Perfecting a security interest against aircraft equipment is simple in theory but can be tricky in practice. As a general rule a security interest in aircraft equipment is not perfected against third parties until the underlying security agreement has been filed with the Federal Aviation Administration (the “FAA”) for recordation and, where applicable, the related interest has been registered on the International Registry (the “IR”) created under the Cape Town Convention, Aviation Protocol (the “Cape Town Treaty”).
For airframes, a security interest may only be filed with the FAA if the aircraft is registered with the FAA in the name of the debtor at the time the underlying security agreement is filed, or if the security agreement, when filed, is accompanied by an application for registration and sufficient evidence of ownership by the debtor.
Additionally, the security agreement itself must meet certain criteria including but not limited to: (1) a complete description of the aircraft by make, model, serial number, and registration number; (2) an original signature of the debtor; (3) when signing on behalf of a corporation or company, an appropriate signatory title, and in some instances, proof of authority of the signatory; and (4) sufficient words of conveyance of the security interest.
The FAA will file and record an acceptable security agreement relating to any airframe regardless of its size or carrying capacity. However, to register a security interest on the IR a fixed wing airframe must be type certified to carry at least eight persons including crew, or goods in excess of 2750 kilograms; and a helicopter airframe must be type certified to carry at least five persons including crew, or goods in excess of 450 kilograms. Additionally, the Cape Town Treaty requires the qualifying airframe have at least one connecting factor to a country that is party to the Cape Town Treaty. Connecting factors are registration of the airframe to or situation of the debtor in a country that is party to the Cape Town Treaty.
While following a similar process, engines and propellers do not have an ownership or operating registration component in the eyes of the FAA, as airframes do, so there are no limitations on who can grant a security interest in them with the FAA. However, the FAA has determined that some basis must exist for recording an engine or propeller security agreement in the United States. Accordingly, it has been deemed sufficient that the engines or propellers to be mortgaged are also to be leased to a United States entity, or that a party to the security agreement mortgaging such is a US entity. Otherwise, as far as the FAA is concerned, the same requirements exist for a security agreement regarding engines and propellers as exist for a security agreement regarding an airframe.
As for eligibility, the FAA will only file and record an acceptable security agreement against engines which have 550 or more takeoff horsepower, or propellers which are capable of absorbing 750 or more shaft horsepower, or the equivalent thereof. A written confirmation of such must be stated in the security agreement. The IR also requires engines to have 550 rated take-off horse power, or the equivalent thereof. As with airframes, the IR requires a connecting factor for mortgages of engines and therefore the debtor under an engine mortgage must be situated in a country that is party to the Cape Town Treaty. The IR does not support registrations regarding propellers.
So while registering security interests in aircraft equipment may appear simple at first glance, this overview of some of the requirements, exceptions, and nuances should demonstrate that it can be tricky. Given the importance of timely perfecting a security interest, this process is something that should be thoroughly prepared and executed as the consequences of failure could be costly.
Accordingly, to perfect a security interest in aircraft equipment we recommend you give us a call at (405) 252-8888 or contact us via email.