Expect Delays, Confusion from Cape Town Treaty for Aircraft Registration, Says Lawyer Hilary B. Miller

Share Article

The Cape Town Treaty, which applies to most twin-engine and jet aircraft, took effect March 1. Aircraft closings have experienced delays and confusion as a result of glitches with the new International Registry. Sellers and buyers should consult an aviation attorney to avoid closing problems.

A new international treaty that took effect on March 1, 2006 has caused confusion, delay and consternation for buyers and sellers of aircraft, according to Hilary B. Miller, an attorney in Greenwich, Connecticut. The treaty creates a centralized, international electronic registry for recording interests in aircraft. In its first three weeks of operation, it has been far from trouble-free, Miller said.

The Cape Town Treaty (officially known as the “Cape Town Convention on International Interests in Mobile Equipment”) is designed to create greater certainty for aircraft lenders who seek to enforce their liens internationally; the reduction of risk to such lenders is intended to lower the costs of financing aircraft. Miller noted that the Treaty applies to aircraft certificated for at least eight persons or that can carry freight in excess of 6,062 pounds, which includes most twin-engine piston and all jet aircraft.

While the substantive-law provisions of the Treaty largely mirror existing U.S. law for the enforcement of aircraft liens and leases (generally through repossession), the principal benefit of the Treaty is expected to be a significant reduction in the risk that lenders incur when financing aircraft in countries whose internal laws, unlike those of the U.S., do not meaningfully protect creditors in the event of a default or insolvency.

According to Miller, the crux of the issue is the new “International Registry,” which is Internet-based. The FAA’s Civil Aviation Registry system is preserved and fully integrated with the new International Registry. However, under the Treaty, in order for an international interest in aircraft to be perfected, electronic notice of the interest must be filed with the International Registry in addition to the conventional bill of sale, security agreement or lease filed with the FAA. Thus, for example, an aircraft lender must file both a complete security agreement with the FAA and a make an electronic notice filing with the Internal Registry to perfect its interest.

As a general matter, not only title companies and lawyers must register with the International Registry; individual sellers and buyers will generally be required to register at a cost of $200 each. There have been delays of days and weeks in completing transactions, many caused by a misunderstanding of how the security features of the system work, and others caused by start-up woes in assigning user identities at the Registry itself. In general, individual sellers of aircraft (and prospective borrowers) will need to use a single computer with an International Registry-assigned security certificate for all transactions related to their aircraft.

In order to avoid delays in closings, Miller urges that aircraft buyers and sellers consult with an attorney experienced in aviation matters. Advance planning should be done for all transactions where the timing of a closing is critical.

Hilary B. Miller is an attorney in Greenwich, Connecticut, whose practice includes aviation law and related litigation. He is a member of the National Transportation Safety Board Bar Association, the Lawyer-Pilots Bar Association and the AOPA Legal Services Panel. He is an Airline Transport Pilot); he serves as Vice President and a director of the Westchester Aviation Association (the HPN general aviation users’ group). He may be contacted at hilary@miller.net.

###

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Hilary B. Miller, Esq.