Security

Security document (mortgage) form and content

What is the typical form of a security document over the aircraft and what must it contain?

The only security that can be placed on an aircraft is a mortgage. This is established with an agreement between the owner and the mortgagee. There is no specified form; however, it must contain the amount of the debt and the interest rate. If the debt is not certain or is variable, the maximum secured amount including interest must be stated. This requirement does not comply with the Cape Town Convention, which states that a security amount need not be stated.

Security documentary requirements and costs

What are the documentary formalities for creation of an enforceable security over an aircraft? What are the documentary costs?

The mortgage agreement must be notarised. If it is in a foreign language, it must be translated into Turkish by a sworn translator. The mortgage agreement is subject to stamp duty at the rate of 0.948% of the secured amount. Notary charges are also payable and again depend on the secured amount.

Security registration requirements

Must the security document be filed with the aviation authority or any other registry as a condition to its effective creation or perfection against the debtor and third parties? Summarise the process to register a mortgagee interest.

The mortgage is created through registration in the aircraft registry. The registration will be completed within five to 10 business days after the application letter and original mortgage agreement are submitted to the aircraft registry. If the operator is not the owner, the owner’s consent is required for registration.

Registration of security

How is registration of a security interest certified?

On request, the aircraft registry will issue a letter confirming that the mortgage is registered. The rank and priority will be stated in the letter.

Effect of registration of a security interest

What is the effect of registration as to third parties?

Priority of the mortgage depends on its rank, which the parties are free to agree on. For example, a second-ranking mortgage can be established, even if no first-ranking mortgage has been registered. This means that a first-ranking mortgage can be registered subsequent to the registration of the second-ranking mortgage. Lower-ranking mortgages will not automatically advance to a higher rank if that higher-ranking mortgage is discharged.

There is no priority notice system. Third parties can rely on the registry records, but not the certificate. A certificate or other letter outlining the mortgage has no value, other than to show that a mortgage has been registered. The registry must always be checked.

Security structure and alteration

How is security over aircraft and leases typically structured? What are the consequences of changes to the security or its beneficiaries?

The concept of trust is not recognised; however, a similar concept exists in Turkish law. Under this, a person acts as a fiduciary for another. The fiduciary owns a certain asset or right but is obliged to return the asset or exercise the right in the favour of the beneficiary on demand or on realisation of a certain condition. For all concerned third parties, the fiduciary is the real owner of the asset or right. The trust relationship between the beneficiary and the fiduciary is not of concern to, nor does it need to be known by, third parties.

The mortgage creates a right in rem. The creditor, regardless of whether it is a fiduciary or beneficiary, has the right to extract its credit from the sale proceeds of the aircraft, regardless of whether the owner of the aircraft is the actual debtor at the time of sale. Changes to the beneficiary will not affect the security held by a fiduciary. The relationship between the beneficiary and the fiduciary is extraneous to, and will not affect, the mortgage.  

A novation discharges a debt and creates a new one. Any security or other ancillary rights attached to a debt are also discharged on novation. However, if a loan is transferred by way of assignment, rather than a novation, the security and any other ancillary rights attached to the assigned loan will be automatically transferred to the assignee.

A loan can also be transferred through accession to a contract. In this case, the contract remains as is, but one or more parties to the contract are replaced by others. Since the original obligation remains valid and enforceable, so do the securities attached to it.

In summary, a novation will result in the discharge of a mortgage. Assignment of credit or accession to a contract will not affect the mortgage and a new registration will not be required.

Security over spare engines

What form does security over spare engines typically take and how does it operate?

Turkey is a party to the Cape Town Convention. Any security interest in an aircraft engine that is registered in the international registry should be recognised, regardless of whether the engine is installed on the aircraft. If a security interest in an engine has been registered before the registration of a security interest in the aircraft on which the engine is installed, the aircraft and engine should be treated separately. However, in the case of an aircraft mortgage agreement to be concluded and registered in Turkey, due consideration should be given to the wording of the agreement on issues relating to ownership and security interests that may already exist in the engine or where the parties intend to exclude the engine from the scope of the mortgaged property.