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NBAA ANNUAL MEETING & CONVENTION

Scott D. McCreary

McAfee & Taft A Professional Corporation

10th Floor, Two Leadership Square

211 North Robinson

Oklahoma City, OK 73102-7103

Phone: (405) 552-2367

Fax: (405) 228-7367

E-Mail: [email protected]

Cape Town Treaty and International Registry Update –the Latest Issues and Practical Solutions

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Websites (Outline §1.A)

• Aviation Working Group

– www.AWG.aero

• Unidroit

– www.UNIDROIT.org

• International Civil Aviation Organization

– www2.icao.int

• International Registry

– www.internationalregistry.aero

• Federal Aviation Administration Aircraft Registry

– www.faa.gov/licenses_certificates/aircraft_certification/aircraft_registry

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Useful Legal Text (Outline §1.B)

• Registry User Manual

• Registry Quick Guide to User Application andApproval

• Registry Quick Guide to Asset Registrationand Consent

• Registry Quick Guide to Searching

• See Outline §1.B

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Papers and Commentary(Outline §1.C)

• Cape Town Convention and Aircraft Protocol OfficialCommentary

– Revised Edition (2008) by Professor Sir Roy Goode C.B.E., Q.C.

• Contract Practices under the Cape Town Convention

• Advanced Contract and Opinion Practices under theCape Town Convention

• Practitioners Handbook

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Registry Lingo (Outline § II)

• Registry Users

– Transacting user or a professional user

• Transacting User Entity

– Legal entity or person intended to be a named party in one ormore registrations

• Professional User Entity

– Firm or other group providing professional services to TUEs

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Registry Lingo (Outline § II)

• Professional User (“PU”)

– Individual employee, member or partner of a PUE

– Authorized to make registrations on specifically identifiedequipment on behalf of TUEs

• Administrator

– Individual with authority to act on behalf of a TUE or PUE

– Manages the IR account for the Registry User

– Has power to register interests for the Registry User ordelegate authority to register interests to a Professional User

– Does not have to be an employee of the Registry User

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Contracting States (Outline § III.A)

• As of September 7, 2011, 49 Contracting States

• Notable Contracting States

– China, India, Indonesia, Ireland, Mexico, New Zealand,Norway, Russian Federation (effective 01 September 2011),Saudi Arabia, Singapore, South Africa, The Kingdom of theNetherlands (Netherlands Antilles and Aruba ) , Turkey(effective 01 December 2011), United States of America,United Arab Emirates

• Cayman Islands

– Not a Contracting State

– Adopted internal laws as if it were a Contracting State

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• FAA Entry Point. (Protocol Article XIX)

• Non-Consensual rights or interests havingpriority without registration. (ConventionArticle 39)

• Detention Rights. (Convention Article 39)

• Insolvency Assistance Declaration. (ProtocolArticle XII)

• Choice of Law. (Protocol Article VIII)

• De-registration and Export RequestAuthorization. (Protocol Article XIII)

• Remedies without leave of the Court.(Convention Article 54)

U.S. Declarations (Outline § III.F)

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Entry Points (Outline III.C)

• Contracting State may designate entry points for Treaty purposes

• Authorizing Entry Point

– authorizes the transmission of information to the InternationalRegistry required to make a registration (unique authorization code)

– TUE initiates and consents to registrations

– United Sates, Mexico, Albania and China are AEPs

• Direct Entry Point

– Where information required to make a registration on the IR must besubmitted

– DEP transmits information directly to the International Registry

– The relevant TUE would consent to the registrations

– United Arab Emirates is a DEP

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• DEP and AEP

– Only applicable to airframes and helicopters (not aircraftengines) for which the DEP or AEP is the Sate of Registry; or

– where they have taken regulatory steps to become the Stateof Registry

• Registrations that don’t comply with the relevant AEPand DEP requirements are invalid

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• DEP requirements for the United Arab Emirates

• Ince Al Jallaf & Co (IAJ) is the DEP

• Each TUE must establish an account

• TUE then enters into a Services Agreement with IAJ

• IAJ then transmits registration information to theInternational Registry

• International Registry makes the registration availablefor consent

• Each TUE consents

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United States AEPRequirements (Outline III.E)

• The US Federal Aviation AdministrationAircraft Registry (“FAA Registry”) is the AEP

• Underlying documents recorded with the FAA

– U.S. registered airframes and helicopters

– Airframes and helicopters for which a UnitedStates Registration number has been assigned butnot currently a civil aircraft of the United States

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• Documents must be filed with the FAA within60 days for prospective interest registrations

• AC Form 8050-135

– Filed with documents

– Used to obtain the Unique Authorization Codenecessary to comply with the US Authorizing EntryPoint Requirements

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• Unique Authorization Code entered as part ofregistration information on InternationalRegistry

• Failure to comply with entry pointrequirements invalidatesnon-complying registrations

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What is theCape Town Treaty? (Outline §IV.A)

• International treaty governing

– creation of defined interests in covered aircraft,helicopters and engines

– as well as perfection, priorities and remedies of theinterest

• US LAW STARTING March 1, 2006

• Treaty establishes new International Registry

– Place to register/perfect/establish these interests

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Why should you careabout the Treaty? (Outline §IV.C)

• Treaty preempts or modify laws of ContactingStates

• Treaty establishes priority based on first to file

– Regardless of actual notice

– Change from current US law

• Priorities apply to sales and security/leaseholdinterests

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Why should you careabout the Treaty? (Outline §IV.C)

• Treaty covers the sale of engines

• Register and you are probably protected,don’t register and you probably lose in apriority dispute

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When does the Treaty apply?(Outline §IV.C)

• Test 1 - Sphere of Application

– Where the “debtor” is situated in a contracting stateat the time of the conclusion of the agreementcreating the international interest; or

– Where the airframe or helicopter is registered in acontracting state OR subject to an agreement toregister in a Contracting State

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When does the Treaty apply?(Outline §IV.C)

• Test 2 - Aircraft Objects(Not used in military, customs or police service)

• Type certificated for

– Airframes:

• 8 (persons) including crew or to carry goods in excess of 2,750kilograms

– Helicopters

• 5 (persons) including crew or to carry goods in excess of 450kilograms

– Engines

• At least 1,750 lbs thrust or at least 550 rated takeoff shafthorsepower

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Where is the Debtor Situated?(Outline §IV.C)

• Article 4 Provides a Debtor is Situated in the Contacting State

• Under the law of which it is incorporated or formed

• Where it has its registered office or statutory seat

• Where it has its centre of administration; or

• Where it has its place of business

• A Debtor’s place of business shall, if it has more than one placeof business, mean its principal place of business or, if it has noplace of business, its habitual residence. Convention Article 4.2

• Indicates intent of Article 4 is to “give maximum scope to theapplication of the Convention” OC Section 4.57

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Basic Requirements for creating anInternational Interest or Sale (Outline § V.D)

1. Pursuant to (Article 7 and Article V), the “agreement” or “contract ofsale” must be:

a. in writing;

b. relate to an aircraft object of which the Chargor/ConditionalSeller/lessor/Seller has the “power to dispose”;

c. enable the aircraft object to be identified in conformity with theProtocol; and

d. in the case of a Security Agreement, enables the securedobligations to be determined without a need to state a sum ormaximum.

2. The Treaty provides for sui generis creation of InternationalInterests, Assignments and Sales, which for the most part are notdependent on or derived from local law. (OC Sections 5.31 & 4.69).

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Basic Remedies – Chargee (Outline § IV.I)

• In the event of default and to the extent thatthe chargor has at any time so agreed andsubject to any declaration that may be madeby a Contracting State

– (a) take possession or control of any object chargedto it;

– (b) sell or grant a lease of any such object;

– (c) collect or receive any income or profits arisingfrom the management or use of any such object; or

– (d) apply for a court order authorizing theseremedies

• Any other remedies under applicable law

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• In the event of default under a title reservationagreement or under a leasing agreement theconditional seller or the lessor may:

– (a) subject to any declaration that may be made bya Contracting State under Article 54

• terminate the agreement and

• take possession or control of any object; or

– (b) apply for a court order authorizing or directingeither of these acts

• Any other remedies under applicable law

Basic Remedies – ConditionalSeller or Lessor (Outline § IV.J)

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1. Article 34 provides an Assignee has remedies underthe Treaty

2. Assignment of Associated Rights and the relatedInternational Interest made by way of security

3. Remedies of a Chargee and Lessee/Lessor underArticles 8, 9 and 11 to 14 apply between the assignorand the assignee as to Associated Rights

a. insofar as those provisions are capable of application tointangible property

Remedies – Assignee (Outline § IV.L)

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• Subject to a declaration made by a Contracting State, acreditor upon default may, pending final determination ofits claim and to the extent that the debtor has at any timeso agreed, obtain an order for the

– preservation of the object and its value;

– possession, control or custody of the object;

– immobilization of the object;

– lease or management of the object and the incometherefrom; and

– if at any time the debtor and the creditor specificallyagree, sale and application of proceeds therefrom.

Relief pending final determination(Outline § IV.K)

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• To the extent that the debtor has at anytime agreed:

– procure the de-registration of theaircraft; and

– procure the export and physicaltransfer of the aircraft object from theterritory in which it is situated.

• De-registration and export requestauthorization

Additional Remedies (Outline § IV.M)

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Why Register Non-ConventionInterests? (Outline VII.A)

• Not prohibited by the Treaty or the International Registry

• May provide actual notice

• Actual notice is meaningful in many jurisdictions

– Title 49 USC § 44108(a) - a person is subject to a conveyance,lease, or instrument executed for security purposes of which it hasactual notice

• Everyone now searches the International Registry

• Reflect a complete chain of title

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Underlying DocumentsSupporting Registrations(Outline VII.B)

• Registration of a discharge is no guarantee theinterest has been discharged

– Would lose its convention priority. OC Section 2.8

• Sale registration may not be supported by anunderlying Sale

• Prior registrations may have been prospective

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Issues with Leases (Outline VI.E)

• Article 1(q) “leasing agreement”

– Agreement by which the lessor grants a right to possessionor control of an object (with or without an option to purchase)to the lessee in return for a rental or other payment

– What constitutes rental or other payment?

• OC Section 4.23

– Confirms a lease under the Treaty may not be a lease underlocal law

– Possession may be “wide enough to cover what would insome jurisdictions be regarded as mere detention”

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Issues with Leases (Outline VI.E)

• Wet leases are not covered by the Treaty. OC Section 4.23

• Lessee has power to dispose of an aircraft object

– OC provides the only way a lessor protects against the power todispose is to register the lease

• Example. B buys aircraft object and registers Sale on theInternational Registry, and subsequently leases the object to Lbut does not register the lease

– L has the power to dispose of the aircraft from B

– B’s Sale registration in its favor does not protect B from L selling theaircraft to a third party. OC Section 3.57 and Section 3.58

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Helicopter Engines (Outline VII.F)

• A helicopter engine is an aircraft engine onlywhen not attached to helicopter. OC Section2.21

• Registration of an International Interest orSale while helicopter engine is installed on thehelicopter is not effective. OC Section 3.10

• Registration of a prospective Sale orInternational Interest would be effective oncethe helicopter engine is removed from thehelicopter. See OC 3.310

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Helicopter Engines –Possible Solutions (Outline VII.F)

• Register against the helicopter

• Register a current and a prospective International Interest orSale against the engine at the time of the closing

– In case the OC is wrong

• Include in the documents an agreement that the prospectiveinterest ripens into an International Interest when engine isremoved from the helicopter

– Could create future sales and use tax issues, as well as documentenforceability issues

• Confirm on what helicopters the engine has been installed andsearch those helicopters for prior registrations

• Amend the Treaty

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Amendments that Require New

Registration OC Section 2.32 (Outline §VII.H)

• Amendments that change an leasingagreement into a Security Agreement.

• Amendments that

– Add aircraft object

– Increase fractional interest in aircraft object

– Add new grantee or grantor, or extend securityinterest to an obligation not previously secured

• Amendments that extend or renew lease

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Amendments That Don’t CreateNew Interest (Outline § VII.H)

• Amendment to reflect a name change

• Amendment to reflect a change of modeor time of payment

• Amendment as to repair or insuranceprovisions

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Addressing Assignments orNovations (Outline §VII.I)

• Novations in theory create a new International Interest

• Require the registration of a new International Interestbetween new parties

• Discharge of the original International Interest

• What if you are wrong and it’s actually an assignmentand assumption

– Precautionary registration of an assignment of the oldinterest?

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Addressing Assignments orNovations (Outline §VII.I)

• An Assignment and Assumption does not create anew International Interest

• Register an Assignment from assignor to assignee

– Address right to discharge

• Treaty only deals with Assignments of rights held by aCreditor

• Register new International Interest between assignorand assignee as a precautionary matter

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• Courts of the place where the Registrar has itscenter of administration have exclusive authority toaward damages or make orders against Registrar

• Disputes would be first addressed by local courtshaving jurisdiction over the matter

– Exception-person has ceased to exist or cannot befound for the purpose of obtaining an order

• If the person fails to comply with the order of thelocal courts, the local law order must be enforcedthrough the courts where the Registrar is located

Disputes with the Registrar/IR