new york mortgages and how they are used for both...

NEW YORK MORTGAGES AND HOW THEY ARE USED FOR

BOTH U.S. REGISTERED AND NON-U.S. REGISTERED HELICOPTERS

SUSANNE BURSTEIN

OCTOBER 23, 2015

Watson Farley & Williams 2015

Highly Technical Helicopter Rendering

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Watson Farley & Williams 2015Slide 3

HELICOPTERINVESTOR

I. Overview

A. Comparison of English and New York law governed mortgages

B. The United Kingdom’s ratification of the Cape Town Convention and its impact on the use of English mortgages

C. NY law mortgages and perfection of U.S. security interests

D. Helicopters under the Cape Town Convention


II. Why English and New York Law Mortgages Are Useful

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A. Mortgagee friendly

B. Right of self-help

C. Well-developed jurisprudence


III. The Blue Sky Case

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A. English law case which limited the usefulness of English law mortgages.

B. Blue Sky held that the location of the aircraft at the time the mortgage isgranted determines whether the mortgage is valid (the lex situs rule).

C. Practical result: for an English law mortgage to be valid, an aircraft notregistered in England would have to be located in England or in a qualifyingjurisdiction at the time the mortgage is executed.

D. The lex situs rule does not apply to New York law mortgages. The location ofthe aircraft is irrelevant to establishing enforceability of a New York lawmortgage.


IV. The Effect of the United Kingdom’s Ratification of the Cape Town Convention on the Blue Sky Holding

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A. The United Kingdom is expected to ratify the Cape Town Convention in the next few weeks.

B. The UK has opted for a mechanism under Cape Town which conflicts with Blue Sky in that it allows an international interest to arise independently of domestic laws.

C. Still have to meet the Cape Town requirements to register an international interest.

D. If Cape Town does not apply to a transaction, the validity of the security interest will still be determined according to English law (lex situs and Blue Sky).


V. New York Law Governed Aircraft Finance Deal Structure

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A. New York law permits parties to a sizable commercial transaction to elect New York law to govern so non-US parties with non-US registered aircraft can choose New York law.

B. Structure of US Helicopter Deals

1. To register an aircraft in the US, the FAA requires that:

a) The aircraft not be registered in another country; and

b) The owner of the aircraft be a “US citizen.”

(1) Foreign beneficial owners who want to register the aircraft in the US use “owner trusts” to own the aircraft.

(2) US owners and foreign owners not registering the aircraft in the US often also use the owner trust structure.


V. Structure of US Helicopter Deal


A. Overview

1. Protects a mortgagee’s interest from competing creditors.

2. Device which places the world on notice that a security interest exists.

3. Regulated by the Uniform Commercial Code.

B. Methods of Perfection

1. Method for perfection depends on the type of collateral

a) filing a UCC-1 financing statement;

b) possession (ex: chattel paper, documents, instruments); and

c) control (ex: accounts).

VI. Perfection


C. Perfection by Filing1. Location

a) UCC-1s are generally filed with the secretary of state in the state where the debtor is “located” for UCC purposes.

b) For foreign debtors located in a country without a filing system, file in Washington D.C.

D. Priority

1. Priority among competing creditors in the same collateral goes to the creditor who was the first in time to perfect.


E. Preemption

1. Federal law primes state law.

2. The US Transportation Code is a federal law.

3. Pursuant to the US Transportation Code, most New York mortgages over US registered aircraft get filed with the FAA in Oklahoma City.

4. These mortgages are also filed with the international registry under the Cape Town Convention.

5. State law still governs priority.

6. To ensure all collateral is covered, recommend filing UCCs even when filing with the FAA.


A. Mortgage

1. Mortgage Terms

a) Place of Delivery of the Mortgage

b) Guarantee Language

(1) Borrower is often not the owner of the aircraft.

(2) Under NY law a mortgage by a person who is not the borrower is treated as a guarantee.

(3) NY law implies the guarantee but does not imply the waivers of defenses which need to be expressly stated in the mortgage.

VII. Security Documents


B. Beneficial Interest Security Agreement (“BISA”)

1. In the owner trust structure, the trust beneficiary pledges its interest in the trust.


C. Lease Assignments

1. Lease assignment may be included in the mortgage or made separately.

2. “Conveyance” within the meaning of the US Transportation Code and perfection by filing at the FAA Registry or not a “conveyance” and perfection by filing under the UCC?

3. To ensure perfection, generally recommend each of the following for a lease assignment:

a) filing with the FAA Registry and Cape Town;

b) filing a UCC financing statement in the appropriate location;

c) mortgagee taking possession of the original counterpart of the lease as chattel paper.


A. US Entry Into The Cape Town Convention

1. Cape Town became effective in the US in 2006.

2. What effect did Cape Town have in the US?

a) created the legal concept of an “international interest”;

b) changed the rules for perfecting priorities and legal rights in aircraft equipment;

c) added additional requirements to perfection of such rights and interests by establishing the Cape Town International Registry;

d) maintained the FAA as the central repository where all legal interests in aircraft equipment would be filed; and

e) appointed FAA as the US Entry Point to the International Registry so to complete registration on the International Registry, the parties must first file with the FAA.

VIII. Where Does Cape Town Fit In?


B. Overview of the Provisions of the Cape Town Convention

1. Application

a) Applies to “aircraft objects,” which includes airframes, helicopters and aircraft engines that meet certain size requirements.

b) The mortgagor must be “situated” in a Contracting State.

c) The location of the mortgagee and the places where the aircraft will be operated are irrelevant to whether the Cape Town Convention applies.

2. Priority

a) Under Cape Town the first to register with the IR takes free of subsequent registration and from an unregistered legal interest.

b) Filing with a local registry like the FAA alone is not enough.


3. Helicopter Engines

a) Cape Town makes a distinction between aircraft engines for fixed wing aircraft (which are separately treated as “aircraft objects”) and helicopter engines.

(1) when helicopter engines are installed on a helicopter they become components of the helicopter and do not fall within the definition of “aircraft object”;

(2) helicopters with their engines are the “aircraft objects”;

(3) helicopter engines may be classified as “aircraft objects” before installation and after removal;

b) Whether a helicopter engine is itself covered by the Cape Town Convention seems to depend on whether it is installed on a helicopter.


c) How to Protect Against Confusion

(1) be diligent regarding status of installation of helicopter engines;

(2) be mindful when doing engine swaps within a helicopter fleet;

(3) representations and warranties in the documents;

(4) intercreditor agreements;

(5) consider registering a current and prospective interest against the helicopter engine.


THANK YOU FOR LISTENING.

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