United States: Perfecting A Security Interest In A Lease Of A Registered Aircraft

An aircraft lease is a contract that provides for the conveyance of the use and possession of aircraft for a term in exchange for the payment of rent by the lessee. In order to create and perfect a security interest in a lease of a US-registered aircraft, or any related collateral, or to protect the economic ownership of the lessor as a true lessor, parties must take certain actions under state, federal and international law.

Lease types

A lease can take the form of an operating or 'true' lease or a 'finance' lease. An operating or true lease is a contract for the use and possession of an aircraft for a specified duration; such duration is less than the useful life of the aircraft. The lessee has no expectation that it will acquire ownership of the aircraft simply by making the scheduled lease payments. The lease payments are structured so that the arrangement is not a disguised financing for the benefit of the lessee. By contrast, a 'finance' lease (excluding as defined by Article 2A-103(1)(g) of the Uniform Commercial Code (UCC)) is generally known as a long-term lease in which the lease rentals return all or most of the lessor's outlay to acquire the leased aircraft. The duration of the lease is often for a significant portion of the aircraft's useful life. Furthermore, a finance lease can provide for the transfer of title to the aircraft to the lessee after the lessee makes all scheduled payments. The Federal Aviation Administration (FAA) may, under certain circumstances, treat the lessee of a finance lease as the owner of the aircraft and the lessor as a secured party. The characterisation of a lease as either a 'true' lease or a 'finance' lease affects the manner in which a lessor's interest in the aircraft – subject to such lease – is perfected.

Aircraft leases often require that the lessee provide additional collateral to the lessor in order to secure the lessee's lease obligations. Collateral is often in the form of a cash security deposit or letter of credit. Under the lease, the lessee is required to ensure that the aircraft is maintained in a certain condition and that maintenance is performed when required. Lessees may also be required to provide additional security for such maintenance in the form of cash payments reserved to cover such maintenance events. The UCC – a uniform body of commercial law adopted with some state-by-state variations – and other applicable state laws govern the attachment and perfection of any such additional collateral and are not pre-empted by federal or international law.

Security interests

Under state law, the UCC governs – subject to certain exceptions – the creation and perfection of security interests. The UCC, however, is subject to federal pre-emption, and where federal and state law conflict, federal law prevails. In addition, because the bundle of rights inherent in a lease includes aircraft and non-aircraft property, the federal aircraft registration system only partially pre-empts the state-law system to register security interests in the non-aircraft property that is often used as collateral in an aircraft lease.

Title 49 of the United States Code (Transportation Code) provides for the FAA to establish a system for recording title to, and conveyances (including leases) of, US registered aircraft. The Transportation Code pre-empts many aspects of state law in regard to the perfection of interests in aircraft. The Transportation Code mandates that the FAA assume responsibility for, among other things, establishing a registry and protocol for the registration of aircraft and related security interests, including in aircraft leases. The United States is also party to the Cape Town Convention on International Interests in Mobile Equipment and the protocol thereto – an international treaty that governs, among other things, the perfection of 'international interests' in leases of US registered aircraft. The Cape Town Convention applies to, among other things, leases of US-registered fixed-wing aircraft certified to transport at least eight persons or more than 6,050 pounds that were entered into (or materially amended or novated) after March 1 2006. The Cape Town Convention provided for the creation of the international registry for purpose of publicly recording international interests in aircraft, including the interests of a lessor under an eligible lease.

The failure to record properly a security interest in a lease or any related additional collateral could result in a loss of lien priority and, if a lease were to be characterised as a finance lease, the aircraft itself. Therefore, it is imperative that an interest in a lease of a US-registered aircraft be properly perfected under the FAA, the Cape Town Convention and the UCC.

Below is a summary as to how to perfect one's interest in a lease and related collateral with the FAA, the international registry and the UCC.

Federal law – perfection by filing with FAA

All types of aircraft lease for US-registered aircraft may be filed and recorded with the FAA. The secured party initiates the recordation process by submitting to the FAA a conveyance recordation notice. In order to be in due form for filing the lease and a security assignment, both parties must sign the lease in blue ink. On acceptance of the filing, the FAA will return the original instruments to the lessor stamped with the filing information.

International law – Perfection by filing with international registry

Under the Cape Town Convention, an international interest in a lease may be created if the lease:

  • is in writing;
  • relates to an aircraft object which the debtor or lessor has the power to dispose;
  • enables the aircraft object to be identified; and
  • in case of a security agreement, enables the secured obligations to be determined

In order to record an interest in a lease with the international registry, the lessor, the lessee and any applicable security assignee must be registered as a 'transaction user entity' with the international registry. A party may become a transaction user entity by completing the registration requirements with the international registry. Once all relevant parties are established as transaction user entities, the lessor must first submit an FAA Entry Point Filing Form AC 135 to the FAA in order to obtain an approval number to international interests over the subject aircraft with the international registry. On submission, the FAA will provide an authorisation code for the recordation with the international registry. Once received, a debtor may log on to the international registry and record an international interest in the lease together with any applicable security assignment thereof. Registration of an interest in a lease may be done on a prospective basis, up to 60 days before the filing of the lease with the FAA.

State law – perfection by complying with UCC

Under the UCC, there are two alternate ways in which to perfect a security interest in a lease:

  • file a UCC-1 financing statement;
  • or take actual possession of the lease by creating and taking physical possession of an original chattel-paper counterpart to the lease.

A UCC-1 financing statement should always be filed against the lessee as 'debtor' and specify the aircraft as collateral in order to protect a lessor's interest in its aircraft in the event that the lease is construed to be a finance lease. A UCC-1 filing is valid for five years from the date of filing and may be renewed if a request is made before the expiration of such period. Chattel paper is a specially marked original copy of the lease that contains the right to rental and other payments thereunder. It creates a superpriority security interest over such items in favour of the party in possession of such original. Even though one can take a security interest over a lease under the UCC simply by filing a UCC-1 financing statement, a prudent aircraft financer would also take possession of the chattel-paper original because a good-faith possessor of such chattel paper original takes priority over all other creditors, so long as it, in good faith, had no knowledge of existing senior liens. A lessor (and in turn a security-interest holder) can perfect a security interest in any cash collateral provided by a lessee under a lease by filing a UCC-1 financing statement. However, a secured party with possession or control of any such collateral would have priority over any other secured party. Therefore, a lessor should take possession or control over such collateral by depositing any cash in an account in the name of the lessor and any letter of credit issued in the name of, and held by, the lessor.


Because state law is pre-empted by federal and international law, it would be fatal to a financer's priority in an aircraft lease if the financer perfected solely under the UCC without complying with the requirements of the Transportation Code and the Cape Town Convention. Furthermore, perfecting under the UCC is essential in order to perfect interests in leases and related collateral not covered by the Transportation Code or the Cape Town Convention.

Originally published in International Law Office – April 2014

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.

Similar Articles
Relevancy Powered by MondaqAI
Smith Gambrell & Russell LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Smith Gambrell & Russell LLP
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions