Securing high-value aircraft, aircraft engines and other aviation assets present unique challenges for most lenders that take a security interest in aviation assets infrequently. Although no particular form is preferred, and lenders often use a variety of instruments, the Federal Aviation Administration (“FAA”) provides a form security agreement that may be used.

Aviation assets rarely have fixed locations, and legal jurisdictions for filing and enforcement have differing requirements for the treatment of security agreements. This creates more uncertainty for lending institutions. The below, while not exhaustive, provides an overview of some of the common ways to properly identify and perfect the security interests in such assets reflected in the chosen security agreement.

Common Ways to Perfect a Security Interest in Aircraft and Associated Aviation Assets

1. Recording the Security Agreement with the FAA.
According to the Federal Aviation Administration (“FAA”), the security agreement to be recorded must: (1) give the names of the parties to the agreement; (2) contain words which state the aircraft owner grants the secured party a security interest in the collateral; (3) identify the collateral by manufacturer name, model designation, serial number, and N-Number (the alphanumeric string appearing on the side of U.S. commercial aircraft); and (4) contain the ink signature(s) of the debtor/aircraft owner(s) showing signer’s title, as appropriate (the Registry may now accept copies of legible digital signatures). The filing must also include the required recording fee for each item of collateral. Maximum secured amounts or other economic terms are often included, but are not required for the security instrument to be recorded with the FAA.

Typically, security instruments establish a secured interest in the airframe and/or engine. Engines and propellers capable of more than 750 rated take-off horsepower, and air carrier spare parts locations may be so identified. The manufacturer name, model name and serial number to describe engines and propellers will need to be provided. For spare parts location(s), the address, including city and state, will need to be identified.

Once the security agreement is successfully recorded, the FAA will return to the secured party a Conveyance Recordation Notice, which can be used as a release if signed by the secured party and properly returns it to the Aircraft Registration Branch of the FAA.

2. Recording the Security Agreement Through Cape Town Convention Treaty.
The Cape Town Convention Treaty (“Treaty”) applies to “aircraft objects”, which include airframes and aircraft engines that meet the following size requirements: (1) an airframe must be type certificated to transport eight persons including crew or goods in excess of 2,750 kilograms; and (2) an engine must have 1,750 pounds of thrust (or its equivalent) or 550 rated take-off horsepower (or its equivalent). Aircraft equipment not meeting these size requirements are not subject to the Treaty. In addition to meeting the size requirements, the debtor, lessee or seller must be “situated” in a Contracting State in order for the interests created by transaction documents to be covered by the Treaty.

If the aircraft is subject to the Treaty, it is recommended that a secured party file its security interests in aircraft airframes, engines and other associated aviation assets with the International Registry, which may prioritize competing interests in eligible collateral. Properly registered interests can then be found in the International Registry’s searchable database.

3. Recording/Filing a UCC-1 Financing Statement.
Although a secured party does not need to file a UCC-1 financing statement to perfect a security interest if the property is subject to preemption by federal laws or international treaties, secured parties often file UCC-1 financing statements as a protective measure to (a) give third parties conducting a UCC search notice of the secured party’s interest; and (b) protect the secured party in the event any of the collateral was not perfected with an FAA or International Registry filing. Perfection may be accomplished by filing a UCC-1 financing statement along with the required filing fee in accord with the applicable state law. If the debtor is organized or resides in the US, the secured party will file the UCC-1 financing statement in the same jurisdiction, even if the security agreement has already been registered with the FAA or International Registry. If the debtor is organized in a jurisdiction outside the US, the secured party is to file the UCC-1 in the District of Columbia.

Ultimately, the formal documentary requirements for the legal perfection of an enforceable security interest in aircraft, aircraft engines and/or other aviation assets will depend on the applicable state, federal and in some instances, international law.