United States: Cape Town Convention Changes Rules of Aircraft Purchase and Finance

Last Updated: June 2 2006
Article by Thomas E. Gillespie and Robert S. Hill

On March 1, 2006, the Aircraft Protocol to the Cape Town Convention on International Interests in Mobile Equipment came into force, radically changing aircraft purchase and finance in "Contracting States" (i.e., signatory countries), including the United States. The Aircraft Protocol is intended to stimulate purchase of aircraft in emerging-market countries by reducing the risks, and therefore the costs, associated with financing such transactions. The Aircraft Protocol tries to minimize risks by centralizing information, standardizing procedure, and exporting key features of American and Canadian aviation law. While it remains to be seen whether these changes will have the intended effects, there is no doubt that the changes have created a complicated regulatory regime that is fraught with pitfalls for the uninformed.

A key feature of the Aircraft Protocol is the creation of a new priority system for ownership and security interests that trumps, but does not replace, national priority rules. For transactions occurring on or after March 1, 2006, priority of ownership and security interests is determined by the order in which parties register with the Cape Town International Registry ("CTIR"). The CTIR, located in Dublin, Ireland, is operated by a joint venture between the Irish government and a Swissbased aviation information technology firm, with oversight by the International Civil Aviation Organization of the United Nations. Simply put, for transactions governed by the Aircraft Protocol, full compliance with all applicable national perfection rules may not be enough to protect an interest. International registration is critical. Furthermore, the CTIR "first to file" system might surprise those accustomed to exceptions for "actual notice," as under the traditional U.S. priority rule.

The Aircraft Protocol applies to a transaction where three requirements are met: (i) the aircraft/engine meets certain size/power requirements, (ii) an "International Interest" is created, and (iii) the aircraft is registered in, or the debtor is "situated in," a Contracting State at the time of conclusion of the agreement creating the interest. Unfortunately, these requirements create a host of problems and are very difficult to deal with in practice.

Aircraft meet the minimum size requirements when they are certificated to transport at least eight persons (including crew) or goods in excess of 2,750 kilograms. Helicopters meet the minimum size requirements when they are certificated to transport at least five persons (including crew) or goods in excess of 450 kilograms. Engines meet the minimum power requirements when they are rated to at least 550 horsepower or the equivalent. These minimum requirements have been heavily criticized because they sweep in the majority of aircraft used in business aviation; this appears to be greatly overinclusive, given the aim of the Aircraft Protocol to stimulate purchase of large, commercial aircraft by airlines and commercial operators. Furthermore, because engines and aircraft are treated as separate "aircraft objects," it is possible that the engines will be covered by the Aircraft Protocol, but not the aircraft, or vice versa.

International Interests include security interests, leasehold interests, conditional sales agreements, ownership interests evidenced by bill of sale (but not the ownership interests standing alone), and some nonconsensual liens, as well as amendments, assignments, and subordinations related to International Interests. The breadth of International Interests under the Aircraft Protocol is enormous, which means that the importance of CTIR registration extends far beyond traditional secured creditors. In practice, determining whether an interest is an International Interest can be challenging, especially since Contracting States may have different standards for what constitutes an International Interest. For example, Contracting States can elect to treat interests registered in a national registry as "National Interests" excluded from the Aircraft Protocol, even though those interests would otherwise be International Interests. The U.S. has not taken this approach, but other Contracting States can. Therefore, evaluation of International Interests requires a country-by-country analysis for all Contracting States relevant to the transaction.

The final requirement for coverage under the Aircraft Protocol is for the aircraft to be registered in a Contracting State or the debtor to be "situated in" a Contracting State at the conclusion of the agreement, creating the International Interest in the aircraft object. The term "debtor" is defined broadly in this context, including, for example, a seller in a traditional sale, a borrower under a security agreement, and a lessee under a lease. A debtor is "situated in" a Contracting State if it is formed or incorporated, or has its principal place of business, in a Contracting State.

Another aspect of the Aircraft Protocol that might surprise parties to aircraft transactions is the ability to register prospective International Interests. This allows parties to perfect their rights before a transaction closes, in sharp contrast with traditional Federal Aviation Administration ("FAA") procedures. The perfection is effective as of the time the interest is registered with the CTIR, provided that the transaction closes. A potential problem arises when the interest remains in the CTIR database but the transaction never closes. This problem is exacerbated by the fact that the CTIR does not take filings of complete documents, instead accepting what are essentially references to the relevant documents. It is not possible to tell whether or not the interest is valid, so a party in need of this information will have to take the additional step of verifying the validity of the interest by contacting the third party directly.

In the U.S., the entry point to the CTIR is through the FAA. It is important to note that filing with the CTIR does not replace FAA registration requirements—airframes still must be registered, and encumbrances on airframes and engines filed, with the FAA as usual. To access the CTIR, a party must fill out an AC Form 8050-135 and submit it to the FAA. In return, the party will receive a unique 17-character authorization code that allows the party to access and transmit information to the CTIR. Unfortunately, even a small mistake in the timing of the paperwork can result in the interest owner forever losing the ability to access the CTIR.

An AC Form 8050-135 absolutely must be presented at the same time as any documents filed under Subpart C of Part 49 of the Federal Aviation Regulations (i.e., Aircraft Ownership and Encumbrances Against Aircraft). The FAA has taken the rather draconian position that if an AC Form 8050-135 is submitted a few days, or even a few minutes, after submission of the documents, the FAA will never issue the submitting party a unique authorization code for that transaction. This means that the party can never register its interest in the CTIR and will effectively lose priority to any subsequent party that registers an interest in the CTIR. There will surely be many future attempts to circumvent this harsh result, but for now the only sure way to safeguard an interest through CTIR registration is to get it right the first time.

Once an interest owner has the unique authorization code, that owner gains access to the CTIR as a transaction user entity ("TUE"). The TUE can then, at its option, designate a professional user entity ("PUE"), such as a law firm or other professional firm, that can also access the CTIR. Each user entity must register an administrator, who is the individual authorized to deal with the International Registry on behalf of the entity. Note that TUEs and PUEs must keep the CTIR updated if this individual should change—it is the individual, not the entity, that interfaces with the CTIR.

This Commentary is only a general introduction to the Aircraft Protocol to the Cape Town Convention on International Interests in Mobile Equipment; as such, it has had to omit many nuances of the system for the sake of clarity and brevity. Furthermore, while the CTIR registration system is one of the most sweeping changes brought about by the Aircraft Protocol, the Aircraft Protocol has wide implications beyond the scope of this Commentary. The Aircraft Protocol departs from Geneva Convention deregistration procedures, creates new remedies for creditors, preempts the Transportation Code, and has generated a host of novel legal questions about its application. Ultimately, parties to aircraft transactions must understand that the Aircraft Protocol has dramatically changed aircraft purchase and finance, and the time to ask questions is now, before their rights are inadvertently compromised.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Insolvency/Bankruptcy, Re-structuring
Intellectual Property
International Law
Law Department Performance
Law Practice Management
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Real Estate and Construction
Wealth Management
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.