Cross-border aviation finance presents a unique set of legal and practical challenges. As explored in our previous article, the mobility of aircraft, engines, and related assets means that financiers and lessors must navigate a complex web of international treaties and local laws to protect their interests.
Relying solely on international registration systems, such as the Cape Town Convention (CTC) and its International Registry (IR), is not enough, as domestic perfection requirements, jurisdiction-specific enforcement rules, and the risk of priority gaps can all undermine the security package if not properly addressed. The consequences of incomplete or misaligned perfection are real, as illustrated by industry case studies where parties have faced costly delays, litigation, or even loss of collateral. Against this backdrop, it is essential to build a “travel-ready” security stack that harmonizes international visibility with local enforceability, ensuring that security interests remain robust wherever the asset may go.
What a “Travel-Ready” Security Stack Looks Like
A robust, cross-border security package in aviation finance begins with discipline under the CTC and a clear understanding of both international and domestic requirements. Achieving true protection requires not only timely and accurate registration of interests at the IR, but also careful attention to the unique perfection, priority, and enforcement rules in each relevant jurisdiction. In addition, a well-structured security package must address the practical realities of asset mobility, the limitations of international regimes, and the need for comprehensive contractual controls to safeguard all elements of collateral value, including engines, spare parts, and related rights.
- CTC Discipline and IR Fundamentals
Start with CTC discipline.
For all relevant “aircraft objects”,1 interests must be registered at the IR with precise debtor and creditor details, including accurate serial numbers. There is no statutory deadline for registering interests at the IR, but priority is determined by the time of registration, so prompt filing is critical to avoid being subordinated to later-registered interests.
In financed transactions, this typically involves: (i) registering the international interest in favor of the secured party, (ii) making assignment registrations where a security trustee or special purpose vehicle (SPV) is used, and (iii) recording debtor changes upon transfers. The sequence of registrations in the IR should mirror the real-world closing to avoid priority disputes. For airframes, it is also essential to obtain and lodge an Irrevocable Deregistration and Export Request Authorization (IDERA) with the state of registry at closing, which authorizes the aviation authority to deregister and permit export of the aircraft at the request of the secured party without lengthy court proceedings.
For lessor-owned aircraft, where the lessor retains outright title and is not securing a loan, the approach to a “travel-ready” security stack is similar in many respects, but with some key differences. The lessor’s primary concern is to ensure its ownership and repossession rights are recognized and enforceable across jurisdictions. In CTC jurisdictions, the lessor may register its ownership interest at the IR to provide public notice and establish priority against competing claims. While there is no need to register a security interest in favor of a lender, the lessor should still obtain and lodge an IDERA for airframes to facilitate deregistration and export in a default scenario. The overall goal remains the same: harmonize international visibility with local enforceability to minimize repossession risk. As with financed aircraft, the treatment of engines, spare parts, and related rights requires careful attention to both international registration and domestic law, as discussed further below.
- Addressing Engines, Spare Parts, and Related Rights
Notably, whether the aircraft is financed or lessor-owned, it is important to recognize the practical limitations of these regimes for certain asset types.
While airframes benefit from both IR registration and the streamlined enforcement mechanism of the IDERA, the treatment of other aviation assets under the CTC is more nuanced and presents additional challenges for secured parties.
Engines are classified as “aircraft objects” under the CTC and are eligible for separate registration at the IR. However, unlike airframes, they are not covered by the IDERA regime. This distinction is significant: without IDERA, there is no international mechanism to facilitate expedited deregistration or export of engines in a default scenario. As a result, these assets are vulnerable to being removed or separated from the airframe prior to enforcement, and their recovery may be subject to local legal processes that can be time-consuming or uncertain. Moreover, while registration at the IR is necessary to establish international priority among CTC parties, international registration alone is not sufficient to ensure enforceability or priority in all scenarios.
To mitigate this risk, it is essential to register a separate international interest for each engine at the IR and, crucially, to perfect security interests in these assets under relevant domestic law (as discussed in detail in the next section). In addition, lease and security documentation should include robust covenants requiring the lessee to keep engines installed on the airframe and to cooperate in repossession scenarios. These contractual controls are vital, as engines are often the most valuable and portable components of the aircraft, and their separation can significantly undermine the value and enforceability of the security package.
It is also essential to recognize that spare parts, consumables, and related components, such as auxiliary equipment, replacement parts, technical records, insurance proceeds, and receivables, are not covered by the CTC’s IR or IDERA regime. Although these assets are often critical to the overall value and operational integrity of an aircraft, they fall entirely outside the scope of the IR. Their protection and enforceability depend exclusively on domestic law, making it vital to include them in the security package from the outset and to ensure that all necessary steps for local perfection are taken in each relevant jurisdiction.
These distinctions create practical challenges for secured parties. For engines, both international and domestic steps are required to ensure robust protection and enforceability. For spare parts and related rights, only domestic law provides a path to effective security. The practical steps for achieving this protection are addressed in detail in the next section.
- Domestic Law Perfection: Local Filings and Compliance
While the CTC and its IR provide a critical foundation for establishing and publicizing international interests in airframes and engines, these international mechanisms alone do not guarantee enforceability or priority in every scenario or jurisdiction. As detailed above, engines require both IR registration and robust domestic law perfection, and spare parts, consumables, and related rights fall entirely outside the CTC framework, relying exclusively on local legal regimes for protection. Even for airframes, domestic perfection steps remain essential to ensure that security interests are recognized and enforceable against local creditors, insolvency estates, and statutory liens, particularly in jurisdictions that are not CTC parties or where local law imposes additional requirements. Accordingly, a truly “travel-ready” security stack must harmonize international visibility with jurisdiction-specific filings and compliance. The following paragraphs outline the practical steps and local law requirements necessary to achieve effective perfection and priority, ensuring that security interests remain robust and enforceable wherever the asset may go.
In the United States, for example, a Uniform Commercial Code (UCC) Form UCC-1 financing statement should be filed against the correct debtor(s) to perfect security interests in engines, spare parts, receivables, and related rights. This process requires identifying the exact legal name and jurisdiction of the debtor, preparing a UCC-1 that accurately describes the collateral, and filing it in the appropriate state office, typically the state of the debtor’s organization. The UCC does not impose a strict deadline for filing, but priority is determined by the time of filing—so it is best practice to file the UCC-1 as soon as the security agreement is executed, and always before any competing creditor could file. Delays can result in loss of priority to another creditor who files first.
In the UK and Ireland, security interests (charges) must be registered at Companies House or the Companies Registration Office (CRO), respectively, within 21 days of creation, using the prescribed forms and supporting documents. This 21-day statutory deadline applies in both jurisdictions. If the deadline is missed, the charge is void against a liquidator, administrator, or other creditors, and the secured party may lose its priority. In some cases, a court order may be sought to extend the deadline or permit late registration, but this is discretionary and not guaranteed, and the process can be time-consuming and costly. In some cases, a certified copy of the security agreement may be required for registration at Companies House or the CRO, but this is generally a straightforward process.
In EU civil-law jurisdictions, the process for perfecting security interests is often more formalistic and can vary significantly from country to country. Perfection may require execution of a notarial deed (a formal document signed before a civil law notary), registration in a local collateral or asset registry, or compliance with other statutory formalities such as publication in an official gazette. The timeline for completion can range from a few days to several weeks, depending on the jurisdiction and the complexity of the transaction. Documentary requirements may include notarized copies of the security agreement, evidence of corporate authority, translations into the local language, and payment of stamp duties or registration fees. In some countries, physical delivery or “possession” of certain assets (such as technical records or spare parts) may be required to perfect the security interest. Unlike common law systems, where perfection is often achieved by simple filing, civil law systems may require multiple steps, and failure to comply with any one of them can result in loss of priority or even invalidity of the security interest.
Engaging local counsel in each relevant jurisdiction at the outset is essential to ensure compliance with all statutory requirements, avoid common pitfalls such as misidentification of the debtor or collateral, and to confirm that all filings are not only submitted but also accepted and registered. While the process in common law countries is generally more streamlined, often requiring only a simple filing and payment of a fee, local counsel remains important to ensure accuracy and effectiveness. In civil law jurisdictions, where perfection may involve notarial acts, translations, and multiple formalities, the guidance of experienced local counsel is especially critical to navigate the complexities, anticipate timing issues, and safeguard the validity and priority of the security interest.
- Contractual Control Levers: Safeguarding Collateral Value
Effective collateral protection in aviation finance is not limited to securing the aircraft itself. A comprehensive approach also requires corralling the essential rights, records, and proceeds that ensure enforceability and value retention.
- Records and Documentation: Ensure that the obligation to deliver back-to-birth records, as well as requirements for ongoing updates (such as after engine swaps or shop visits), are expressly set out in the lease agreement and, where applicable, the security agreement. These documents should also include audit rights for the secured party or lessor and covenants requiring the lessee to maintain and promptly deliver updated technical records to a designated repository or the security trustee.
- Insurance: Obtain security assignments of insurance policies and ensure that loss-payee designations are included in the lease and security agreement, so that insurance proceeds are paid directly to the secured party (or the lessor for lessor-owned aircraft) in the event of a claim. Where available, include a “cut-through” clause (which allows the secured party, or the lessor for lessor-owned aircraft, to claim insurance proceeds directly from the insurer, bypassing the insured party) to further protect the creditor’s or the lessor’s interests. The insurance provisions should be carefully aligned across the lease, any security agreement, and any trust or agency documentation to avoid inconsistencies.
- Receivables and Accounts: Take security over lease receivables and, where feasible, over the bank accounts into which those receivables are paid, by including appropriate grant clauses in the security agreement (for example, a UCC security agreement in the United States or a debenture in the United Kingdom). In some jurisdictions, such as the United States, obtaining control over the relevant account (for example, through a control agreement) can enhance the priority and enforceability of the security interest. The security agreement should clearly describe the receivables and accounts covered, and may include covenants regarding the operation and maintenance of the accounts.
- Spare Parts Programs: These are common in the aviation industry and may involve separate title arrangements or consignment structures, where ownership of parts may remain with a third party or be subject to complex contractual terms. In these cases, it is critical to ensure that the security interest extends not only to the existing inventory of parts but also to any proceeds from their sale, as well as to replacement parts and substitutions that may be acquired or installed over time. Security and lease documentation should define “proceeds” and “substitutions” with precision, so that the security package continues to capture value as components are replaced, upgraded, or moved between aircraft. This approach helps to preserve the integrity and value of the collateral, even as the composition of the parts inventory changes during the life of the transaction.
- The Bottom Line
In short, respect the differences between airframes, engines, parts, and related rights. Engines require their own IR registrations and domestic perfection steps; do not assume the airframe security “covers” them. For spare parts, ensure the security interest is structured to extend to inventories, proceeds, and replacements, and that documentation clearly defines “proceeds” and “substitutions” to capture value as components move. Likewise, related rights, such as technical records, insurance proceeds, and receivables, should be expressly included in the security package and perfected under local law where possible.
This harmonized approach, combining IR visibility, local law perfection, and contractual control, ensures that the security package is effective and enforceable wherever the aircraft objects and related assets may travel.
Practical Takeaways
- Build a harmonized stack: Combine IR registrations with local-law perfection, ensuring alignment across all relevant debtors and assets.
- Secure control of value: Include records, insurance proceeds, receivables, and deregistration/export rights for airframes in your security package.
- Treat engines separately: Register engines (and other key aircraft components and equipment) independently in the IR and perfect under domestic law; ensure insurance and records “follow” the engines.
- Calendar the critical dates: Track jurisdiction-specific filing deadlines and formalities, and always verify acceptance (not just submission) of filings.
- Document for enforcement: Include cooperation, location, and custody covenants to reduce friction and delays in the event of default.
Avoiding common pitfalls, such as fragmented debtor identity, missed filing deadlines, or gaps in insurance and records, will help ensure your security package is truly “travel-ready” and enforceable wherever your assets may go.
Be sure to read Part 1 of this package on Aviation Finance from Laura McCaskill.
1 Under the CTC, “aircraft objects” include airframes (with a minimum specified passenger/cargo capacity), aircraft engines (meeting certain thrust or horsepower thresholds), and helicopters. Notably, spare parts and consumables are not considered “aircraft objects” for CTC purposes.
