees vary depending on the maximum take-off weight (MTOW) of the aircraft. Further details are available on the CAA website.

A potential mortgagee of a registered aircraft may pre-register a mortgage with the CAA by entering a priority notice using Form CA1330 and paying a registration fee, which varies depending on the MTOW of the aircraft concerned. . The priority notice remains valid for 14 working days from the date of entry. During this period, either the corresponding aviation mortgage must be registered or another notice of priority must be entered, guaranteeing an additional 14 working days priority. The mortgage concerned, once registered with the CAA, will then take priority from the date of registration of the initial notice of priority.

If the security document creates an international interest, registration of that international interest in the International Registry means that the interest will have priority over interests subsequently registered and unregistered interests subject to certain exceptions. Registration is done online in accordance with the rules and procedures of the International Registry.

If the mortgagor is a company incorporated in England and Wales, it will be necessary to also register the mortgage with Companies House, in accordance with the provisions of the Companies Act 2006, within 21 days of creating the mortgage. Otherwise, the mortgage will be void against any administrator, liquidator or secured creditor of the insolvent mortgagor.

Security registration

How is the registration of a security interest certified?

The CAA will confirm in writing to the applicant once an aircraft mortgage application has been accepted. This will not indicate the priority of the mortgage, which is determined by the date of registration.

Effect of registration of security

What is the effect of registration vis-à-vis third parties?

An Aircraft Mortgage registered in the Aircraft Mortgage Registry will have priority over all other unregistered or subsequently registered Mortgages. Registration constitutes notification of the mortgage to all third parties, who are deemed to have express knowledge of all the entries made in the Register of Aeronautical Mortgages.

A search of the Aircraft Mortgage Registry for listings made against an aircraft can be made by submitting Form CA350 to the CAA and paying the search fee. The result is usually available within a few hours (note that the CAA is open from 10 a.m. to 4 p.m. on working days).

Certain interests may take priority over a registered mortgage, namely liens for work performed (i.e. the right to retain an aircraft which may be exercised by an unpaid repairer of the aircraft) and rights of detention legal (e.g. the CAA for unpaid Eurocontrol fees and the UK Environment Agency for unpaid UK Emissions Trading Scheme penalties). There is limited case law in England regarding the priority of liens and rights of detention, but the general view is that liens and rights of detention will take priority over a registered mortgage on an aircraft, even if the liens and rights of detention are not registrable.

If the security document creates an international interest, registration of that international interest in the International Registry means that the interest will have priority over interests subsequently registered and unregistered interests subject to certain exceptions.

Security structure and modification

How is aircraft and lease security generally structured? What are the consequences of the changes on the title or its beneficiaries?

The concept of safety administrator is recognized in England and is commonly applied to grant aircraft safety. A mortgage may be granted in favor of the beneficiary or in favor of a security trustee appointed or acting under a trust for the benefit of persons in respect of whom a debt or other obligation is owed.

The security trustee would be recognized as a hypothecary creditor and could exercise all the rights relating to the mortgage granted to the hypothecary creditors. Accordingly, the Mortgage will only mention and recognize the Security Trustee as the person in whose favor the Mortgage is registered, without any reference to the underlying lenders. The lending syndicate can therefore vary without it being necessary to modify the mortgage.

Aftermarket Engine Safety

What form does aftermarket engine security typically take and how does it work?

A mortgage can be created on a spare engine, but it is not possible to register such a mortgage on the register of aircraft mortgages. If the mortgagor is a company incorporated in England and Wales it will be necessary to register the spare engine mortgage with Companies House, otherwise the mortgage will be void against an administrator, liquidator or secured creditor of the insolvent mortgagor. As with a mortgage on an entire aircraft, a mortgage on a spare engine is matched by the parties.

Where the replacement engine is fitted to an airframe located in England, the separate interests of the owners or mortgagees of the airframe and the engine will continue to be recognised. In other words, England does not have a membership doctrine that ownership of a spare engine would automatically pass to the owner of the airframe on which the engine is fitted.

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