SecuritySecurity document (mortgage) form and content
What is the typical form of a security document over the aircraft and what must it contain?
A mortgage is the typical form of security over an aircraft. Under English law, a mortgage over an aircraft comprises two things:
- a personal contract to pay the debt; and
- the creation of a security interest over the aircraft to secure the repayment of the debt.
Mortgages of aircraft may be either legal or equitable and should be distinguished from the other forms of security available under English law (charges, pledges and liens).
There are no statutory requirements relating to the terms of the aircraft mortgages in England and, in practice, aircraft mortgages are ‘tailor-made’ to suit the parties’ requirements. It is not necessary to stipulate a maximum amount that may be secured by the mortgage, and almost invariably mortgages secure ‘all monies’ owed by the mortgagor (or other party) to the mortgagee. It is not necessary for the economic terms of the deal (principal, interest or repayment terms) to be reflected in the mortgage itself, though these will of course need to be ascertainable on enforcement (eg, usually by reference to the relevant loan agreement). It is permissible under English law for the mortgagor to provide security such as an aircraft mortgage for the debts of a third party, provided that there is ‘consideration’ for so doing or else the mortgage is executed as a deed.
The mortgage does not need to be in the English language though, for the purpose of proceedings in an English court, a certified translation will be required if the mortgage is not written in English.
To constitute an international interest under the Cape Town Convention, the mortgage must meet the requirement for validity of an international interest set forth in the Cape Town Convention.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 does not require notarisation, apostillation, legislation or stamping. It is common for the mortgage to be made by way of deed and the formalities for the creation of a deed should therefore be complied with. There are no stamp 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 to its effective creation or perfection against the debtor and third parties? Summarise the process to register a mortgagee interest.
The CAA maintains the Register of Aircraft Mortgages, pursuant to the Mortgaging of Aircraft Order 1972. There are no restrictions as to who can be registered as a mortgagee. A mortgage of an aircraft entered in the Register of Aircraft Mortgages has priority over any other mortgage of or charge on that aircraft, other than another mortgage entered in the Register of Aircraft Mortgages before the mortgage in question.
Applicants for registration of a mortgage must complete and provide to the CAA Form CA1577, together with a certified copy of the mortgage. The registration fee varies according to the aircraft’s maximum take-off weight (MTOW). Further detail is available on the CAA website (www.caa.co.uk).
A potential mortgagee of a registered aircraft can ‘preregister’ a mortgage with the CAA by entering a priority notice using Form CA1330 and paying a registration fee, which varies according to the MTOW of the relevant aircraft. The priority notice remains valid for 14 working days from and including the date of entry. During this period either the relevant aircraft mortgage must be registered or a further priority notice entered, securing a further 14 working days’ priority. The relevant mortgage, once registered with the CAA, will then take its priority from the date of registration of the original priority notice.
If the security document creates an international interest, registration of that international interest at the International Registry means that the security will take priority over subsequently registered interests and unregistered interests subject to certain exceptions. Registration is completed online in accordance with the International Registry regulations and procedures.
If the mortgagor is a company incorporated in England and Wales, it will be necessary to also register the mortgage at Companies House pursuant to the provisions of the Companies Act 2006, within 21 days of the creation of the mortgage. Otherwise, the mortgage will be void against an administrator, liquidator or secured creditor of the insolvent mortgagor.Registration of security
How is registration of a security interest certified?
The CAA will confirm in writing to the applicant once an aircraft mortgage application has been successful. This will not state the priority of the mortgage, which is determined by the date of registration.Effect of registration of a security interest
What is the effect of registration as to third parties?
An aircraft mortgage registered on the UK Aircraft Mortgage Register will take priority over all other unregistered or subsequently registered mortgages. Registration constitutes notice of the mortgage to all third parties, who are deemed to have express notice of all the details appearing in the Mortgage Register.
A search of the UK Aircraft Mortgage Register for entries 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 (it being noted that the CAA is open 10 am-4 pm on working days).
It should be noted that certain interests may take priority over a registered mortgage, namely ‘liens for work done’ (ie, the right to retain an aircraft that may be exercised by an unpaid repairer of the aircraft) and statutory detention rights (eg, the CAA for unpaid Eurocontrol charges and the UK Environment Agency for unpaid EU Emission Trading Scheme (ETS) penalties). There is limited case law in England relevant to the priority of liens and detention rights, but the general view is that liens and detention rights will take priority over a registered aircraft mortgage, notwithstanding that liens and detention rights are not registrable (see question 24 for further information).
If the security document creates an international interest, registration of that international interest at the International Registry means that the security will take priority over subsequently registered interests and unregistered interests subject to certain exceptions.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 a security trustee is recognised in England and is commonly applied in granting of security over aircraft. A mortgage may be granted in favour of the beneficiary or in favour of a security trustee appointed or acting under a trust for the benefit of persons to whom a debt or other obligation is due.
The security trustee would be recognised as the mortgagee, and will be entitled to exercise all the rights in relation to the mortgage accorded to mortgagees. Accordingly, the mortgage will only refer to and recognise the security trustee as the person in whose favour the mortgage is registered, without any reference to the underlying lenders. The lender syndicate may therefore vary without any necessity to amend the mortgage.Security over spare engines
What form does security over spare engines typically take and how does it operate?
A mortgage may be created over a spare engine but it is not possible to register such a mortgage on the UK 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 at Companies House otherwise the mortgage will be void against an administrator, liquidator or secured creditor of the insolvent mortgagor. As with a mortgage over a whole aircraft, a spare engine mortgage is tailored by the parties to it.
When the spare engine is installed on an airframe located in England, the separate interests of airframe and engine owners or mortgagees will continue to be recognised, in other words England does not have a ‘doctrine of accession’ whereby title to a spare engine would automatically transfer to the owner of the airframe on which the engine is installed.