CAPE TOWN TREATY AND AIRCRAFT PROTOCOL

On March 1, 2006, the United States adopted the Cape Town Treaty and Aircraft Protocol (CTT).[1] Now a substantial number of countries (defined as “contracting states”) are parties to the CTT.[2] This is a significant change in the area of aircraft financing. By adopting the CTT, the contracting states agree to recognize interests perfected pursuant to the CTT.[3] Prior to that time, countries were not required to recognize interests perfected under the laws of other countries.

The CTT provides for perfection of interests in airframes, aircraft engines and helicopters (defined as “aircraft objects”)[4] created pursuant to “security agreements.”[5] Security agreements are defined to include leases and title reservation agreements. Interests created pursuant to security agreements are defined as “international interests” in the CTT. In addition, the CTT includes interests in aircraft objects created pursuant to a "contract of sale," which is essentially a bill of sale or its equivalent.[6] As used herein, “sale” refers to a contract of sale. The CTT provides the only registration system for ownership of aircraft engines.

CTT COVERAGE OF AIRCRAFT ENGINES

Although the CTT covers airframes, aircraft engines and helicopters, this article covers aircraft engines and is therefore limited to them. “Aircraft engines” are defined in the CTT as jet propulsion engines of at least 1,750 pounds of thrust and turbine or piston engines of at least 550-rated takeoff horsepower.[7] The thrust and horsepower of aircraft engines can be determined by reference to the type certificate data sheet issued by the FAA for each particular make and

model of engine and are available on the FAA’s website.[8] Additional information needed is the manufacturer's serial number of the particular engine because the CTT deals with specific aircraft engines.

Aircraft engines are independent objects for purposes of registrations under the CTT. The registration of an interest in an airframe does not result in the registration of an interest in its installed engines. To be covered by a CTT registration, an installed engine must be the subject of its own registration.[9]

In adopting the CTT, the United States designated the FAA registry as the point of entry. However, with respect to aircraft engines, the FAA is not a point of entry.[10] This means requirements for point-of-entry registrations do not apply to registrations of interests in aircraft engines.

CTT REQUIREMENTS FOR INSTRUMENTS CREATING INTEREST

The CTT includes a number of requirements relating to instruments creating registered interests.[11] Included among them are:

• Writing: For an interest to be eligible for registration under the CTT, it must be created pursuant to a written instrument.
• Description of engine: The engine must be specifically described by its manufacturer, model and manufacturer’s serial number.[12] This information can be found on the serial plate attached to every aircraft engine.
• Obligations secured: The security agreement must include a general description of the obligations it is securing. Stating the sum secured is not necessary.
• Conclusion of agreement: At the time of the conclusion of an agreement creating an international interest, the debtor must be “situated” in a contracting state. With respect to a sale, the seller must be situated in a contracting state at that time. “Situated” is broadly defined to include a party's place of incorporation or where it has its registered office, center of administration or place of business.[13]

USING THE INTERNATIONAL REGISTRY SYSTEM

Registrations of international interests and sales are accomplished by electronic notice transmissions to the International Registry (IR) system located in Dublin, Ireland.[14]

Making registrations and checking the IR for existing registrations requires the entities involved to apply to the IR to become approved transacting user entities (referred to as TUEs).[15] In applying, a TUE designates an individual as its administrator who is its only official representative. The administrator's username and password are required to access the IR system. The IR charges $200 for a one-year license. The IR also charges $50 for registering an interest on an engine.

The administrator can request from the IR information on registrations or confirmation of the lack of any prior registrations. This information is shown on a priority search certificate issued by the IR for each aircraft engine.[16] Each certificate requires a payment of $22.

An additional type of entity authorized by the IR to make TUE registrations and request information on prior registrations is a professional user entity (referred to as a PUE).[17] Those organizations are usually aircraft title services and law firms offering aviation services. They can be authorized by a TUE administrator to represent the TUE on specifically identified aircraft objects.

HELICOPTER ENGINES

The definition of aircraft engines in the CTT does not include engines installed on helicopters.[18] At the time an international interest is created, an aircraft engine subject to registration with the IR covers an engine that is not or is no longer installed on a helicopter. As a result, the practice is to register interests on the engine as both an international interest and a prospective international interest.[19] The latter would become effective on an engine that is removed from the helicopter.

FINAL THOUGHTS

If an aircraft engine is not large enough to be covered by the CTT, what protections are available to a purchaser or lender? There are no public records available in the United States to register ownership interests in small aircraft engines. Anyone representing a purchaser of small engines will need to do all appropriate due diligence. To perfect security interests in such engines, the lender must rely on the Uniform Commercial Code and file financing statements in the borrower's appropriate jurisdiction.

The best advice to a first-time user of the IR system is to retain a PUE to make any TUE registrations, determine if the aircraft engine is subject to any outstanding registrations and register any international interest or sale on the engine that is the subject of a financing or purchase.

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ABOUT THE AUTHORS

Preston G. “Gil” Gaddis II practiced with Crowe & Dunlevy in the firm’s Oklahoma City office. He is credited with building the firm’s Aviation Practice Group from the ground up, becoming a nationally recognized expert on commercial aircraft financing. Mr. Gaddis died May 23, 2024.

 

 

 

 

J. Robert “Bob” Kalsu practices with Crowe & Dunlevy in the firm’s Oklahoma City office. He has concentrated his career on the practice of commercial and business law, aviation title, finance and regulatory law and related matters, most recently of which is the Cape Town Convention.

 

 

 

 

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ENDNOTES

[1] Convention on International Interests in Mobile Equipment and Protocol thereto on Matter Specific to Aircraft Equipment, Official Commentary, Fifth Edition, 2022, Sir Roy Goode, published by UNIDROIT. The Cape Town Treaty is in Appendix I, and the Aircraft Protocol is in Appendix II. This publication contains a comprehensive discussion of the CTT by its principal drafter. A copy can be obtained pursuant to ordering instructions on the UNIDROIT website (www.unidroit.org). The following commentary citations refer to this publication.

[2] Listed at https://bit.ly/3zw4iKs.

[3] Treaty Article 5(1) and (2).

[4] Protocol Article I, Section 2(c).

[5] Treaty Article l(ii).

[6] Protocol Article V.

[7] Protocol Article I, Section 2(b).

[8] FAA.gov – Dynamic Regulatory System, TCDS.

[9] Commentary 12.38.

[10] Commentary 12.69.

[11] Treaty Article 7; Commentary 12.79 et seq.

[12] Protocol Article VII.

[13] Treaty Article 3.1 and Article 4; Commentary 12.34.

[14] Commentary 13.53.

[15] Regulations and Procedures for the International Registry at Appendix Ill of Commentary, Section 21.25 of Regulation Section.

[16] Regulations, Section 7.

[17] Regulations, Section 21.15.

[18] Commentary 13.9.

[19] Treaty Article l(y); Commentary 13.11.